Venture Capital in India: Ashish Gupta (Part 3)

SM: What about entertainment?

AG: There are a lot of Bollywood and music sites. They have unclear business models, but traffic continues to grow and they are able to pay for themselves. Those continue to flourish. I think that the next generation of sites is not clear yet. Sufficient monetization on the net is still missing. Aggregate online advertising revenue is south of $150 million. Of that, Google takes 60%. By the time you are done, everybody else is just distributing lunch money.

SM: I am not convinced that a pure online advertising model will fly in India.

AG: It doesn’t fly in the United States, either.

SM: It flies a lot better.

AG: Companies like Facebook can get there with trillions of page views. I would put Google closer to a lead generation company than I would an advertising company. That is one of the things that our young Internet entrepreneurs in India fail to appreciate.

SM: They think that display and search are the same.

AG: Absolutely. Dragging somebody away from reading news versus sending them because they asked for it are two completely different ball games.

SM: What are you seeing in SaaS? I am perplexed that we are not seeing more SaaS out of India.

AG: We are seeing a lot of companies, but they are all relatively small. Some offer retail solutions, for example running a point of sale system as a SaaS offering. There are some small HR enterprises, but they are going after a market which is not very large yet in India. There are a host of companies going out and selling solutions to colleges to manage exams, ERP, and distance learning. Most of those are SaaS, although there are a few hosted models as well. There are a whole host of textile manufacturing solutions offered on SaaS.

SM: Apparently Indian entrepreneurs do not understand TAM.

AG: That is the problem. They have figured out very interesting solutions from a channel perspective. In many ways they have better solutions to sell to an SME because they do not approach them through the Internet. They go through system integrators. The question I struggle with is, “How many of these companies are going to become meaningfully large?” I have to look at it from an exit perspective.

SM: I get a lot of these pitches at my roundtables. I always tell them that even if I like their idea, it does not mean that the idea is venture fundable. It could be a perfectly fine bootstrapped idea that you could turn into a $10 million a year business that you own yourself. There is nothing wrong with that picture.

AG: That is very good advice. A lot of people would benefit from the advice you are giving, because everywhere else entrepreneurs tend to believe that venture capital is a necessary ingredient for their success. Really, if you can build a business which is self- sufficient and cash flow positive, that is a great thing to have. A lot of people do not realize that such a thing comes out of having gone around the block a few times.

Unfortunately, most first-time folks want to raise as much venture capital as they can. That becomes a mark of success in its own right. In reality, it is a liability and they are tying a noose around their own neck.

SM: I have been harping on this like a broken record for years. The point is to build a good business, not to raise a bunch of money. You raise venture money if it fits the model of venture.

AG: Some people get it, but just like in the Valley, a lot of others don’t. In many ways in India it might be clearer to entrepreneurs because many are already used to bootstrapping their businesses. Ironically, that might be clearer. For the tech entrepreneurs it is not as clear because they end up following the Valley book.

This segment is part 3 in the series : Venture Capital in India: Ashish Gupta
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