Book Extract: Startup Nation

Our offerings to the consumer are under three heads: pay, buy, and save. Under “save”, we are going to act as the facilitator for a range of financial services. We have applied for a payments bank licence . . . ’

Vijay Shekhar Sharma, talking animatedly to me on 20 August 2015, was in the middle of that sentence on Thursday when his mobile phone rang. The caller told him the Reserve Bank of India (RBI) had granted him the licence he had just mentioned.

Squealing with joy and making thumbs-up gestures, Sharma rushed out of the room to celebrate with his team and to take calls from television channels. It was a while before he could return to resume our interview.

It was a big day in the life of the young company, the youngest in the list of eleven who got the RBI’s licence to start a payments banks, which can do some of what a full-fledged bank does, such as deposits and payments, but cannot give loans. Paytm was also the only e-commerce outfit on that list.

But ten others had obtained this licence. And there is also a large number of universal banks. How will Paytm’s bank be distinctive?

‘We know there will be a need for many elements like banking correspondents and bank branches, but we will be primarily led by the mobile,’ said Sharma. ‘The consumer will get a very different experience of mobile banking.’

Paytm already had 100 million mobile wallets, more than anyone else by a long mile. How could the wallet users be an asset to its other businesses? ‘That is the “pay” part. We can graduate those consumers to “buy”, when they can transact on our online market platform. The same set of customers can move to financial services, or the “save” part of our platform. By using technology, we can contribute to financial inclusion.’

That adds a nice touch to the career of a man who once found raising loans the biggest stumbling block in the path to his dreams. He still considers it the single biggest problem for aspiring entrepreneurs. ‘In India, it is easy to get a Rs 1,000 crore loan, but not so easy to get a Rs 6 lakh loan.’

What do his parents think of his work now? ‘They don’t feel bad, they don’t feel bad,’ Vijay says, amid peals of laughter. Then he composes himself. ‘We have built something worthwhile. Once in a lifetime, God gives you the opportunity to make a dent in the universe. That’s how I look at it.’

And what does he think of his Hindi-to-English-medium transition?

‘Oh, education is overrated. I studied in the Hindi medium. Then I went to an engineering college. Education there did not happen in the classroom. The classroom was not a very comforting environment for me. Curriculum education is overrated. The real education is learning from experience and case studies. The system of cramming some words and terms and achieving a rank based on that is overrated. Rank does not reflect the capability of a person. You would know what the book says, but you wouldn’t know how to live life, my friend.’

in a nutshell, Avnish [Bajaj, Bazee, Matrix Partners] is entrepreneur-driven, but to invest in someone, he or she has to be an intellectually honest entrepreneur. ‘I have to feel that if things don’t align over a period of time, they will listen to me. If that is the case, they will likely get me excited enough to invest, even if it is the shittiest market out there.’

What is it that he likes in an entrepreneur? ‘I like them young and fearless, because a lot of what we are doing today is innovation. It has not been done before. Sometimes, guys who have been working for a while have too much baggage, too much unlearning to do.’
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It is not that he abhors the experienced ones. But he likes them coming out of great training grounds like Google, Amazon and eBay. And he likes both types, the young and the experienced, to be product-oriented.

‘The best products win. So I look for product-obsessed founders—missionary and visionary, not mercenary.’

Missionaries and visionaries attract the best of talent, which tends to stick together during the worst of times because they can rally around the founder. They also build to last, not to exit. And if the founder is also smart, hardworking, intellectually honest and has high integrity, everything falls in place.’ Among markets, he likes the ones where the product fit is obvious. Ola, again, is the perfect example. All of us have faced pain in the world of cabs. It was a system waiting to be fixed—disrupted, rather, in the start-up language. It was an unlimited demand kind of market at which you just had to point the right product.

If the formula is that simple, can anyone become a successful VC? Apparently not. Avnish’s formula appears simple and replicable, but its application and success is down to the individual. For instance, what Avnish looks for in an entrepreneur is pretty much what he finds in himself.

