[Samurai]

Here is an gold-plated article everyone should read. It is the interview of Kanwal Rekhi, a known name in IT since the 80s and he has some blunt words for the likes of Byjus.

If capital was the only driver of success, rich people would own the world. The main driver of a startup’s success is the ingenuity of the entrepreneur, how he thinks, how he functions. Companies like Wipro and Infosys became massive without any investment. Even Google and Microsoft had very little VC investment until they became profitable.

Byju’s valuation was plain stupid. They have revenues of $300 million and are losing $600 million, and you give them a valuation of $22-23 billion? That doesn’t make any sense in any way, shape or form.

I don't think Byju's will survive. With ChatGPT, the education model is going to be driven by AI. And Byju's is not a technology company, it is a sales and marketing company.

Markets will force a correction eventually, and sanity will return. But it is very hard to become profitable when your mindset has been to grow. All your systems, processes, and values are growth-oriented. Money was a commodity, money was abnormal. You bloated your organisation, your marketing spends… Now, it’s like a fat man trying to become fit. It's very hard. And how many people can do that in a sustained manner? So you need to have a complete change of mind, change of values, you have to rearrange your whole life.

https://the-captable.com/2023/06/kan...a-split-india/

[am1m]

Originally Posted by Samurai

Here is an gold-plated article everyone should read.

It's a good article and I'm sure his main point is very valid, but when he says Google had very little funding, I'm not sure. I thought they did get some funding in the late 90s in millions of dollars. Obviously nothing compared to their market cap, even at the IPO, but in the late 90s that was a pretty significant sum. Or did I miss his point and they were already profitable back then?

Again, I'm not defending startups that have insane valuations without any sound business model, or those that plain outright cheat.

But I also think that success and failure write their own backstories when it comes to startups. Had Google tanked, some analyst would have had some harsh words for the business model. Had Byju's gotten away with whatever they are trying (they still might!) and go on to become successful, they will be lauded for "taking risks" and "riding the storm".

And for all the talk about value-driven investing, I don't see the "throw 10 darts-one will stick" approach by VCs changing anytime soon.

[V.Narayan]

Originally Posted by Samurai

Here is an gold-plated article everyone should read. It is the interview of Kanwal Rekhi, a known name in IT since the 80s and he has some blunt words for the likes of Byjus.

https://the-captable.com/2023/06/kan...a-split-india/

Thank you for sharing. Valuations of Byju's, Oyo, that Yadav character and other so called unicorns are fake valuations funded by the existing investors through round robin deals amongst themselves. Softbank is the king at this. The faked valuations are done to draw in other sucker investors, increase the NAV of old investors and keep the merry go round going. The media, manned often by semi-business literate journalists then write rah-rah articles on this fakeness and its greatness. These journalists are a part of this crooked circle. if you think otherwise then pigs can fly. The unsuspecting news reader ends up thinking that these unicorns are the economic saviours of the Indian GDP. Each of these unicorns, some of whose balance sheets I have had the opportunity to study in depth violate every rule of revenue recognition there is. Sadly, this is white collar crime being paraded about by a (in my opinion) dishonest media & investors. I am surprised Deloitte took so long to resign. I am even more surprised Ernest & Young continue to be auditors to Oyo!

[binand]

Originally Posted by am1m

when he says Google had very little funding, I'm not sure. I thought they did get some funding in the late 90s in millions of dollars. Obviously nothing compared to their market cap, even at the IPO, but in the late 90s that was a pretty significant sum. Or did I miss his point and they were already profitable back then?

I think you mean this one? It is dated June 1999.

https://googlepress.blogspot.com/199...in-equity.html

Their first monetisation project (search ads) came much later, so at this point in their history they had zero-revenue.

Which reinforces the point that valuations can't be simply multiples of revenue.

[warrioraks]

Originally Posted by binand

Which reinforces the point that valuations can't be simply multiples of revenue.

Add to that, valuation is not an absolute. Just like beauty, it lies in the eyes of beholder.

[subuiyer]

This has been said many times in this thread but will like to say it again - short term greed is triumphing the basic sanity necessary for long term success of this country.

