Sramana Mitra: Help me rationalize what’s happening right now in the market regarding late-stage valuation bubbles. We have two kinds of bubbles in the startup venture world. One is in the seed capital. In 2013, 70,000 companies were angel-financed. That’s too much actually. It’s great that they got angel-funded, but then if you look at the next level, it’s 1,000 venture funding or 70,000 paired down to 1,000. Technically, those companies probably need to be bootstrapped and they’re not going to be scalable venture-scale companies, which should not have been funded in the first place. A lot of people are going to take tax right off. That’s one part of the bubble.
I actually don’t think the early-stage venture capital Series A and Series B is in that much of a bubble. It’s more in the Series C, Series D, and in some cases, Series E, that is completely out of control valuation, right? Part of the issue that we’re going to have to resolve somehow is that the public market is not in a bubble. What is your analysis of this market? You recently raised money. What was your experience in navigating this market?
Gaurav Dhillon: I would say on the seed side, I wouldn’t be able to tell you. I think there’s probably three things going on. It’s not just the barbell of bubble in the angel and the barbell in the private stage. The air is going out of value-investing in enterprise software in the public market. Let me explain what I mean. Imagine what we’ve seen, for example, in the integration market like Tipco. When the private equity company comes in and buys a company, the shareholders have realized the growth is gone. You have declining revenue. The metrics all start to go south. The issue is the market has moved on from that type of technology. You can see that in various categories of mid-sized enterprise software companies. They’re all slowing down at a precipitous rate.
Sramana Mitra: This is to be expected in a dynamic field like our industry. Tipco is a relatively old company. It’s very hard to keep your architecture consistent and current.
Gaurav Dhillon: You can squeeze the cash cow but at some point, it just keels over. It’s no longer relevant because there’s been manicuring rather than re-engineering. I think it is important to understand the private company bubble. First of all, I always look to bring in the best person. I’ll take a lower valuation than a better person any day. That’s the best lesson I learned as an entrepreneur. We are not done yet. This is not perfect. We have macroeconomic issues that I get to shake out. As we get older, we’re like, “My grandfather was right. You don’t know anything.” I think there’s an element of, no doubt, a bubble in certain private company sectors but I think what people should often look at is not what valuation I got, but what partner did I get. Did I get the best partner? Am I going to learn something from them? Is it just dumb money?
However, there is a link. The link is where does the capital go? It can’t go to the public market in high tech as much anymore because some of them, particularly in the complex software business, are not just growing. If you raise money as a mutual fund to invest in technology, what do you do? Where do you put that capital? There’s no growth really in the legacy enterprise business. Now you have a couple of names in enterprise SaaS. Some of which are very promising in my opinion. There’s miles to go for some of these names like Workday and ServiceNow. I think these names have the opportunity to really be the epic successive company. In general, the money is betting that some of the private equity deals that they’re doing could zoom out and take up the slack of growth from the legacy players.
Sramana Mitra: Let’s call them private Unicorns. They’re people who are already getting billion-dollar valuations in the private fundraising market. They will emerge at very high valuations when they go out to the public market.
Gaurav Dhillon: We’ve just seen this happen in Hortonworks, for example.
Sramana Mitra: That’s exactly the issue.
Gaurav Dhillon: That’s a classic example but then you look at the metrics and then you go, “Is there an opportunity for Big Data or for this new flavor of how we manage data in an unstructured, highly-scaled out Internet fashion?” Absolutely. I think what you have is investors basically making, hopefully, a calculated business risk and not just a casino bet on some of these opportunities that could become successors to what once were the epically growing big companies that created wealth in technology.
Sramana Mitra: There are probably about 40 private Unicorn companies market right now. They do come out and they don’t crash and burn and they can deliver high-growth businesses over a long period of time. I’m not talking about the WhatsApp kind of stuff. I’m talking about more of what you’re doing. ServiceNow is a fantastic example.
Gaurav Dhillon: My take is some of them will. This is always the case. My feeling is some of them will because the timing is right. We have issues in the world but in general, we’re doing well as a planet. Growth is up. We haven’t had a meltdown in Europe. Geopolitical uncertainty aside, which is as old as mankind by the way, there is a lot of reason to be cheerful. Think of Big Data in a strategic way and not just a science experiment. Therefore, the opportunity exists for a new Oracle or Microsoft to come out. Not all of them. You’ll still have to execute. You have to have the timing right. You have to have a culture. A lot of people look and say, “Look at the trajectory.” The shortest way of looking at something is the trajectory. There’s a quality element in this as well in my opinion. Some of these companies have the potential to become big. I couldn’t tell you which ones.
Sramana Mitra: Thank you for your time. Good conversation.