1Mby1M Virtual Accelerator Investor Forum: With Ravi Mohan of Shasta Ventures (Part 5)

Sramana Mitra: One of my observations is, if you’re doing a pure logistics play, it’s getting harder and harder even in niche e-commerce. Amazon is so comprehensive. The big categories are all taken. The way to differentiate is with new branded products. What you are layering on to that is the notion of repeat purchase and/or subscription?

If you’re thinking about e-commerce, pay attention to these nuances. The base line of ecommerce businesses is becoming tough if you’re talking about venture scale businesses. You can still do niche e-commerce businesses in smaller categories. If you’re talking about building a $100 million business, the set of opportunities that will lead to those kinds of businesses are fewer and far between unless you can differentiate with a product. Would you agree with that?

Ravi Mohan: Yes, very much so. One can look at different types of businesses. You can look at Casper. It spears a category that’s large that’s not subscription. The user experience is so terrible with the incumbents that I can disrupt it. Maybe I can develop a better user experience and I can do it a better price because I will optimize the supply chain in a way. It’s a big enough category that I can go in and disrupt it.

The next question is how far can you go in that category before Amazon gets there. Maybe there might be some nuances in supply chain that lets you execute in a way that Amazon might not want to. Maybe the market might not be big enough to deal with the complexity of the supply chain for mattress manufacturing.

Sramana Mitra: The mattress market has exploded. We have had several mattress case studies. Saatva is a bootstrapped company that has gone up to over a hundred million dollars. There’s Purple. Yes, Casper found the opportunity but right now, this is not a category to look at. The category is extremely overcrowded. It’s a good proxy for the types of opportunities you’re looking for.

What are the highlights of your portfolio? If you could give us a few examples rapidly, tell us what caught your attention about those companies. Why did you choose to invest in those?

Ravi Mohan: I’ll pick three SaaS companies. In two of the three companies, we were the first institutional investor in. In the third one, we were the second. We invested in all of them before they had over a million dollars of annual recurring revenue. The first company is a company called Apptio that manages the cost of IT in the enterprise. They created a new category. Through that, they created a $200 million business. They’re a public company now and worth $1.5 billion in the public market.

Sramana Mitra: For those of you who are listening, the Apptio case study is on our blog.

Ravi Mohan: It was started by an Indian entrepreneur. The second is Zuora. It recently went public. They’re a billing company. The CEO recognized the power of subscription businesses 10 years ago and that subscription businesses were going to be the way many enterprises were going to monetize their customer relationships.

For example, Caterpillar. They make a lot of their money through the service component after the tractor sale. GE aircraft makes large engines. A huge portion of their business is the aftermarket service for which the airlines has contracted them. They created a whole new economy. The world is moving towards a subscription economy. For that, you need to have the right billing system and the right financial system. Zuora created that from the ground up. They’re a multi-hundred million dollar company and they’re trading on the New York Stock Exchange.

This segment is part 5 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Ravi Mohan of Shasta Ventures
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