Sramana Mitra: What stage did you invest in Arkin?
Sandeep Singhal: We came in at the very start. We seeded the company. We expect to see more of this going forward. It’s just very efficient if the go-to market strategy is being developed in the US with team members that are based here and the MVP is built out in India. We’ve seen that in the past with Druva and PubMatic. We believe that we’ll see more of that approach.
Sramana Mitra: Especially in the enterprise context. Companies that are selling to global SMEs are actually marketing and selling from India as well and getting further along before they choose to move to the US in
many cases. That’s because they don’t have the cost and overhead of enterprise selling.
Switching the line of questioning a bit, there are rumblings that the global market for startup technology is slowing. The incumbents are overpowering the new ventures. There’s a pretty large article on this. I’ve heard that from a lot of entrepreneurs and VCs as well on the ground. What are you seeing and what are your thoughts?
Sandeep Singhal: Cost of sales and cost of building the channel are very high. The incumbents have that legacy infrastructure, and the legacy relationships do pose a big challenge for startups. Particularly companies that are coming out of India see a bigger challenge than startups here because startups here typically will have three members that have been in the market. That issue is valid.
That being said, I think there continue to be opportunities. This is all about finding those gaps. Those gaps have to be large enough for people to switch to you. Once you can build similar relationships that the incumbents have with your customers, there is always an opportunity to up-sell and cross-sell. Guerrilla tactics are even more important now than earlier. The second thing that’s also happening is that capital is a lot more cautious.
Earlier you would say, “Fine. I’ve got my MVP. I’ve got my initial customers. I’m showing scale and raise Series C to go head-on with the incumbents.” We’ve seen that model not working for everyone. A lot of companies have struggled to scale Series C and beyond. There is a genuine concern in the investor community whether these companies will IPO.
That caution is causing capital to not be available for startups which makes it more likely that they’ll end up being acquired by incumbents. These are the dynamics that’s playing out. I’ll take a look at that article.
Sramana Mitra: The Indian VC market went through very frothy times for a couple of years. When I was looking out three years back on how the Indian market was developing, early on it was developing slower than I thought it would.
Then I thought that maybe the Indian VC market will come in and will spur the development a bit. Indians are generally conservative people. They’re going to remain focused on fundamentals. It is going to develop a bit slowly, but it will develop in a more healthy way. Then in the last two years, it went completely unhealthy.
It went to exactly the same kind of nonsense that we see in the Silicon Valley market. This year, it has slowed down tremendously. How do you read all of this?
Sandeep Singhal: One word describes it – the FOMO factor or the fear of missing out, which caught up. It’s been in the Valley for a while. It caught up in India as well. I look at the Indian VC market as the pre-e-commerce and the post-commerce phase. Prior to Flipkart, people were building businesses in a much more structured manner.
When we went to raise funding, our positioning was that India is a much lower cost market. The amount of capital required to build a company in India will be lower. Therefore, we can do a smaller fund. That was the original thesis. The second phase which is post-commerce was driven partly by entry of hedge funds into India. There was just a lot of capital going in. It became a game of who has raised more capital rather than who has better solution.
That unfortunately led to a lot of capital being wasted. That has led to what you are seeing now. People haven’t seen the kind of returns that you would expect from that much capital being deployed in the market. People are now stepping back and saying, “We need to look at capital efficiency.” The reason why India was attractive in the first place was capital efficiency. How do we drive businesses to think more around competitive differentiation based on product, quality of service, and fit with customer requirements.
Sramana Mitra: It’s a much healthier way of building companies. Our philosophy and everything we do in this program is focused on capital-efficient entrepreneurship. We really don’t believe in this raising crazy amounts of money. You cannot get an exit if you have too much money and you’re not able to deliver the metrics. There aren’t that many Facebooks out there. If you want to support a significant ecosystem, capital-efficient entrepreneurship is a much more reliable way of building businesses.
Sandeep Singhal: Absolutely.
Sramana Mitra: Thank you very much for your time.