1Mby1M Virtual Accelerator Investor Forum: With Rajul Garg of Leo Capital (Part 4)

Sramana Mitra: Have you seen any analysis or reporting on how many active entrepreneurs there are in the Indian ecosystem right now?

Rajul Garg: I do remember seeing that at some point in time, but I’m not able to recall the report. I was at an Accenture event recently. In 2017, my guess is around a thousand companies raised some sort of investment in India. My guess is only one out of 20 or 30 would get there. My guess would be that it’s in the tens of thousands.

Sramana Mitra: As you know very well, I’m a big proponent of bootstrapping. We do see a lot of companies that are doing very well and getting very far with the bootstrapping strategy and showing a lot of validations before going out to raise funding. Funding becomes so much easier at that point.

Rajul Garg: Honestly, venture funding is very alien to Indians. I get requests where entrepreneurs can’t even believe that people get funded that kind of money. It’s definitely a fraction of the market in that sense. If you take small merchants and shopkeepers, that’s a number in the millions.

Sramana Mitra: Part of it is, we do follow that methodology of bootstrapping first and raising money later. Our take is, you have to survive to succeed. If you leave your survival in the hands of investors, the probably of your survival goes down. Since we are all mathematically inclined people, we tend to want to maximize the probability of success.

Because of the cost structure and the general ability to be frugal, it’s a good trend that there are lots of companies that are bootstrapping to a significant level. I have a company right now that is out for financing. They have already crossed a million in revenue. They’re getting incredible traction in Silicon Valley.

Rajul Garg: Zoho bootstrapped their way to $50 million and has a billion in value. There are certainly examples. I don’t know if it’s a trend. You probably see many more of them because of your focus in that specific area. I don’t see that many.

Sramana Mitra: The truth is when I took Freshdesk out for their round of financing back in 2011, when Girish came to me, they had a product already. I made them spend four or five months to go through the validation process and get to paying customers before going and raising that first round of funding. The first round was already a million-dollar Series A from Accel. It was immensely valuable to have a set of paying customers and an understanding of how to acquire those paying customers.

Rajul Garg: For enterprise play, you’re absolutely right. It’s hard to imagine coming into a company with nothing.

Sramana Mitra: I tell people flat out that there’s absolutely no chance unless you have some personal relationship with somebody who knows you and is willing to write a check for you.

Rajul Garg: I agree. But for consumer market, it’s hard to bootstrap your way.

Sramana Mitra: For consumer market, people still want to see traction. People want to see growth. People want to see lots of users. Getting to a lot of users with no funding is not an easy thing to do either.

Rajul Garg: Correct. Getting real revenue is harder.

Sramana Mitra: Very hard. I’ve been covering Facebook for 10 years at least. I’ve never seen a number on how much Facebook makes in India until just a few months ago.

Rajul Garg: It’s shocking.

Sramana Mitra: It’s shocking. $50 million!

Rajul Garg: What Facebook and Google do in India is, a lot of their billing get directly paid to Ireland for tax reasons. Not all of it gets counted in that $50 million. The true number is $200 million.

Sramana Mitra: You have actual validation on that?

Rajul Garg: I don’t think this number gets published, but it’s in that range. I’m pretty certain.

Sramana Mitra: Still 250 million users translating into $200 million in revenue for a company is very discouraging for other people who are trying to do ad revenue based businesses which has become really difficult to scale.

Rajul Garg: You can just do the math from there on. They are getting funded. You’re seeing new companies. Revenue is far, far away from any significance.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Rajul Garg of Leo Capital
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