Most businesses today (not just startups) are at best well run 'Ponzi' or pyramid schemes focused on bringing in cash (earlier revenue, then investments, but now whatever) faster than they can burn. The entire start-up ecosystem is tainted by the cliche - someone painting a picture of distant profits for at least a subset of investors, from some unmet (more often than not, a trivial) need of a large population that will grow rich soon.

My sense is Byju's present situation just epitomizes what I am witnessing everyday - from the vegetable vendor at the street corner to highest echelon of the corporates that I engage with - driven by the greed of 'higher, faster' everyone has veered into the greed gutter, ethics and governance be damned.

[v1p3r]

If you want to understand why startups (in India especially) are so bad, you must understand how the VC model works, and who Indian VCs are.

VCs invest money on behalf of mega-institutions like pension funds, university endowments, or billionaires. A really good VC should net an IRR of 40+% through a fund life of 7-10 years. That means that 1 dollar invested today will give you 28 dollars in 10 years. A famous VC - the biggest in the world, let's call them 'Redwood' - routinely gets this IRR from its China and US funds. Bear in mind that VC investments are a very small portion of investors' outlays - in a crazy bull or bubble market, they may hit 10% of a portfolio.

VCs are supposed to be incentivised to make money on the profit. They follow what is called the '2 and 20' rule, like hedge funds and private equity of all kinds. This means that they get 20% of the profits, once some hurdles or benchmarks have been cleared. So their real incentive should be to get 5.6 dollars at the end of ten years. But most Indian VCs are very happy with the 2 - a 2% management fee paid yearly to run ops. This means that on a USD 100 million fund (small to average size fund), the VC will get 2 m every year, or 16.5 crores to run their business. Most VCs at this size are not large - 2-3 partners, a nice office, maybe total of 10 people including the housekeeping guy. So now you can see that the partners make 3 crores a year, for 10 years. Even if they don't succeed. And in India, very very very few companies will give you even 15x in 10 years (30% IRR), let alone 28x or 40%. So why really bother, when your 2% is anyway paying for 5 star, business class, luxury sedan life?

The other issue is that most Indian VCs have very little actual P/L experience. Most of them come from some sort of consulting background, or were mid-managers in the 2000s. They're armed with the right IIx / NRI credentials, and not much else. Asking someone who has never run a business in their life to judge people running businesses, is like asking me to rate the pain of menstrual cramps vs pregnancy.

There are a handful of genuinely great people in venture capital in India. They tend to be ex-entrepreneurs, or leaders of large orgs with massive P/L responsibility, or product heads with similar responsibilities. Everyone else talks a big game, and some may have got lucky, but the coming days will really shine a light on things. Just ask 'Redwood', their India team's charmed life is coming to a close.

Originally Posted by skrao

1. There are genuine india problems, Affordable healthcare, agri credit, cold chain logistics, last mile connectivity, alternative fuel transport, low water agriculture, climate change mitigation technologies and hundreds more. We dont need yet another video app at insane amounts of VC money.
2. Make in India for the world, is still a great story and opportunity. Needs a systemic support structure right from education, to law to clarity on rules. See how China broke through or how Bangladesh/Vietnam/Indonesia are overcoming these specific challenges.
3. A better moral centering of what success means. We need to really understand why the same Satya Nadella/Sunar Pichai etc dont succeed in India.
4. We also need to create an environment of trust and no compromise on quality/jugaad.
5. Lastly we need a reality check, not hype

You should become a VC. God knows we could use more good ones.

Originally Posted by Samurai

Here is an gold-plated article everyone should read. It is the interview of Kanwal Rekhi, a known name in IT since the 80s and he has some blunt words for the likes of Byjus.

I love Kanwal uncle. The man pulls no punches, and just fires from the hip. No one is safe from him, and he even takes time to excoriate people in the comments on LinkedIn. He's seen more venture deals and corporate plays than the top 10 VCs in India combined.

[m8002?]

Originally Posted by v1p3r

If you want to understand why startups (in India especially) are so bad, you must understand how the VC model works, and who Indian VCs are.

There are a handful of genuinely great people in venture capital in India. They tend to be ex-entrepreneurs, or leaders of large orgs with massive P/L responsibility, or product heads with similar responsibilities. Everyone else talks a big game, and some may have got lucky, but the coming days will really shine a light on things. Just ask 'Redwood', their India team's charmed life is coming to a close.

