Sramana Mitra: What in your background made you think about Elance?
Beerud Sheth: I think it’s actually connecting a lot of dots for me.
Sramana Mitra: It’s always easy to connect dots when you’re looking back.
Beerud Sheth: We actually approached it that way. As an Indian, you know that there are millions of talented people in India and around the world. This was enabling people to meet each other and find freelancers anywhere in the world. As a Wall Street trader, I knew that you create marketplaces when you take illiquid things and make them more liquid. Services are generally highly illiquid. Enabling the technology part was due to the Computer Science background. Lastly, it was just a point in time where a lot of focus was in the commerce of goods, but the commerce of services is actually a bigger part of the GDP of the economy.
Sramana Mitra: Was Elance the first of that genre of company?
Beerud Sheth: Yes, absolutely—both in terms of name and concept. Even the way we got the name was a funny story. We picked up the name from this article in Harvard Business Review called The Dawn of the E-Lance Company written by an MIT professor Thomas Malone. He is an organizational theorist and he described the forces at work which would lead to organizations getting decentralized and more freelance-like. He called this the E-lance economy. That’s how he articulated it. We actually got him as an advisor.
Sramana Mitra: Who’s we? Who else was in the founding team?
Beerud Sheth: The company was founded by myself, Srinivas Anumolu, and Sanjay Noronha.
Sramana Mitra: From IIT Bombay?
Beerud Sheth: Yes.
Sramana Mitra: They were also working at Wall Street with you?
Beerud Sheth: Srini was working on Wall Street. Sanjay was doing his Ph.D. at USC [University of Southern California].
Sramana Mitra: Was that when you moved to Silicon Valley?
Beerud Sheth: Believe it or not, Elance spent a year in New York in a two-bedroom apartment in a residential complex. We spent a year there. We raised some angel funding and we developed the first version of the product.
Sramana Mitra: In those days, raising was easy.
Beerud Sheth: A lot of people in the IIT network were very helpful. It was between my friends, Srini’s friends, and their friends.
Sramana Mitra: You got some proof of concept.
Beerud Sheth: Yes, we built the first version of the product and got some user transaction happening. We learned about how to structure the site. The idea was that it was a marketplace and a workplace where the work could be delivered. In a lot of these things, to convert an idea into a product, it takes a lot of time and effort. In late 1999, we started talking to some VCs.
Sramana Mitra: You decided not to do it in New York?
Beerud Sheth: We got funded by KP and they wanted us to move here. We wanted to move here as well, partly because at that time, New York wasn’t ready yet for the whole startup ecosystem. Landlords want long-term leases. Employees have good Wall Street paying jobs. It’s just so much easier to do things here. Even the whole move from New York to California became symptomatic of the rush to the West Coast.
Sramana Mitra: The concept took a while to take off. We’ve covered Elance extensively, as you know, when Fabio comes into the picture. It’s much later in the game. The concept has taken hold, and at a global scale, the numbers are great. We’ve covered oDesk as well. The part that you were involved in was before all this took off.
Beerud Sheth: Before and after.
Sramana Mitra: We know the after story more. We don’t know the before story. One of the hardest things to do in business is to get the timing right. However good a concept is and however powerful a concept; eventually, it takes off. Often, you are too early. In some sense, from a venture point of view, you were a bit too early.
Beerud Sheth: Right. If you measure time to scale, yes. Even e-commerce was closely related to the adoption to the net. In a way, the companies started in circa 1994 to 1995. They had a good five to six-year adoption cycle before the dot-com bubble burst.
Sramana Mitra: Many of them collapsed with it.
Beerud Sheth: Yes. Quite a few collapsed with it because it takes to get the branding right. In our case, we were more focused on SMEs rather than consumers. SME adoption of the Internet was a little slower than consumer adoption. Services was a little harder than goods. If somebody ships you a product, so long as it’s certified, you don’t care who’s selling it to you. It doesn’t work the same way with services. You’re going to have to trust the other person doing the work. We took on a harder challenge in hindsight.
Sramana Mitra: What’s interesting in your case is that the VCs gave you that runway, which oftentimes, people don’t get. VCs get itchy and pull the plug if you don’t build a $100 million company in five to seven years.
Beerud Sheth: I’ll put it differently. One is people tend to overestimate the short-term and underestimate the long-term. I think Elance is a perfect example of that. We expected a lot more in the first few years but today, I think it has a far greater impact than I ever imagined it would have. It’s a company for the ages. I can see it 20 years from today and it’s just going to be a new way in which people do things. It’s going to be transformative.
It’s funny. I was in Philippines a couple of weeks ago. I met some government officials who were super excited to meet me as the founder of Elance because their poverty alleviation program involves training a lot of people with skills and putting them on Elance. Apparently, Elance already drives a couple of hundred million dollars in foreign exchange into the country. They expect that it would scale substantially.
Sramana Mitra: It’s a really powerful idea.
Beerud Sheth: Intuitively, it was huge. In fact, I remember our early versions of the presentation. We’d say that services is 60% of the world GDP.