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Matrix Partners’s Avnish Bajaj: Entrepreneurship is back but not at a bubble level

LiveMint logoLiveMint 07-09-2017 Shrija Agrawal

Mumbai: Venture investing is perhaps going through one of its most interesting phases as competitors become strange bedfellows with investors placing their bets on multiple companies. SoftBank, a significant investor in Ola, is considering an investment in the home-grown ride-hailing company’s biggest competitor, Uber.

In a Facebook Live interview with Mint, under its programme Ask the VC, Avnish Bajaj, founder and managing director of Matrix Partners India and one of the early backers of Ola, talks about SoftBank’s proposed Uber investment, the dynamic between home-grown start-ups and global incumbents and more. Edited excerpts:

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How should one look at the venture investing market right now? One gets mixed signals from time to time.

We go through periods of mania and depression all the time. We say that boom is happening and bust is happening, but the issue is more of navigating entrepreneurship in the (fast-paced) Internet and technology ecosystem. That is where resilience and perseverance get tested. I have been investing personally for 12 years in India and when I look back, there were probably two or three periods which I would say were normal, otherwise we were either in a bubble or a bust. Currently, we are in a normal period and last such period was 2012-13, when we invested in Ola, Mswipe, Practo and the bunch of our winners. The best time to invest is either in normal period or in bust times.

Why do you say now is the normal period?

You can see this across parameters like number of deals happening, amount of venture investments being made, and if you compare any of the metrics year-on-year. Last year was a bust and the company creation collapsed by nearly 60%. This has been changing, and we have already seen a pick-up in the last and the current quarter. We are currently seeing entrepreneurship come back but not at a bubble level where everyday start-ups get funded and not necessarily for the right reasons.

But isn’t a boom or a bust situation dependent on the vagaries of big investors like SoftBank and Tiger Global?

I guess unfortunately some of it is, but only at a later stage. If you see our stage of investing whether it is seed, series A or series B, there is some trickle down. For instance, a lot of them invested a huge chunk in 2014-15 but slowed down in 2015-16. When later-stage money dries up, by definition the existing VCs have to put in more money into their portfolio companies. This is where VCs either run out of funds or they end up not making new investments; so there is a trickle-down effect.

Big-ticket investments are coming back and then there is a huge SoftBank Vision fund at $100 billion. Will there be revival of 2015 in terms of cheques at insane valuation being signed by funds like SoftBank?

Although I am not a soothsayer, but I don’t think so. People have learned their lessons as they have had large losses as well. SoftBank Vision Fund in particular tends to be of larger ticket size but in fewer companies. There are three things that come at play in a bubble that are value, volume and velocity. I don’t think volume and velocity are so much at play currently.

SoftBank is also reportedly considering an investment in Uber. How will this play out?

Honestly I don’t care how this will play out. If the question is: Is Ola capitalized for what it needs to do or to achieve its vision? The answer is: They absolutely are well capitalized. Uber has never had (a) dearth of capital. So whether they get from SoftBank or not, they will always have enough capital. As long as Ola has enough capital, it is more of a battle on ground.

Could we see the same situation with Ola and Uber that we saw in the case of Snapdeal and Flipkart… ultimately it is a winner-takes-all market?

I don’t think so. The reason is that they (Ola) are fundamentally changing transportation and providing utility like they never existed before. The reality with e-commerce is they are extremely easy to use but their alternatives also exist. Fundamentally it is a different kind of business. It is often talked that the winner takes it all but I don’t think they can beyond a point. For example, in the US, Lyft is gaining on against Uber and if it was true that winner takes it all then Lyft would be dead by now. The key point is that you need a certain critical mass of liquidity at any point.

SoftBank has marked down valuations both in Snapdeal and Ola. How is Ola coming along as an investment for Matrix?

I would say don’t look at mark-downs. They are like stock markets’ price changes which are often mark to market and that does not necessarily reflect in convictions that the investors have in putting more money into it. I think Ola provides one of the most localized products and over a period of time, you will see more comprehensive transportation solutions.

Founders of home-grown tech companies including yours have made comments that capital dumping is killing Indian start-ups…

I am a hard-core capitalist and I believe in free markets, on the one side. On the other side, I also believe that best products and services always win. But if inferior products are winning because of money being thrown at it, that is a different question. I would say I am more of a believer in carrots and not sticks.

I do not believe that there should be protectionism but I do believe that there should be incentives for Indian companies. These are two different things. If Indian companies are doing more of a hard work and generating more employment, they should be incentivized. For example, in transportation, should Indian companies have better shot at tying up with Indian Railways or otherwise. Even in the US, which is an ultimate capitalist country, the transportation sector, in particular, has a lot of safeguards.

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