Some great points with data into the world of VC. Who are these guys/institutions trusting these (wannabe? ) VCs with 100s of millions of dollars. I mean, I could do with some of those guys :-). 3 Cr yearly for 10 years is not bad at all.

[SedateGuy]

Originally Posted by v1p3r

If you want to understand why startups (in India especially) are so bad, you must understand how the VC model works, and who Indian VCs are.

VCs are supposed to be incentivised to make money on the profit. They follow what is called the '2 and 20' rule, like hedge funds and private equity of all kinds. This means that they get 20% of the profits, once some hurdles or benchmarks have been cleared. So their real incentive should be to get 5.6 dollars at the end of ten years. But most Indian VCs are very happy with the 2 - a 2% management fee paid yearly to run ops. This means that on a USD 100 million fund (small to average size fund), the VC will get 2 m every year, or 16.5 crores to run their business. Most VCs at this size are not large - 2-3 partners, a nice office, maybe total of 10 people including the housekeeping guy. So now you can see that the partners make 3 crores a year, for 10 years. Even if they don't succeed. And in India, very very very few companies will give you even 15x in 10 years (30% IRR), let alone 28x or 40%. So why really bother, when your 2% is anyway paying for 5 star, business class, luxury sedan life.

You are dead on. I personally know a VC who works on this model. But there is one more stream of income you missed. - Kickbacks for giving the VC finding. They may not get any more money to invest after the miserable performance of their fund, but like you pointed out they come from mediocre back grounds and this is enough to last them another generation or two.

[aashishnb]

In jest & to make the discussion a little lighter, here's a contra point of view:

Companies like Byjus are doing the country a favour. They should be awarded by the government. They're taking money from overseas investors & blowing it up in India.

So, they are truly patriots & helping the country
1.First contributing by spending all the money
2. Then contributing by not making any profits for these 'foreign' guys to take back.
Kind of a highly sophisticated reverse of the loot (think East India Company)

They're better than the likes of Paytm, who did an IPO and gave a chance for investors to get their money back from retail Indian investors OR Google/Amazon/Apple/and all these MNCs in pharma,fmcg,etc. who make lot of money from India operations

Reliance ADAG's entity did a similarly noble task by defaulting on Chinese loans

Now, before anyone gets 'feelings' and explains how this is bad for reputation in long term, etc etc., this post is just to have some fun!

[greatgyan]

What would be the basic definition of a business? It's an entity which gives quality products or service to its customers and charges a particular amount for it. The amount charged is something which the customer should be willing to pay for and from which the business itself is also sustainable.
The focus of the business should be on providing quality products or service at the best price possible. It should be on customer satisfaction and sustainability.

Tatas, Birlas, Reliances, Mahindras etc. of this world were also startups at one point of time. They didn't have the luxury of VC funding the kind which present age startups enjoy. Yet they endured and grew into the corporations they are today. Why? because they focused on sustainability and customer satisfaction.

The problem with present age startups is that customer satisfaction and quality of product/service being provided is the last of their priorities. All they run behind is valuations, funding, acquisitions, unreasonable growth projections and somehow just making the headlines.
This I believe is the main reason why majority of the present age startups still rack up massive losses even several years after they started. And eventually just fold up or end up being acquired by an established corporation.

[skrao]

You should become a VC. God knows we could use more good ones.


Inshallah!

My thoughts are VCs areas more vitriolic. Been very fortunate to have genuinely good VCs this far

[skrao]

this twitter thread by Nithin Kamath of ZeroDha nails the size of the Indian market very well. Do read it
https://twitter.com/Nithin0dha/statu...17311535751175

[speedmiester]

Another day and another startup bites the dust after scamming the investors.

Kalaari Capital, Stride Ventures backed health-tech startup PhableCare recorded fake transactions, users to show growth, exaggerated doctors on the platform to fool investors and scammed employees.

how-health-tech-startup-phablecare-scammed-everyone

[Malyaj]

I think deep discounts are a great way to share investor wealth with the general public. Next time you apply that coupon code on an online purchase, please ask your conscience if you sent a company to the gallows