Ram Shriram is uniquely qualified to comment on trends in the tech space and spot ideas that could work. He has played key early-stage roles in firms that went on to become landmarks of the Internet age, such as Netscape Communications and Amazon.com Inc.
Along the way, in 1998, he made a relatively small investment in a California start-up being set up by two Stanford students. That company scripted the most spectacular success in recent business history, and became the defining commercial and technology enterprise of our times. And Shriram became a sought-after global guru and a regular presence in lists that rank billionaires and top tech deal makers. He continues to serve as founding director on Google Inc.’s board.
Ram Shriram from Sherpalo Ventures
In a conversation with Mint, Shriram, whose firm Sherpalo VenturesLlc. has made several investments in India, talks about his investment strategies, India’s age of entrepreneurship and trends in the Indian tech space. Edited excerpts:
At an interaction organized by The IndUS Entrepreneurs in New Delhi, you mentioned that you use Mint (an online money management system), in which you have also invested. Is that a criteria you employ across investments—that you invest in products you find useful?
Absolutely. I think the best way to look at companies (at least on the Internet) that are aimed at the consumer...is to do the taste test. If you like the dosa, it is a good restaurant; if you don’t like the dosa, then it is not. The same way, if you can use it and it actually makes sense for you and you can see the value out of it, then it’s fine. I’m not looking at business models or anything. I’m looking at the value of the site in terms of what it does for the user.
Do you get a sense that most disruptive entrepreneurial energy and our best problem-solving minds are moving away from tech? Many traditional tech venture capitalists (VCs)—Vinod Khosla, for instance—are moving into solar energy, etc.?
Well, you are absolutely right. Disruption is going on in many industries, the tech industry is just one piece of it, maybe even a speck of the disruption that is going on. There is disruption going on in retail, there is disruption going on in the energy field, which is a huge market…but my focus has been tech.
So, tech is no longer the centre of attention.
I wouldn’t say that is true. There is still a great deal of attention in the tech sector itself. It continues to get a huge amount of capital. If you look at the total venture capital invested, tech continues to lead in that sense. There is more capital going into clean energy now than there was perhaps in 2004-05. In 2008, maybe more money will go into clean energy. But, there is a lot of new capital coming into it. It is not necessarily capital being diverted from tech to clean energy. There are some individual VCs and some firms who have chosen to focus heavily on clean energy, but that doesn’t mean there is no focus on tech. They are not mutually exclusive.
Clean energy takes up a lot more capital than tech does. And, there is public policy involved, regulation involved, there is the question of dealing with the current powerful players in the oil industry, who would like the status quo to perhaps continue longer. All of this causes it to get a higher level of attention in the press. The press is writing more about it and, because they have amplified it, it seems like maybe there is more focus on that.
How do you think the start-up incubation system we have in India has evolved—where do we stand?
I have been coming to India since the early 1990s, every year. Between the 1990s and 2000, there was a big improvement but, generally, people were funding secure later stage kind of businesses. I remember, even in 2003-04, people were complaining there isn’t enough money going into really risky, very early-stage ventures. All that has changed. We have invested in a bunch of such ventures. Cleartrip was founded on the back of a napkin by three people with a dream in a Mumbai hotel. We took a flyer on the company by essentially saying we’ll help you, which we did by getting on weekly conference calls and helping drive the user interface design of the website, which is really about keeping it simple for the user, offering the maximum selection choice, etc.
So, there are many more companies now in the early stage that are getting funded, and the networks have grown to be much more capable. You have the Band of Angels in Mumbai, and even Google has invested in a seed fund, and so forth. So, there are many groups of entrepreneurs in India who have made money already and who are reinvesting in young companies. So, that ecosystem, just like Silicon Valley, is starting to develop. It’s developed rapidly. I have seen a big change from 2004 to sitting here in March of 2008. And, of course, there is a lot of capital coming into India.
Of course, the risk with that is that there may be ventures that are getting overfunded in certain sectors. I would say the travel sector has too much money in it right now, for example. It is possible that sometimes ventures get funded without the full due diligence, etc. So, you are going to get a little bit of that. This sort of excess capital causes some of the less than good clients to also get funded, which is not actually bad for the system because what it does do is it creates an opportunity for more people to attempt to do a start-up on their own because capital is much more freely available than it was before. And, that’s goodness.
If you look way back at when all the big outsourcing companies started, they all had to do it on a shoestring on their own or they diversified away from another old business that they had. There wasn’t much capital available then. That’s not the case today at all in India.
What are the most common mistakes you see Indian start-ups making?
The difference between Silicon Valley and the young entrepreneurship scene in India is largely in terms of having a little more experience in having a start-up checklist of things to do, in terms of having a middle management to help scale the business, etc., because there are plenty of ideas to go around. But, the idea alone doesn’t make a success. You need good execution to back it up.
Many of the successfully funded Indian start-up websites—travel, social networking, maps—seem to be replicas of websites that have succeeded elsewhere. Is it a worry that you don’t see new original ideas in this space?
I think there are original ideas. I think you are pointing out an area where there perhaps has been too much focus because everybody decided that the travel sector was seeing so much usage from consumers because they were buying tickets online. So, they all jumped in without really thinking how many players can the market support and can all of us succeed and what are the margins in that business, etc.
