0

0

0

0

0

0

0

0

0

videos | IST

Best of Young Turks: Anand Rajaraman, the man who foretold consolidation of India's e-commerce sector

Mini

Anand Rajaraman foretold the consolidation that would take place in India's e-commerce space. From the Walmart-Flipkart-Myntra combine taking on Amazon to Tata Digital’s multiple acquisitions for its super app and RelianceJio’s ambitious plans, we can confirm that Rajaraman is ‘The Man Who Saw Tomorrow’

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 recounts 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 Anand Rajaraman, a serial entrepreneur, investor and a Chennai Super Kings fan, who is at present working hard to watch a series of swashbuckling sixes at an IPL-like Major Cricket League match in America.
Not many know that he was one of the earliest investors in Facebook! After seeding several startups that were acquired by Google, he now runs two venture capital firms - Rocketship.vc and Milliways Ventures, which have made investments in over 50 startups spread across 8 countries. Apna, FamPay, Moglix, NoBroker, Yulu and Khatabook are among the many other Indian startups in his portfolio. Last year, Rocketship.vc closed its second global venture capital fund with $100 million.
A quintessential Silicon Valley startup guy, Rajaraman sold his price discovery platform Junglee to Amazon for nearly $200 million in 1998 - a great feat at the time. Then, he shuffled off his social media technology startup Kosmix to Walmart in 2011. Thus, he turned into a full-time investor and a part-time professor of computer science at his alma mater - Stanford University.
In this 2016 Young Turks interview, as an investor in Snapdeal, Anand Rajaraman foretold the consolidation that would take place in India's e-commerce space. From the Walmart-Flipkart-Myntra combine taking on Amazon to Tata Digital’s multiple acquisitions for its super app and RelianceJio’s ambitious plans, we can confirm that Rajaraman is ‘The Man Who Saw Tomorrow’.
Catch this Young Turks Archive as Anand Rajaraman talks about ‘the three things he really loves’ - data, entrepreneurship and venture capital.
Shereen Bhan:
Anand, thanks very much for joining us on Young Turks. It's a pleasure to have you on the show.
Anand Rajaraman: My pleasure. Thanks for having me.
Shereen Bhan: Well, let me start by asking you about what you make of the India Startup Story today. You've been in India quite frequently over the last couple of months. Everyone's talking about the property valuations but do you believe that we are going to see a significant shakeout at this point in time?
Anand Rajaraman: Well, I think we are in the beginning of that shakeout that's going on. The last couple of years have been this. The speed of easy money, where lots of money has flowed indiscriminately into a lot of companies, has pumped up valuations as you suggest. Some of them may have gotten out of hand. I believe, this year the easy money has dried up and a lot of startups are focusing on getting back to basics. We talked about unit economics, profitability, repeat usage, customers and stuff like this. So, we're sort of getting away from companies just buying customers, focusing on the top line and moving to the fundamentals of building a sound business. So, there is definitely going to be a shakeout. Not all the companies that were funded, that were hyped during the cycle are going to survive this downturn. We saw a similar thing in the US.
Shereen Bhan: Here, in the Valley.
Anand Rajaraman: In the Valley, that's right. Not many entrepreneurs in the Valley, in India, definitely not even in the Valley lived through that cycle from the last internet boom in Silicon Valley from 1998 to 1999-2000 and the shakeout that followed. In many ways, there is a resemblance to what happened here, then, and what's going on in India now. A lot of companies were funded. The one difference was that here there were a lot of IPOs, as well, which didn’t happen in India. But, other than that, there's a lot of resemblance to what's going on in India.
Not too many people remember, in 2000, Amazon almost died. So, they went through some tricky situations as well, but they came out a much stronger company, at the end of it. In fact, the downturn, just to use Amazon as an example, forced them to innovate and change their business model. They went from a company that primarily sold their own product or first-party sales company to a marketplace-driven company. That was what enabled them to better the downturn, improve their margins, and come out of it a stronger company, right? So, the tough times force you to innovate.
Shereen Bhan: Or reinvent.
Anand Rajaraman: Or reinvent. Some of the companies that go through this cycle will reinvent themselves and come out better. In some cases, some companies will not make it. But, the people in those companies have now been trained as entrepreneurs, as executives, as developers. And, they will go and reinvent the next generation, right? So, this is the creative destruction that happens in the Valley through every cycle and it's needed, right? I mean, it's like a wildfire going through a forest, right? You think there's a lot of destruction. By the end of it, that's what brings out the next generation of trees.
Shereen Bhan: As you see the ecosystem in India today, what should be the driving force or the philosophy that entrepreneurs should focus on as they go about this process of reinventing, of pivoting themselves out of trouble?
