As an experienced investor, has there been any shift in your thinking over the past few years on the types of founders you choose to invest in?

There have been many learnings we have had at Info Edge in terms of investing. First of all, it is the entrepreneurs and the founding team that make the company succeed, and not the investors, as they are present 24x7 unlike the investors and, at the end of the day, it is their idea, their execution. Therefore, it is important for investors to recognise such founders who are going to succeed anyway and support their work.

However, it is clear to us, after 14 years of investing in Zomato and 16 in Policy Bazaar, that the companies would have succeeded anyway, with or without us. We first invested in Zomato in 2010 and the kind of returns we have got in the past four to five years are huge. It has set an example.

Therefore, the team and business selection are critical. Over the years, we have understood that it is not that investors do not make any difference, but the bigger part is played by the founders. There have been several founders who just could not succeed, no matter what you do for them 
as investors. 

How do you ensure that a portfolio company will do good? What is the investor’s course of action when the companies do not perform well?

Being an investor, especially like ours, which comes at the early stage, sometimes even at the pre-revenue stage, it is hard to identify a red flag in the company’s operations. Of course, we assess the founder’s background when we take a leap of faith by believing in the founder’s business idea.

However, not everything turns out the same as there are various circumstances that cause a company to fail or succeed. Sometimes, there might be too much competition coming in suddenly, where the company might not have the right balance sheet or the funds to deal with it. Sometimes, founders tend to feed the wrong risks and overspend on the wrong things. They build the wrong dynamics and they realise they are stuck when the time and regulation change.

As investors, we get involved with every founder and do not like it when they do not perform well but you have to live with the outcomes. So, when a company is not doing well, investors and founders get into the conversation that they need to get external money, cut the cash burn, get on the path to profitability and figure out a right way.

Lately, the government has been focusing on corporate governance a lot after a few crackdowns on big names. Do you think the pressure to grow faster from the venture capitalists [VCs] makes them choose the wrong path?

In my view, at least 95% of Indian founders are honest. However, honesty does not make news, dishonesty does. Right now, a few companies have been stuck with a couple of issues lately. However, again it comes to the founder's fundamental ethics. It should come to the founder naturally if the step they are going to take is right or wrong.

Sometimes, it is a mistake, sometimes deliberate as there is some pressure to grow faster and make the company valuable and also some amount of greed and vanity and hence they end up taking shortcuts. However, no VC would ever ask a start-up to lie to grow faster by being dishonest or compromising on ethics. It is the founder who would like to dress up the numbers so that they can get the next round at a higher valuation; however, mishandling is never justified by anyone. Founders need to have the maturity that it is okay to go slow.

What is your view on related-party transactions in start-ups, as they too are stirring up a lot of attention over financial compliance?

The thing with related-party transactions is that there are rules and regulations governing them and you need to comply with that. It needs an audit committee approval; it needs full disclosure and prior disclosure. So, if the related-party transaction is essential for the business and the founder has gone through proper disclosures and clearances and it has been approved by the directors, then it is fine; however, if it does not pass even a little bit of the smell test, it should not be done.

Do you think that, with the current state of affairs in the start-up ecosystem, India will be able to build another Google or Facebook, as many founders claim?

We need to understand that a consumer product can only be built in the market where the consumer lives. If you want a product especially tailored for India, it has to be built in India and by Indians. Like, Naukri.com, MakeMyTrip, Zomato and so on were made in India.

However, some products are global in nature, such as search engines. Now the trick is, such companies will always tend to come out of a country like the US because it has the largest domestic consumer and, of course, more investors and more capital. Therefore, Google was started in the US first, used by the Americans, then it became global. Same with Facebook. So, if the best consumer products coming out of America have global applicability, they will go global.

It is basically a company like Google that could raise the kind of money that it did and get the kind of revenue that it did to redeploy it into better engineers and better technology to go to a point where nobody can compete with it anywhere in the world. Further, the technology was relevant to India too and hence the products took off in India and other parts of the world.

It is tough for India to build a Google because, of course, US has better capital and can deploy better technology. Even India could have done it back in 1998 if someone gave $500 million, but nobody in the right mind could have done that because, at the end, you have to take the product to the market also. 

Lastly, the Indian start-up ecosystem has been grappling with funding winter for a long time now. When do you think it will end and is it completely dependent on the US market?

There was never a funding winter for good companies. We ourselves went to our portfolio companies in 2022, 2023 and they raised additional rounds too. 

If the company’s business is on the right path, funds will always be available, and anyway, to raise funds, despite the winter, you must fix the flaws within the company. Of course, we can say that there is a shift from the earlier scenario of funding where probing questions were not being asked enough, and GMV [gross merchandise value]was being valued over margin and cash flow profits; however, now investors are asking the right kind of questions.