I misread the ability of Flipkart's founders to create a large business, says Avnish Bajaj

Avnish Bajaj is from the first class of India’s pioneering technology entrepreneurs. Having built and sold online auctions site Bazee.com to eBay for $55 million in 2004, Bajaj took to the other side of the table by co-founding Matrix India, one of the country’s most successful venture capital (VC) firms.

Since then, this IIT, Apple and Goldman Sachs alumnus has been at the forefront of the Indian entrepreneurial ecosystem, investing in startups and entrepreneurs who are tapping into the India growth story. He shared his thoughts on the way Indian entrepreneurs and investors have evolved sincehis time, how there is no tech bubble and the things he looks for in the leaders of tomorrow.

[caption id=“attachment_74349” align=“alignleft” width=“380”]  Avnish Bajaj, co-founder of VC firm Matrix India, rates experiential entrepreneurs higher. Photo: Kuldeep Chaudhary[/caption]

Edited excerpts:

Q: You were one of India’s original technology entrepreneurs. Perhaps oneof the first nationally-known dotcom entrepreneurs. How do you rate India’s current class of entrepreneurs, those who have started up post initial dotcom rush? Post crisis?

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A: There has been a dramatic change in the class of entrepreneurs in India
since 1999. That was the second wave of entrepreneurs-the first was right after the liberalization. Post 2008 has been the third and most encouraging wave of entrepreneurship because it has been the truest form of entrepreneurship.

These are guys in their 20s and college dropouts. My thinking is that when you are starting up at the cutting edge of technology, it is important to be young…to be a user of the technology and be a part of the transition.

Very few of this class of entrepreneurs have created copycat business
models. Instead, they have looked at creating made in and for India models.

redBus is a one of the few models in this line. The other thing to note is that even if there are any copycat business models, they have been executed in a very different way…in an Indian way.

In all, you could say that there has been a change in the type of entrepreneurs and the type of business models since the last crisis. In fact, the entire ecosystem has been changing.

Q: How would you say has the Indian venture capitalist evolved over the
decade? Things have changed for them as well one would suppose.

A: India has gone from having no VCs to having a large number of them that
are operating today. Indian VCs in the early 2000s did not want to take risk and ultimately became PE funds. They started doing growth investing in profitable businesses, which at that time was the best possible option as the market for VCs did not exist. True VCs started coming in India in 2006. Besides us, there were others like Sequoia, Kaalari, Helion and many others. There was a boom and a lot of them have done a great job. Back then, startups did not receive funds early enough as there was no angel ecosystem. VCs were expected to invest. However, at that time, the riskreward ratio was not favorable for VCs to invest. Still, quite a few did take that decision. Today, we see that Indian VCs have invested and have been rewarded. So their risk appetite has gone up-that has been a fundamental change.

Q: So do you think that the funding environment in India is sufficientenough for India’s growing ecosystem of emerging businesses?

A: The funding environment doesn’t look like it is sufficient but I believe it is. There is always reasonable amount of capital available for quality opportunities-sentiments affect only those businesses that are on the margin.

Sentiments also affect only the valuations that quality businesses get. But at no time will such businesses starve for funds.

You could say that the period since 2012 has been a bit painful for theindustry in general as there has been over-investment in e-commerce, though there has been consolidation. Investors have made deep analysis about what companies, models and sectors they want to continue to back and where they want to cut losses. This phase is fairly over. Starting early next year, we will see more of Series B funding happening.

At a macro level, India has more then enough capital for quality business opportunities.

Q: How do you rate the policy environment in India? We know it’s not the
easiest but have things gotten better since your time?

A: As I see it, the internet, technology and digital sector is continuously witnessing growth as compared to the other sectors because the government stays out of it. The government has not created the most enabling environment…as a catalyst to growth. It often creates a disabling environment. Good infrastructure has not been pushed and westill have problems.

Look at broadband penetration levels. It’s true that the governmentdid a lot of work in the early days of the mobile telephony sector and theresults are obvious. However, in China, the government pushed the mobiletelephony sector and extended it to broadband too which India failed to do.

I think that the policy makers have been significantly behind in understanding the power of a medium. But the saving grace is that at least for the digital sector they haven’t done anything negative.

Policy makers have been lagging behind when it even comes to the taxationregime. There is a real need to change mindsets at that level because there is an imbalance in the risk reward ratio in the ecosystem right now.

Q: You work with entrepreneurs across sectors in your portfolio companies. Can you tell me what common threads have you found in the challenges that they have faced?