Anand Rajaraman: Imagine that I'm starting this company today without the legacy of everything that I've had for the last two or three years, how would I think about this business, right? And, that's the kind of thought process that I think is needed. And, sometimes, for example, that I tell you, “Well, if I'm starting this company today, I'm going to be more capital-efficient, I won't care about the top line, I'll care about being profitable and growing slower. But, I care about making my customers as happy as possible, so that they become repeat customers as opposed to trying to get more customers, right? These might be the kinds of things that may not have been obvious earlier but become obvious in reality. The companies that are most likely to survive are the companies with the strongest kind of founders, where the founders still retain most of the control of the company and will innovate out of trouble. The companies that are least likely in my opinion to survive, where the founders retain the least equity in the company, and over time, have ceded a lot of the management to either investors or other people who they’re being led to appoint by the investors. Those are the companies that are least likely to succeed.
Shereen Bhan: Do you believe that in India, we're going to see this period of “startup zombies”, as you'd like to call them, where the VCs are unable to really pull the plug in that sense?
Anand Rajaraman: No! Actually, the VCs have a vested interest in not pulling the plug in fact, right? If you look at the way VC Economics work, they carry the company at the last valuation that they funded it at, and they don't really want to mark down the company because that will reflect badly on them. And, because this is a public market where these stocks are traded, nobody's marking the stocks to market. That's why you get these zombies, right? Nobody wants to mark them down. They are always held at whatever valuation the VC last invested. The VC now can now use that to go and raise their next fund.
Shereen Bhan: Now, given the kind of money the Indian startup ecosystem has seen and a lot of it is venture-backed at this point in time, do you believe that we're going to be seeing a sort of graveyard of Startup Zombies?
Anand Rajaraman: Well, it's not really a graveyard with Zombies wandering around the city? I’d say we’ll be seeing a lot of Zombies in India for a while to come. They’ll wander around and they will kind of die in their own time or some will get consolidated or bought. One of the things that happens with Zombies is that the best talent also leaves because nobody wants to stay at a Zombie. So, these will be some sort of Zombies eviscerated from the inside as people leave and leak out and the best talent leaves and then goes to start the next set of companies and then slowly, the zombies will realise they’re dead and will fall down. But it’ll take some time.
Shereen Bhan: Slow and painful process. Since, we're talking about consolidation and I want to specifically ask you about what you foresee as far as consolidation within the Indian e-commerce space is concerned, given the fact that you've sort of been on the confluence of both traditional as well as online retail with Amazon and Walmart, how do you see that playing out in India?
Anand Rajaraman: If you look at what has happened in the US, Amazon is the sole leader in e-commerce in the U.S. today. In India, we have several startups.
Shereen Bhan: One of which you have invested in.
Anand Rajaraman: One of which I’m an investor in. And I hope they do well - Snapdeal. I think there's going to be some consolidation. I don't think the market exists for three or four e-commerce companies all competing roughly in the same state without any differentiation, right? So, either they will have to differentiate themselves and focus on something different in some way. They have to focus on different customer segments, different price points or something. Or, there has to be some consolidation. I don't know exactly what form this consolidation is going to take.
Shereen Bhan: Is Amazon going to go after some of the big Indian e-commerce companies? Do you believe that that is the most likely scenario?
Anand Rajaraman: I don't know, to be honest. Amazon could go after some of the big e-commerce companies. Do they have to? I don't know. They seem to be growing on their own. So, I honestly don't know how this is going to play out. Is it Amazon that’s going to go after one of the big e-commerce companies? Or, are the Indian e-commerce companies going to merge to take on Amazon? I’d say there could be a couple of players, two players perhaps, left at the end of all this.
Shereen Bhan: Just two?
Anand Rajaraman: So, in the general merchandise e-commerce space, right? But, I think there are going to be verticals where there are going to be players in many different vertical spaces. Just as they are here catering to different kinds of consumer segments. But, in the big general e-commerce, ‘you can find pretty much any product and buy it’’ kind of space, I think there's probably room for two. Right? I don't know which those two are going to be.
Shereen Bhan: What excites you in India, specifically? What are the niches that excite you today?
Anand Rajaraman: The mobile, smartphones and data plans taking off. The fact that India's supply-constrained. Therefore, entrepreneurs who can cleverly connect supply and demand can build very, very interesting companies.
Shereen Bhan: So are you going to be, to a large degree, investing in your personal capacity? Is it going to be through Rocketship? Is it going to be through Milliways? What can we expect and what would be the average transaction size?
