Sramana Mitra: I think the Indian startup ecosystem is much larger than Europe right now.
Hussein Kanji: It is, but when you look at the global unicorns and where they’re coming from, about 50% of them are from the US, about 30% are from China, 4% from India, 1% from Israel, and 15% from Europe. There’s a more thriving community in India of entrepreneurship, but in terms of value creation, I think Europe punches way above its weight.
Unfortunately, Europe just doesn’t have the money to turn even more of these companies into winners. The gap for us isn’t even just on the Series A side. It’s also on the Series B side. If you have a business that is working very well and the model is proven, tons of people will line up to write the check.
If you’re still a venture type of business, but you need a $10 million check, it’s very difficult to raise that money. We have this artificial intelligence healthcare company that’s trying to replace the primary care physician or augment that doctor so that the engine is doing some of the diagnostic work alongside the doctor. It takes quite a bit of money to build that technology and to make that robust. You can’t do it for $2 million. It’s hard to raise that kind of money.
Once that company starts proving itself, we sign the big deals with NHS. Now, you can register for our service to be our doctor. We’re adding quite a bit of users every single day. Now, we get a ton of interest from people who want to invest. Everything prior is difficult. We really worry about where that next $5 million check is going to come from. If the company doesn’t raise that money, then sometimes they can’t grow into what they could be.
Sramana Mitra: That’s true.
Hussein Kanji: In Europe, there’s just not that much money. There’s not a risk-taking appetite in Europe the same way there is in the US, China or even in India where people have become really wealthy and have seen their friends and peers become really wealthy in the tech business.
Sramana Mitra: The truth is India is not a hugely risk-taking culture at all. What is happening is because the cost structure is low, there’s a tremendous amount of bootstrapping that goes on. There are a lot of companies that are scrapping together little businesses and getting to some degree of validation which can then attract some funding, which is harder to do in Europe because the cost structure is not low at all. The benefits and labor laws has a lot of friction still. That’s what makes it harder for Europeans to be scrappy.
Hussein Kanji: India is still a market that can grow exponentially as a whole. There’s a lot of appetite behind that trend. There are tons of Indians who’ve gone to Silicon Valley and succeeded. Both the CEO of Microsoft and Google are Indians. That link back to Silicon Valley is actually pretty big. People do know you can get rich in the tech industry. Europe doesn’t have the mega trend. It’s a developed economy.
To be fair, its growth rate is pretty anemic as a whole. The tech industry is really good, but the macro-economy is not so good. We don’t have the same link as we should with California. If you’re German, there’s not that much reason for you to go to Silicon Valley. We need more of those corridors built.
You need more of those corridors built with China. It’s fascinating to me how the Chinese companies are very active in India. They’re only now starting to become active in Europe. I think that’s going to be super interesting in the next 10 years.
Sramana Mitra: How do you parse unicorn mania? We are starting to sober up a bit. People are not as wildly crazy about unicorn mania. As a seed investor you could get buried under later stage liquidation preferences, especially in a difficult funding environment where there’s a not a lot of appetite. How do you protect yourself?
Hussein Kanji: The honest answer is, you can’t. You’re trying to pick the best-in-class companies. Knock on wood, Europe doesn’t have the same financing community. There’s not a lot of money. You could get hurt because the money could come on bad terms. In Europe, the blockbusters are still able to get the interest of multiple people.
Sramana Mitra: In India, the blockbusters are actually getting hurt by unicorn mania big time. It’s been very unhealthy.
Hussein Kanji: One of the big differences between Europe and Indian is because there’s so much capital in India, people were able to run negative contribution margin businesses because the capital could still cut the losses. They could keep raising money for unsustainable businesses. In Europe, people are very focused on the micro-economics and making healthy businesses.