Thursday, 4 June 2015

Most don't know how to exit the chakravyuh: Ravi Narayan

Microsoft Ventures has played a leading role in India's startup eco-system with the accelerator programme it started in 2012. Its managing director, Ravi Narayan, has been a successful entrepreneur and investor.

Your programme has now had six batches of startups. Do you see the profile of entrepreneurs changing from the time you started?

More people with matured careers are coming now. They are a lot surer of themselves. There is a lot of hype about students directly coming out of IITs and IIMs to become entrepreneurs. It is not something that should be hyped up. If they have the talent, let them do it. But it should be more an exception than a rule. If you want to take an entrepreneurial risk early in your career, that is fine. But not everybody is a Mark Zuckerberg. It could be that you are completely unencumbered by what is around you, could have fresh thinking, a new perspective, but on the other side, you could have no clue how a product should be built, you may not know how to negotiate a contract, you may not know how to manage a team. There should be a happy balance. India is a very unorganized market and you need organizational skills.

Do you have Rahul Yadav in mind when you say this (Yadav, a student at IIT when he co-founded Housing, recently had run-ins with his investors and others)?

No I don't. It's just a general comment. Everybody has a right place and a right time to found ventures. Some people find it early. But if somebody is not ready, they should not be encouraged to take that path.

You have spoken about startups being stuck in an Abhimanyu chakravyuh, unable to get out. Can you explain what exactly you mean?

Entrepreneurs in Silicon Valley invariably have a clear exit strategy - like who is a potential acquirer or how will an IPO take place. Any investor will want to know, if I put in money, when will I get it back. In India, when investors ask this question, earlier entrepreneurs would be shy about answering it. Now, they will say, if I build this, such-and-such company could acquire me. The investor will then usually ask, is acquisition your exit strategy. Then they will say, "No, no, I can also go for an IPO." There is no clear answer or perspective to this. So they will have two slides, one for the acquisition exit strategy and one for an IPO. Depending on what they think the investors want, they will swap it. An investor asks only to know whether the founders have thought through this properly till exit.

You don't see growth and profitability as an option to get out of the Chakravyuh?

Like Zoho, for instance, is trying to do.

In that case you should not take money from VCs. VCs have a time-bound contract to their capital providers; they have to return the principal plus something. That is why this is highly risky as well as rewarding. And there is never nirvana. If you raise seed money, you have to look for Series A, and then Series B, and after many rounds of fund raising, you look for an IPO; and then you have to look at the results every quarter.

How feasible is an IPO as an exit strategy?

IPOs are beginning to take off in Silicon Valley. But generally, you have to be an Unicorn (billion dollar in valuation) to go IPO.

Do you favour the idea of a separate exchange for startups?

These have been attempted several times around the world, but none have really succeeded, barring in London. They impose certain levels of compliance that startups may not be up to. The concept has to be really thought through, especially the compliance requirements, before it is introduced.

How do you see other elements of maturity in Indian startups?

There was a time when entrepreneurs started ventures without even thinking about who the customers could be. Now, some of them have IP, they have customers, have good talent, they know they can be acquired by global companies. But the other side is, many are still not clear what acquirers value. Companies who acquire may only want the IP, or only the talent, or only the customers. They might want only one thing or a small piece of one thing. But the entrepreneurs think, we have all of these, why don't they value everything. The startups should know precisely what is the value they are creating and for whom.

Would you recommend building products for the global market or the Indian market?

The opportunities in India are huge. It is better to build the product here in India, test it here, and then try to go global like Zomato did. Your value proposition will go up. I foresee tech unicorns--beyond e-commerce--in the next few years from India.

How focussed is Satya Nadella (Microsoft CEO) on the startup accelerator initiative?

Early in his job, Nadella came to the Valley and held discussions with VCs. He asked what we should be doing differently at Microsoft and the VCs gave him feedback. These VCs have a fair understanding of how the global markets are changing. That is also one of the reasons why we are establishing a Valley office now. This will give us a chance to engage deeper with VCs as we evolve and make internal decisions based on that.

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