Anand Rajaraman: It’s all of the above. The average transaction size really depends on the company to be honest, right? So, in all these kinds of distributions, the average doesn't really make sense. So, if it’s a startup, maybe they need just a small amount of capital to get started. Maybe they need $100,000 or $200,000 to get started. If they are in a growth phase and they're raising large amounts of funding, they need a lot more capital. We are not set up to be the Series A or the Series B investors. We are more set up to be, it's always been my role anyway, to be a seed investor. I invest between $100,000 and $1,000,000 in these companies and help them get to the next level.
Shereen Bhan: So, what's going to be the difference between the way that Milliways invests and in the way that Rocketship is going to invest?
Shereen Bhan: Let me also talk to you about some of your other investments outside of India. Of course, I don't know how many people know about this, at least back in India, but you're one of the early investors in Facebook. So, a lot to do with timing and being at the right place at the right time in that sense. As you look at what's happening in the Valley today, in companies like Facebook, what excites you about them?
Anand Rajaraman: The Valley has been written off so many times and it has come back.
Shereen Bhan: But did you imagine Facebook would be where it is today?
Anand Rajaraman: Absolutely not. I had no idea that Facebook would. That's I think what truly excites me about the Valley. That there's something exciting going on that I don’t know about and probably will find out later, right? So, that's truly exciting. One of the truly exciting things about the Valley, that there's so much talent here and so much bubbling that you're constantly surprised that there's something new and innovative going on.
Shereen Bhan: What would your advice be to them as they look at where they should actually raise the money?
Anand Rajaraman: My advice for entrepreneurs is don't over-capitalise the company. Be very cautious. Raise exactly the amount of capital that you need for the next year and a half and no more than that. Maybe 18 months or 24 months at the max. Always raise capital when you're down to less than about a year to nine months. You have to raise again. You always need enough money in the bank but not too much.
Shereen Bhan: You founded Junglee and then sold it to Amazon. Founded Kosmix and then sold it to Walmart. It's obviously specific to individual companies. But, is there a strategy for selling out? I mean, what would your advice be? And what would your insights be?
Anand Rajaraman: So, when I start a company, I have no interest in selling out. And there's always been my advice to entrepreneurs. The reason I invest in entrepreneurs is that they're really passionate about an idea and they believe it is going to be a big thing. And they want to build a bigger independent and sustainable company and change the world, right? So, this is what we're all in this for, right? And now, along the way, you might get offers, and you have to consider them. But, if you think right at the beginning, that my reason for existing is that I'm going to be bought out, then you're not going to hire the right sort of people, you’re not going to make the right decision for the company, and you're not gonna be very attractive to an acquirer, right? This is my only concern with these built-for-acquisition companies. That you might end up in this no man's land where you’re neither good to be an independent company and no acquirer is interested in you.
Shereen Bhan: What tilted the scales in favour of selling out when it was Junglee and Kosmix, as well. What were the guiding principles?
Anand Rajaraman: The biggest guiding principle for me is that when I start a company, I have a vision. I want to bring a certain product or service to the market, and have people use it. And the thing that has guided me has been - as a result of this acquisition - can I accelerate that process, right?
Back in ‘98, Junglee was just growing in popularity and we were seeing lots and lots of people use this. We could see that a lot of those people ended up buying at Amazon. And it was very obvious to us.
Shereen Bhan: There was a fit there.
Anand Rajaraman: That there was a fit. And if you take this kind of technology and you take this kind of idea into Amazon, we could put it in front of so many more people and you could get this technology adopted very quickly.
Shereen Bhan: So, it was the right thing to do for Junglee.
Anand Rajaraman: Right thing to do for Junglee. The vision. And, Jeff Bezos, the founder of Amazon, is a huge visionary. He told us right at the time of the acquisition that when Amazon acquired Junglee, they were just a bookseller, they were not selling anything other than books, they had not even launched music or DVD although there were plans to do that. But, just told us, “Look, I want to make Amazon the place where people come to find anything they want to buy. And this aligned with our vision. We want to be the place where people find the things they want to buy and Jeff Bezos wants the same thing. Jeff Bezos had a lot more resources than us - both capital and users. Our visions aligned. We have the technology, he has the vision. So it made perfect sense.
Shereen Bhan: And it was similar for Kosmix, as well?