A: The biggest challenge that I see across companies is that of organizational skill. Often entrepreneurs are not able to assess that they need to augment themselves with people with complementary skill sets. They look at people as cost centres and not as investments. In addition to this, I have also observed that some entrepreneurs are not able to evolve their management and operating style in order to build a larger business.

Ultimately, businesses are made up of people-you need to attract the righttalent, retain it and create value for them and the business. Finding the right high quality talent is incredibly hard-though this is not a challenge of an entrepreneur’s making but is a market condition.

Q: As a firm, Matrix Partners has focussed on consumer internet, healthcare, mobile and financial services. Going forward, are you still bullish on these sectors? What other sectors do you think will bloom going forward this decade?

A: We will be very bullish and laser-focussed on these sectors. In fact, we will be doubling down on them. Our teams have been expanding and in thefuture there will be a number of investments made in each of these sectors.

In consumer and financial sectors, the deal values will be fairly large. All our investments have a domestic focus - our investments are made in companies that have India as their primary market and definitely the focus market. From where we stand, if companies want to go the global, it has to be at a later stage.

Q: As a firm that invests in a lot of businesses that either have technology as an offering or leverage technology, would you agree with the line of thought that there is a bubble in the technology sector. Or is that phase over?

A: No, I wouldn’t agree with that. I think the bubble was in the e commerce sector between mid-2010 to mid-2012. We are in the very early stages of building the internet and mobile universe in India. Inadequate infrastructure in the country gives technology an opportunity to provide viable solutions.

Most mobile, internet and consumer technology companies that have come
up are looking at solving pain points. I don’t believe that there is over-funding at all. Investment should be going in to building blocks of success that is determined by the product-advertising and marketing investments must be to increase traction and not get traction.

Q: I know this is not the greatest question to ask any investor, but I will still dare to. Would you be able to name a few companies that you wish you had invested in?

A: I had an opportunity to invest in Flipkart when their first round washappening, but I guess I misread the ability of the founders to create such a large business. Even though there was a bubble at that time in which I didn’t want to participate in, I couldn’t spot the fact that the Flipkart guys were going to build the business the right way within that bubble.

The second would be InMobi. We had already invested in a company that dida similar business, hence there was conflict of interest. redBus was a company we never saw. I think if we had seen it, we would have probably invested.

Q: What are the main attributes you look for in an entrepreneur and his company when you are contemplating the investment decision? Why do you highly rate these attributes?

A: Every new business is assessed on factors like market, team, entrepreneur, business model and sustainability. Different funds and investors with these funds value these factors differently.

For me, a few hygiene factors are important including the hunger forsuccess, which translates into how hard they are working. Second would be to know about how they have come up with the business idea-whether it is abusiness analysis or a life experience. I rate experiential entrepreneurs higher.

If you look at them closely, you will see that redBus, LimeRoad, Stayzilla are companies that started because the entrepreneur experienced a pain point.

By facing the problem, the entrepreneur is his own customer. Also, the last thing for me would be to know if the entrepreneur is intellectually honest-do they understand their strengths and weaknesses, and do they know what it takes to win in the market. Intellectual honesty helps in processing external feedback that comes from the market customers, investors and others.

Q: You are engaging and interacting with this new bunch of entrepreneurs. From your experience of being an entrepreneur, what are the lessons you would like to share with them?

A: I was not born to be an entrepreneur and it was not something in my genes or DNA. Neither was I brought up in a business family and nor did the idea of starting a business come to me naturally.

People like Steve Jobs are visionary entrepreneurs…they have dreamsthat they bind together…a vision which is innate to them.

I started out from the bottom up. I didn’t enjoy what I was doing andwanted to do bigger and better things. Those were the days the internet had just taken off in the US and given my background of technology engineering at IIT and a stint at Apple, doing something in the technology space seemed quite logical to me. That was my story.

If you are an entrepreneur now or are looking to be one, don’t be tooopportunistic but be a bit more strategic about it. The most successful people operate at the intersection of three things-passion, skill set and opportunity.

Opportunity would comprise of the wealth creation process and the business model. One must analyze if one has the required skill sets at the core as an individual. And you need to know if you are really passionate aboutwhat you want to build. The best way to judge this is by asking if you are willing to build all of it without making money.

To these entrepreneurs I say this - have realistic expectations as it takes time, a minimum of five to seven years, effort and perseverance to build a business.

This article first appeared in Entrepreneur India magazine.