Silicon Valley's Hottest Innovation

"The story of venture capitalists is too early, too early, too early, too early,

Venky Ganesan of Menlo Ventures on how technology is creating new market places

Dawid Bilski

The managing director of Menlo Ventures, Venky Ganesan focuses on investments in the consumer and enterprise sectors. Before this, he was MD at Globespan Capital Partners where he led numerous successful investments, including Palo Alto Networks, Amobee, and Jajah. Ganesan has also been an entrepreneur; he was a co-founder of Trigo Technologies, a market leader in the product information management space that was bought by IBM for $200 million. He says he learnt his life lesson about how one should keep going on in spite of failures while trying to raise money for his firm. In 2001, Ganesan and his co-founders talked to 60 venture firms and 59 said no. In August 2001, they managed to raise the money — in the nick of time, as the US economy went into a tailspin the next month, after 9/11.

 

Sure you’ve heard of Uber, AirBnB, oDesk and Poshmark. They are all upstarts of what we call the “right now” economy. It’s just what the name suggests — companies that use mobile, cloud, social, big data and create a service that helps you take decisions right away. That changes the way you decide on things, the way you go about planning. The whole idea is, when you plan, you lock into some fixed things. Let’s say you are planning your December vacation. You think about your destination, you book your air tickets well in advance, you lock up your hotels so you don’t end up in a shabby place… essentially you compress and force yourself to make all those decisions ahead of time, which may or may not be optimal.

The idea of a right-now world is to allow greater utilisation of resources while you as a consumer gain flexibility in decision making. Think about it. A place such as London ended up having to build a whole bunch of new facilities for the Olympics, which are sitting idle because the Games have gone elsewhere. That’s actually a destruction of value. What you want to do is not make more hotels but make more rooms available in people’s homes. You do that and suddenly, you made your economy more productive, people made more money and, after all that, you don’t have a fixed capital asset sitting empty. That’s what the right-now economy allows you to do — to give supply an opportunity to show up when there is demand and let it vanish when there is no demand.

One such company that we have invested in is Uber. What does Uber do? The big thing it does is to make fixed cost items dynamic by making them shareable. In the US, you can buy a taxi and drive it only if you have a medallion given by the city. But the city gives only a certain number of medallions and you bid money for that. That model was based on a fixed capacity. The city was happy because it made the price of the medallion high. The cab owner was happy because once he paid for the medallion, he basically had a monopoly.

The cab driver and the consumer were unhappy because the city didn’t care and the cab owner didn’t care, but that was all the choice you had. Now, take that fixed model and make it dynamic by saying, “I am going to make anyone be able to get into the cab business. I don’t need to get a medallion.” That means you unlock a whole bunch of cars that were sitting idle. You unlock a whole bunch of people who knew how to drive but could not make money. Suddenly, you now have made public transportation available to a much greater audience. This can happen in India easily as it doesn’t have tight regulations. But the US has tight regulations. 

The beauty of Uber, as it turns out, is that when the service came to the market, taxi drivers’ cab fare saw only 10% reduction. But a huge big market has been created of people who previously never considered taking a cab. So you have expanded the market but you are not affecting existing players in the market too much. You have expanded the market and created better social utility. Uber is a great example of how you can unlock tremendous value that can then create exponential growth. There is another company called AirBnB that does the same thing for houses. Those are great businesses. 

Another company I am involved with, called oDesk, does the same thing in the labour market. With the disparity between the cost of a good journalist in India and one sitting in, say, New York, if you say, “Well, we don’t really care where the writer is based as long as she can deliver the article,” you can take advantage of this inefficiency in the labour market. There is really no reason why someone sitting in Chennai or Mumbai can’t write an article on Silicon Valley — everyone does the same home work, they read the same articles and they talk to the same people on the phone and so on. oDesk is creating a humongous human capital resource base.

We have another business called Poshmark that creates closets. This I think should work in India very well. If I look at my mom’s cabinet, every year we buy at least four to five sarees. What is she going to do with all of them? What people should do, say, before a wedding, is share clothes because it unlocks the value of the closet. You can think of doing the same thing with jewellery. Considering the amount of gold people hold in India, there must be some way to unlock the value in that. Because that is unproductive capital. If you can take that and make it productive, you can achieve exponential growth. 

Those are the kind of businesses we are trying to build up on — look into a resource that today is fixed and underutilised, and make it dynamic and highly utilised. When you do that, you unlock latent demand. It creates growth that didn’t exist before. Now, the question is, is this the right time to be investing in these ideas? Be it a product or a service, why is now the right time for this thing to happen — that’s a fundamental question I ask myself every time. If I don’t find a good answer for that,  I usually step back. Because, for the most part, most venture capitalists are reasonably smart. They don’t invest in dumb ideas. So when it doesn’t work out, it is really about timing.  

Getting the timing right

The story of venture capitalists is too early, too early, too early, too early, too late. You have to be only in the last two. The kind of world we live in today, thanks to technology, winners mostly get disproportionately rewarded. If you are second, it is not linear. The No.2 player in social networking is worth $30 million. The No.1 player is worth $100 billion — a 3,000X difference.

Still, you usually need the perfect storm of things before something can have explosive growth. The shifts that we are seeing today in terms of technology are really leading to a perfect storm. If you think about the biggest trends, the first trend would be mobile — there is an explosion of mobile devices. That is a trend that people don’t truly understand: everyone knows about the pervasiveness of mobile but they don’t quite fully comprehend how much of a radical change it is. At no point in the history of mankind has 75% of the population been wired. Today, we are all connected to each other by a device that we carry on ourselves all the time. This is a seismic change. 

At the same time, the shift to the cloud is also a seismic change. What makes your mobile really interesting is that while the device is with you, there are a bunch of services on the cloud that make it very productive. If you have a smartphone, and you have Google apps on it, it suddenly changes things, because you can access your documents from wherever you are. 

The last piece is just the ability to look at all the data we create and get insights into various aspects. These three things together really make a potent combination for many products and services that could not have been thought of before. 

There is this very interesting story about Steve Jobs. When he was a kid, his father asked him to paint the fence in front of their house. Steve did that but he painted only the front of the fence. His father pointed out that he hadn’t painted the back of the fence, to which Steve replied that nobody was going to see the back, so he did not bother. His father said, “I see it and you see it. It does not matter if others don’t see it.” That thought later became Apple’s philosophy: they care about some of the things that you might never see because the company wants to make a high quality product. 

In India, you would be considered a fool for doing that; it would be seen as a waste of time and resources. That is a cultural mindset we need to change if we want to create great product companies. We need to care about the things that people don’t see. If we do that, there is no doubt that the next Steve Jobs will come from Tiruchirappalli than here in the Bay Area. For that to happen, there is another necessary condition. What you have here in the US is great starting conditions for people to pursue what they want to pursue. If you are afraid to fail, you cannot succeed. In many parts of the world, one failure can be enough to change your career; so people are very risk averse because the cost of failure is very high. If there is one thing that societies can do, it is to create an environment where the cost of failure is very low. It is all about creating the right starting conditions. Intelligence and ability is equally distributed all over the planet. The only difference is that the starting conditions for society are not equally distributed. And that is an issue that is fixable. India can fix it.

 

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