Taking On Microsoft And Google From India: InstaColl Founders Sumanth Raghavendra, Kaushal Cavale, And Their Mentor Sabeer Bhatia (Part 7)

SM: VCs don’t offer what you are offering Sumanth and Kaushal. Having a bridge like the one you are providing is very helpful.

SB: VCs dump companies and run away. I am now buying companies that VCs have dumped.

SM: This is the second time this is happening on a large scale. It happened in the dot-com crash when companies died due to lack of financing. Sabeer, you made a lot of money very early in your life and then did a couple of ventures which did not pan out. Now you’re playing the role of mentor. How has your personal maturity and perspective changed over the past 13 years?

SB: I am completely convinced that the only way to make a startup successful is to be nimble and flexible enough to change your business model. This is our third business model for this company. We went from collaboration to security to this. We didn’t ditch the previous two, we just built them into this model. We could do this because the burn rate was very low. We did not bring in superstars with big impressive resumes on high salaries.

SM: I fully agree with that. Executive teams are highly overrated.

SB: The flexibility of getting development done in India at a much lower cost is tremendous. If I were to develop this in the United States, it would cost anywhere from $25 million to $30 million. It takes a long time to perfect a product.

I do this with every portfolio company of mine. It usually takes twice as long and is three or four times more expensive than you expect. You have to have the patience if you want to create something really remarkable today, to be with the team and support them for a long time.

SM: Have you always had patience?

SB: I have developed this over time. I learned more from the dot-com failure than I did from the success of Hotmail. Even though we shot down Arzoo, we re-launched it in India as a travel portal, and we have a run rate of $30 million a year with very little money. We are profitable with less than $4 million of investment. The only way to run capital-efficient companies is to sometimes not listen to the VCs or to the so-called people who have the knowledge.

SM: The venture model is based on the fact that they need to invest a lot of money in the company. They need to invest at least $5 million. That eliminates capital-efficient business opportunities.

SB: If we were to start a company like this in the United States and we did not have the outsourced model, it would’ve been a capital-intensive company.

SM: I ran my first product startup out of Calcutta, and it cost me $30,000 a month for a 30-person engineering team. That’s the only reason I managed to get a beta out in nine months with under $300,000 of burn. At that time it took me 13 months to convince a VC to invest. They were not comfortable with the idea of the product being developed in India because it was too risky. Things have changed since then.

SB: It boils down to trust. I trust Kaushal and Sumanth to do the right thing. You have to have that trust. If it had been anyone else who had been running the show in India, I would’ve stopped funding them a year ago. The only reason [I have continued] is because I know how much effort they have put in, and I know their capabilities. I also know how difficult it is to pull off what they are trying to do. Microsoft has over 10,000 developers, and Zoho has over 300. InstaColl has done it with 16 engineers. It is mind-blowing when you have that kind of competitive advantage. There is some serious IP that has been created over here.

SM: I’m very happy to have covered the story, and I wish you the best of luck. I look forward to watching your company.

This segment is part 7 in the series : Taking On Microsoft And Google From India: InstaColl Founders Sumanth Raghavendra, Kaushal Cavale, And Their Mentor Sabeer Bhatia
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