‘This business cannot be taught, but it can be learned. I was a terrible investor at first. What I am telling you is what I have learned. And the implementation of the framework has to come internally. At the precise moment, you have to say yes or no to an investment. That moment, that judgement, that critical thinking, is what defines our business. My own critical thinking has evolved significantly. And I am still learning.’

Mistakes have contributed immensely to that learning.

At the end of 2009, he invested in a microfinance company in Andhra Pradesh. Avnish really liked the founder. But the venture failed. Candid as ever, Avnish says that the reason for the failure was Andhra Pradesh’s decision to change the rules of microfinance, which killed several companies in that space in the state. But that was not the whole truth.

‘The truth is that I invested too late in that sector. It had become very hot. The philosophy there was FOMO (fear of missing out) or JOMO (jealousy on missing out). I felt we had missed out. I let external pressure and internal pressure to do something in that sector override my better judgement. My judgement is that it was overheated.’

He had seen a report that said the average household in Andhra Pradesh had taken loans from four to five microfinance companies and was using one to repay the other.

But this had been going on for five or six years now and appeared to be par for the course. The reality is that in the absence of that evergreening, the business would have survived even after the state had changed the rules of the game. ‘But I overlooked it because our business is a classic, fear-versus-greed business. In this case, I was greedy and I did not know when to recognize fear and greed in others and in myself.’

Neither fear nor greed drove Avnish’s investments in e-commerce during the lull of 2011–13, when very few were willing to bet on the sector. As the Sensex fell and the real estate sector went into a slumber, e-commerce funding dried up and start-ups began to stutter. But Avnish recognized it as nothing but a fear cycle. Matrix invested the most in the sector in 2012–13.

His mistakes have also taught him to stay clear of two types of entrepreneurs. One is the entrepreneur of less-than excellent capabilities. Earlier, Avnish would invest in a venture headed by an entrepreneur of average proficiency if the market looked strong. Avnish would think he could teach the entrepreneur. That is the classic mistake of an operational person turned investor. The second type of entrepreneur is the type he instinctively distrusts. Avnish has often come across situations where the entrepreneur was talented and the market strong, but for some reason that he could not pinpoint, he could not bring himself to trust the fellow. Each time he invested in such a company, it turned out to be a bad decision.

Avnish does not entertain either type of entrepreneur anymore. There are companies he has passed up that have become successful, but he has no regrets. ‘I have always been a big believer in the journey being the destination, and there are certain people with whom I do not want to make the journey. I know the journey will be painful for both sides, and I don’t want it, irrespective of how talented the guy is, how big the market is, what my people are saying, or what people outside are saying—I just won’t do it.’

So what does the wiser Avnish see when he looks back?
For all his professional adventures, it is a personal milestone that he considers the highlight of his life: his children. ‘Tomorrow, if I get recognized as the best VC in the country, frankly, it won’t be because of me, but because of the entrepreneurs. Both my destiny as well as my balls are in their hands.’

His lowest point in life, too, is personal: the death of his father. The stupid arrest does not even come close.

at the beginning of every financial quarter, Snapdeal’s senior team defines its mission. The method for setting this mission can hardly be described as scientific. In fact, the acronym for the approach is BHAG, which stands for ‘big, hairy, audacious goal’. Once the targets are set, Kunal goes out into the main hall of the office lined with rows and rows of desks and announces them.

‘Unless they start to sweat with anxiety or laugh out loud at its ridiculousness, the mission is not high enough. If it takes someone just five minutes to think of a way to achieve it, we haven’t aimed high enough,’ he says.

The announcement is followed by a ten-day planning process during which every team decides how it will achieve its mission. The teams then hole themselves up in a room for two days, Friday and Saturday, and make presentations on how they will achieve their mission. That creates accountability and galvanizes everyone.

Most of the team members only know about the company’s current quarterly mission, which they concentratedly work on. In a business that is changing rapidly, it is only the core team that concerns itself with annual plans. ‘In our business, six months is like three years.’