Sramana Mitra: If you look at the 2018 deal flow, how many deals do you look at in a year? What are the trends in that deal flow?
Swapna Gupta: We have a three-member India team. Between us, we end up looking at 200 plus deals a year. There’s always a flavor of the season such as food delivery and social commerce. For trends in the last 6 to 9 months, we’ve seen a lot of healthcare and educational players because some of the infrastructure value has been taken care of, we’re able to build a famous organization. We’re also seeing a lot of momentum in the electric vehicle space surprisingly. US has Tesla, China has lots of other players, but India hasn’t seen any electric vehicle players.
Sramana Mitra: Electric vehicle players are very capital-intensive companies. Do you have the stomach for this kind of intensely capital-intensive companies?
Swapna Gupta: We do. You’re right that they’re capital intensive. We realize that most of these vehicle companies are looking at existing OEMs to fund them. The existing OEMs can’t move as fast as startups, yet would not want to be caught unaware. You would expect Mahindra and Tata to support these companies and grow along with them. That has made it somwwhat easy.
Sramana Mitra: What do you think of the unicorn mania that we have experienced over the last few years? It started in Silicon Valley in the 2013 to 2014 timeframe and it went to India and swept over India. Now, India has stabilized a little bit. How do you read this? How do you analyze this?
Swapna Gupta: That’s good for the ecosystem. The more stories that you hear of how a large company is built, the more aspirational entrepreneurs come forward to build. This means they’ve assigned a flock of entrepreneurs willing to take risk, but to do it for ten years is very different. We have aspirational young guys who are willing to give it all to build. That’s good for the ecosystem. But the challenge that comes with it is that sometimes you’re running too fast and you pick a lot of problems along the way, which can become huge in the future. I think these companies are also cognizant of the fact that a tag is ok but you need to grow into the tag of a unicorn. You have to deserve it.
Sramana Mitra: Traditionally, India has had a good cost-efficient dynamic. This unicorn mania has disrupted that dynamic. In my opinion, that dynamic was healthy because you build better companies if you bootstrap first and raise money later, and have attention towards unit economics and stuff like that. If you invest ahead of figuring out what your unit economics are, what your customer acquisition cost is, how can you profitably build and scale a business, and you just have a lot of play money without figuring things out, that doesn’t build very healthy companies.
A corollary to the unicorn mania is the Death by Overfunding phenomenon which has happened intensely. We’ve covered quite a few companies that are good examples of the Death by Overfunding phenomenon. In a way, I hoped that India would play to its strength of being able to do things frugally. Then once they’ve figured out the scaling mathematics, infuse capital to scale.
But I don’t think it has gone quite that way although it’s shifting back a little bit. Your point to create good stories and a lot of attraction to entrepreneurship is very well taken, but it’s also creating a lot of misconception. Entrepreneurs think that they can raise huge amounts of money without proving out the beginnings of a thesis. I don’t think that’s necessarily a healthy phenomenon. I don’t think that’s going to create a lot of robust companies.
Swapna Gupta: That’s a fair argument. The only counter argument that we continue to have in this debatable ecosystem is that for some companies, it’s a necessary evil. You’re not in a scenario where you’re in a flat world. You’re not fighting local incumbents. You’re fighting global giants. If you have to fight for the title and you want to create homegrown large companies versus getting a foreign incumbent to take the market, you’d rather fight that battle out. If you need to fight that battle, you need to have all the ammunition in place. I don’t think it’s necessary for every segment. But in some segments, it’s a necessary evil that you need to fight with all the ammunition.
Sramana Mitra: Flipkart is a good case in point where I think if they wanted to take on Amazon, they needed the capital and so forth to build that kind of muscle. I would say Flipkart and Paytm fall in a slightly different category. But there are companies that have gone after markets, I don’t want to take names, but they have questionable thesis. What it does is it confuses entrepreneurs.
In India, there are tens of thousands of entrepreneurs who are starting up companies. They’re starting with the belief that entrepreneurship equals financing. As you have articulated, investor after investor articulate on these forums for us that they’re not going to invest in concepts. You have to get your concept to a product-market fit, customers, etc.
You said you need 5 to 10 customers. Other people need more customers to invest. That period of working through the process of 18 to 24 and sometimes 36 months of bootstrapped business building is an expectation that needs to be set in the minds of early entrepreneurs. If we go with this entrepreneurship equals financing mindset, they never get that mindset. They’re basically bouncing around looking for capital before putting the cart before the horse. It’s a big problem.
Swapna Gupta: That’s true. We always educate entrepreneurs when they come to us that maybe you don’t need funding. You can grow at the pace you’re growing because it doesn’t need funding. It’s also our job to educate them.
Sramana Mitra: Good to get your viewpoint on what Qualcomm Ventures does. Thank you for your time.