Info Edge founder and veteran start-up investor Sanjeev Bikhchandani talks about high valuations and corporate governance in start-ups. Edited excerpts
Are you doing more deals now as the so-called funding winter seems to be receding?
We kept doing deals. In fact, according to us, when there is a slowdown in capital, it is actually a better time to invest. When we invested in Zomato in 2010, it was the nadir of the global financial crisis. When we invested in Policybazaar in 2008, it was just before the global financial crisis.
Slowdowns are good. It's a part of the business cycle. And start-up investing is done with a 10–12 year time horizon. When you invest in a start-up, you don't look at what the current environment is. You look at what the prospects of the company are, how good the founders are.
One of the things investors bet on is the founder. What does this really mean?
Betting on the founder means how committed they are, how capable they are, can they stay the course? When the company grows from 10 to 5,000 people, can they handle large teams? Can they attract enough talent? As a start-up typically has multiple founders, do they bring complementary skillsets to the table?
Let's take Deepinder's [Goyal, Zomato founder] example. When we invested, he was 28-years-old. He hadn’t handled a large team. But he had great customer insight, he had great product clarity, he had initiative, he had enterprise. Very often it's a judgment call.
Are valuations rising once again?
People have seen enough ups and downs in the recent past. I think at least for the next few years, people will be more prudent and cautious. It will take some time for the momentum to build up to the point where it was in 2021. I don't think that it will come back immediately.
"People criticised zomato when they bought blinkit. but now the question has been flipped to why wait four hours when you can get it in 10 minutes"
Founders are not willing to raise money at lower valuations. What is your advice?
First of all, if you need money and you're getting it, please raise it. Second, even if you don't need the money immediately, but you might need it later and you're getting it, consider raising it.
A little bit of extra cash in the bank never hurts in uncertain times. We must also realise that the best valuation is not necessarily the highest valuation. When you raise money at a very high valuation, you have to service the valuation. The investor comes with rights and has expectations.
Accel, a shareholder in Swiggy, has backed a start-up called Swish in this space. Are you looking to invest as well?
We are with Zomato. There is no way we are going to do a second food-delivery company or a second grocery-delivery company. We don't want a conflict. Whatever Zomato does, we are in it with them… People criticised Zomato when they bought Blinkit. And the question was, who needs groceries in 10 minutes. But now, given what Blinkit and Zepto and Instamart have done in the market, the question has been flipped to why you should wait four hours when you can get it in 10 minutes.
There’s a debate if Indian start-ups should build artificial intelligence (AI) models. What are your thoughts?
I'd love to say India should build large language models. The truth is [that] the kind of computer power that you need to build foundational AI technologies is very large. That becomes a challenge. But India is rich in data. So, the question is what can we do with our data? Info Edge has been investing in AI start-ups.
How have corporate governance blowouts in start-ups impacted boardroom conversations?
I think there is a greater emphasis on commercial prudence on the part of investors, and therefore on the part of start-ups. Greater emphasis on integrity of data. Greater emphasis on good governance. These three have become a little more important. I think these three will stay.
There were some incidents. But I would say that 99% of Indian founders and companies are honest.
As the funding environment improves, will focus on profitability in start-ups remain?
That is healthy. Ultimately, the purpose of a business is to earn a profit. It's just that investors would earlier say, it's okay to make profit after five years or seven years. Now, the question is can you make profit in three years? So, the timeline has been crunched, at least to get to positive unit economics. I think it will remain so for the next few years at least.
Start-ups that went public in recent years have faced flak for large employee stock option payouts to founders. Will that change?
Each situation is unique. I can speak of the companies that we have invested in—Zomato and Policybazaar—which went public. Yes, there was an Esop [employee stock ownership plan] award to the founders and we supported it. We would not support a dilution of our own shareholding unless we believe it is for the good of the company.
In a competitive environment, founders had raised a lot of money and so their shareholding had been diluted to a point where we felt it was going to be a risk for all shareholders if the founders didn't have more skin in the game.