Sramana Mitra: But the monetization is what builds businesses, right? Usage doesn’t build businesses.
Brij Bhasin: How many years did Facebook build its business before it started monetizing?
Sramana Mitra: Facebook actually monetized from the beginning. There is an article that I wrote about how Mark Zuckerberg preserved so much equity in the company. Since you bring up Facebook, Facebook’s India revenue with 240 million users is $50 million annual, which is miniscule and very disappointing for the company. The Economist article is not based on government data.
Brij Bhasin: Why do companies like Google and Facebook continue to invest significant amounts of capital in India?
Sramana Mitra: In the last decade, everybody’s hypothesis was that Indian market will monetize. The adoption of digital services has been good, but the monetization levels have not really kept up pace, which makes the unit economics very difficult.
Brij Bhasin: Why would a Google be spending bandwidth resources for 220 million Indian users to consume YouTube videos?
Sramana Mitra: They are all investing. Amazon is investing with the assumption that, at some point, these numbers are going to rationalize. That’s fine. They can afford to do that because these are incredibly profitable companies. Amazon used to not be profitable, but they have access to huge amounts of capital. Now they’re even profitable and have access to huge amounts of capital. Google is incredibly profitable.
Facebook is quite profitable. These are companies that can invest. From a venture capital point of view, there are a few VCs that are also taking that point of view. SoftBank is taking that point of view of playing the long game and invest in companies with poor unit economics that could rationalize in due course. When they do, they’re going to be well-positioned. But not that many investors can play that game. Investors are tasked with making money for their limited partners in seven years.
Brij Bhasin: You answered your question yourself, right? There are investors downstream that are willing to play this long-term horizon game and are willing to invest more.
Sramana Mitra: Very few investors have that capacity.
Brij Bhasin: You don’t need a hundred investors. You need three of them to put significant amount of capital to compete with an Amazon.
Sramana Mitra: Yes, but that’s one Flipkart. That’s just one company. If you want to drive an entrepreneurial ecosystem, one winner is not going to do it.
Brij Bhasin: The US has one Amazon.
Sramana Mitra: Yes, but numerous successful e-commerce companies. It has one Salesforce but numerous SaaS companies.
Brij Bhasin: Don’t you think there’s a mismatched expectation that India has to achieve certain things at a certain scale.
Sramana Mitra: It’s not a question of expectations. I think it’s creating some issues. I think the lack of exit issue is problematic. I talk to a lot of investors who are in India right now. Some of them are scratching their heads because they can’t get exits.
These are funds that have been in the market for 10 years and they have a lot of money on the ground and they cannot get exits. I can assure you that these are people that are very frustrated right now. It’s not a question of expectations. It’s a hard money game, right? At some point, people who put money in need their money out.
Brij Bhasin: I agree with you. I accept the fact that exit is a challenge in India.
Sramana Mitra: If India can crack the exit game, everything will move much smoother.
Brij Bhasin: That’s the rational outcome. The time and pace is not something that we have anticipated at the moment.
Sramana Mitra: Any parting comments that you may want to provide for our entrepreneurs who may want to work with you?
Brij Bhasin: I’m very excited to work with entrepreneurs, especially founders who are working to solve the hard problems in India. There are two broader things that we work with. One is solving the base challenges in India – logistics, healthcare, transaction economics. On the other side, we are excited to work with founders who have deep domain knowledge and technical expertise in specific markets.
Sramana Mitra: Terrific. Thank you very much.