The $7 billion question

At a macro level, the last one-year has been wonderful for the Indian entrepreneurship ecosystem – both on the startup side as well as the investment side. Flipkart’s Bansals and MuSigma’s Dhiraj Rajaram are now in the race to take the place of Infosys’ Narayana Murthy of the 1990s as brand ambassadors of Indian entrepreneurship. InMobi’s Naveen Tewari is not far behind and so are several others. These wonderful leaders have done earth-shattering work, so as to prompt even an Economic Times to dedicate a section of their Page-1 for startups on a daily basis! In typical ET style, the newspaper even did a tongue-in-cheek feature on whether a last name of Bansal can be the crucial difference between a successful and failed e-commerce venture, what with Sachin Bansal, Binny Bansal (of Flipkart), Mukesh Bansal (of Myntra) and Rohit Bansal (co-founder of Snapdeal) leading the race in this industry. (Going by that logic, Peyush Bansal of Lenskart who is featured in our current edition is well positioned!).

On the investor front, valuations are soaring. If media numbers are to be believed, Flipkart is valued at over US $7 billion and MuSigma (according to some ET news reports) is now raising money at that valuation ballpark as well. Overall, this is all wonderful news. New role models often lead to increased entrepreneurship activity and wealth creation by first-generation entrepreneurs can never be bad news. However, this has resulted in one slight disadvantage.

And that is my US $7 billion question: Have these few companies with multi-billion dollar valuations unrealistically increased the growth expectations from Indian startups? What is really the problem if companies take a few extra years to hit the same numbers? (The usual argument against this is that being a market leader is important. However, there are several sectors where there is space for many, many players).

VCs, who once wanted entrepreneurs to write business plans where their ventures would touch revenues of Rs. 100 crore in 5-6 years, now want even more. A US $100 million valuation is now passé. In short, investors want their entrepreneurs to build billion dollar businesses in less than a decade. “Get big or fail fast” seems to be the mantra, much like Silicon Valley investors touted, but the big question is, is this approach alone good enough for India?

Not for a moment am I discrediting what Flipkart or MuSigma or their investors have accomplished. At The Smart CEO, we’ve covered all these companies in-depth, and we’ve observed the evolution of these young first-generation entrepreneurs into nuanced business leaders first hand. Importantly, this didn’t happen in 30 years, but in less than five to seven years. But in spite of covering these glamorous ultra fast-growth stories, we’ve also witnessed that there are a few entrepreneurs who’ve adopted a steady approach to grow their businesses.

I’d urge India’s investor ecosystem to look at an additional approach of investing in startups. Can we encourage more and more entrepreneurs to build sustainable, profitable and long-term businesses? Can we have patient capital available for entrepreneurs where businesses are built not just to IPO and provide exits to investors, but also with a mindset to last forever? If a doctor-entrepreneur wants to build a chain of 10 hospitals in 3 years, but plans to take time (say, 10-15 years) to scale up to 100 hospitals, there should be a way for him or her to raise equity. When I interviewed R. Thiagarajan, the founder of the Chennai-based Shriram Group, he made a very pertinent point. “Every business does not have to grow like there is no tomorrow,” he said. N. Vaghul, former chairman of ICICI Bank, says: “I’d say growth is important, but certainly not furious growth.” The worry is a lot of businesses (driven by the nature of capital they’ve raised) today are chasing furious growth, which often prevents people from building businesses that last.

From a pure opportunities standpoint, I’d argue that there is a huge gap for a clutch of patient capital firms (as opposed to venture firms) to invest in ‘lesser risk, lesser reward’ startups, where their portfolio of companies and their brands will be built to last for generations. It is time to create a patient capital ecosystem in India. This would certainly result in more entrepreneurship and often, better quality lasting entrepreneurial ventures.

Hope you enjoy reading The Smart CEO.

S. Prem Kumar


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