Anand Rajaraman: It was similar for Kosmix. In Kosmix we had the semantic analysis technology and we were building this thing called ‘the Social Genome’ where we were figuring out the connections between people and places and products, and so on, based on what they said on social media. And it was really apparent to us that the best application of this was around commerce. So, it seemed that the right place to do it was an e-commerce company. In this case, it's so happened to be Walmart, which also has significant resources that we could take it to the next level. With Walmart, we were also fortunate to be able to create a whole new division brand within Walmart called Walmart Labs, right? Now, I believe they have like 3,000 people or something. So, it was a fortunate opportunity. We had the technology and the talent and the team and Walmart had the name.
Shereen Bhan: Before I end, let me ask you. To all the young entrepreneurs who are watching this show, and you've been a serial entrepreneur, you're now an investor, what is it that you would say are the non-negotiables? I mean, irrespective of who the investor is or what anybody tells you, just don't mess with those issues. What would those non-negotiables be?
Anand Rajaraman: Ethics and the way we treat people are kind of non-negotiable, right? Clearly, I'm not going to do anything that I ethically disagree with. That's not negotiable. I’m not going to cut corners around that. I don't cut corners around the way I treat the team and employees and so on. I think those are the kind of, the really, non-negotiables, right, at some level. The bedrock upon which you have to trust people. A lot of the startup business in Silicon Valley runs on trust.
Shereen Bhan: The bets that you made in a down cycle, the best bets or some of the best bets that you made?
Anand Rajaraman: I absolutely made my best bets in a down cycle. For example, back in 2000, we were working with several ideas at my old firm Cambrian Ventures. We were working with a team of two people back then and one of the ideas we were exploring is having humans and computers work together to solve problems. But that team, those two founders, also at the same time, happen to be working on a slightly different idea around how to help advertisers get the best bang for their buck from Google ads. So, we invested in that company in 2000-2001, which was clearly the bottom of the market, because we really believed that was important. And that company ended up being, growing and doing really well. Efficient Frontier was the name of the company. They were acquired by Adobe for over $400 million in seven years. So that was a bet that we made. There was another company that we invested in that was kind of in the downturn, was this company called Aster Data. They were one of the only Big Data companies and they existed before the term Big Data was invented. They were trying to combine SQL and MapReduce and do all this and bring this to the enterprise. These were a couple of students out of Stanford. We seed-funded that company. That company also ended up doing really well and was acquired by TeraData for over $400 million. So, basically, you bet on great entrepreneurs developing really interesting things in the downturn, and when the upturn comes in you sow in the downturn, and reap in the upmarket.
Shereen Bhan: And that's what you hope to do this time around, as well?
Anand Rajaraman: That is what everybody hopes to do. And that's what I hope to do.
Shereen Bhan: So, given all of this algorithm business that you're now using to actually invest in companies, where does that leave, gut and intuition?
Anand Rajaraman: Gut and intuition, I think, are still very, very important, right? What the algorithm sort of gives us visibility into a larger set of companies than you would ever have, we would ever have been able to see just with gut and intuition, right? But once we sort of narrow down with the algorithm and get to a set of companies, then we do have to bring gut and intuition into play in deciding which ones we're going to back among that set. So, there's still room for gut and intuition. Maybe less than there was before but there is still room for that.
Shereen Bhan: So, what next for you. I mean, of course, there's Milliways and there’s Rocketship, there's teaching at Stanford. What next for you?
Anand Rajaraman: One of the interesting things about Silicon Valley is you never know what the future holds. All I want to be doing is...
Shereen Bhan: Back to entrepreneurship, maybe?
Anand Rajaraman: All I want to be doing is do something interesting and reinvent the world - small ambitions. I don't know, to be honest. I think, I feel, that in a certain way what we’re doing with Rocketship is actually being an entrepreneur again. Rocketship is a small fund. We are reinventing the way venture capitalism is done. So, I'm an entrepreneur. I'm an entrepreneurial VC is the way I think about it. That I’m starting. This is a startup. Rocketship is a small fund, it’s a startup. We’re trying to prove a point that you can use data and algorithms, which change the way VC works. So, it sort of blends two things, three things that I really love - data, entrepreneurship and venture capital. They're all blended together.
Shereen Bhan: Well, Anand, thank you very much for joining us on Young Turks and we hope you do reinvent the world, one company at a time. It's been an absolute pleasure speaking with you, thank you so much.
Anand Rajaraman: My pleasure, thank you very much.
Shereen Bhan: Thank you very much. With that, it is time for us to wrap up this special edition of Young Turks From the Valley.
-- Transcription by Arunima Rao, who interned with Young Turks from April to June 2021.
Twitter: @_arunimarao