That having been said, I do think this is the age of entrepreneurship in India and there are plenty of creative people with interesting new ideas, perhaps even bold ideas. Easily, the next big innovation in, say, the mobile applications space could come out of India or China. I am not predicting that, but it could easily happen. Just based on the fact that there is a greater, larger laboratory of users in which to test your ideas, compared with, say, the US.
What kind of innovation, in terms of hardware or applications, is likely to be able to tap the high mobile penetration India has and enable even that part of the population that can’t read or write to transact over the mobile phone or Internet?
I would point to one interesting app that we are involved with—Paymate. The notion of stored value on your cellphone to transact—whether you are paying (for) your movie tickets or restaurant bills or utility bills, even for ecommerce applications, is driving the change. You are buying something from Pantaloon and you pay with Paymate, they come in with an SMS message with a special offer that may be valid only for an hour and then you are immediately using the stored value in your cellphone because maybe the offer is valid only for an hour. It’s a one-hour special!
That, as an innovation, is unique to the culture of the Indian consumer looking for a deal. It is the same in China. But it is a little different from the Western culture where surely they do have their sales and all that but it’s not the same sort of frenzied way.
That’s the kind of application that could easily become a big-scale application. Then, all of a sudden, you are seeing something that has to do with mobile payments coming out of India rather than, say, a natural successor to payments on the Internet, which started in the US in the form of PayPal and others. So, I wouldn’t be surprised if something like that came out of India or China.
Could you, for our readers, pick five start-ups and five entrepreneurs to watch out for from India?
Well, that would be a hard thing to do because I wouldn’t be able to do justice to a lot of great entrepreneurs. I have broadly explained the market spaces where I’m seeing a lot of innovation. Let’s take the area of entertainment channels in traditional television and the people who create content for them. There is so much excitement around the Indian consumer’s tryst with entertainment to the level that there are many people willing to focus large amounts of money to create new channels with new and interesting content. News is a form of entertainment, really.
So, that’s a creative area where you are likely to see more things coming out of India. I’m also quite excited about the fact that there will be what I call copycat successes. When somebody succeeds widely, let’s say Sanjeev Bikhchandani’s InfoEdge is the most successful Indian Internet company of this decade, there are a lot of people who want to be the next Sanjeev Bikhchandani. So, that will create a lot of copycat successes, just like the Google founders have created a desire among a lot of people in the US to essentially follow their footsteps and try to build a company the same way and succeed. Facebook, for instance, tries to model itself after Google. So, I think you are going to see that in India, and that’s a good thing. Having a few successes allows you to have an analogue or example from which others could learn and perhaps be inspired by.
Do you see a wildly successful Internet firm coming out of India?
I do. Today, the market is limited by the sheer inability to have greater access. That’s an infrastructure issue that we are not able to solve here sitting around a table—but, hopefully some other titans of the Indian industry, along with government policy, will cause that to be fixed so that we can catch up with China in terms of total number of Internet users. Because, clearly, there is a pent-up demand among the consumers who want to be able to have more access and I do think PC prices will drop or that access will easily become available on the mobile phone with more interesting applications also.
Since you mentioned the excitement in television content, will you change your earlier stand that you are only interested in digital media and invest in television?
No, I’m not investing in it. I’m only pointing out that it is an area I’m seeing a lot of excitement (in) in terms of the creativeness of the content that is coming out of the media.
In the media sector, a lot of the action seems to just stem from the valuation game?
That’s true. But they do seem to get a lot of users or people watching those TV channels, which is how they are valued, even if they are not making money, because it is expensive to produce all this unique content for the consumer. I think in a way it is good—India has perhaps a lot more TV channels than you find in the US.
Are you planning any new investments in India?
We are committed to the Indian market, and are always looking at new investments.
What will be the implications of a Yahoo-Microsoft merger? Is Google worried?
Well, it is a form of consolidation and I do think it’ll change the landscape. It will make it a much tougher, competitive environment. I wouldn’t like to comment on what Google is thinking about it but I’d like to point to the comment one of the Google founders made saying, it is “unnerving”. That’s the word he had used.
How’s the meltdown on Wall Street affecting the capital slowing into tech start-ups and how is it affecting the sector as a whole?
It will affect the investment in the tech sector, it will affect tech spending. This is not a good thing for the market as a whole that this is happening. The difference is that last time, the (tech) bubble caused the first implosion while this time it’s not tech. It is caused by forces far away from tech, but it is still affecting tech.
But there’s a similarity in terms of how both were caused by instruments that did not have the underlying value investors thought existed?
Yeah. I suspect it will cause a certain slowdown in terms of new investments but it hopefully will get worked itself through the system fairly quickly because, these days, when a crisis hits the financial markets, it sort of sweeps through quickly. It happens rapidly, but also leaves rapidly. So, hopefully, that happens and in two quarters we will not be sitting here talking about this problem.
So, your outlook is fairly positive?
It’s hard to make predictions about something happening in New York on Wall Street. I think the best minds on this are trying to work through the issues, whether in the form of lowering interest rates or pumping more liquidity into the markets because yesterday it was Bear Stearns, the day before it was Carlyle, so there’s some bad news coming out every day. Hopefully, it will get worked through the system and some of the jitteriness in the market which has caused a rise in oil prices, spike in gold and the decline in the value of the dollar etc., will work itself through. But, none of them are endemic problems related to the tech industry as such. They are all related to the financial industry.