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Episode 71 / June 28, 2020

Somesh Dash, IVP on learnings from the crisis of 2002 & 2008 and investing in resilient companies

hr min

Episode 71 / June 28, 2020

Somesh Dash, IVP on learnings from the crisis of 2002 & 2008 and investing in resilient companies

hr min
Listen on

 

 

While having his family roots back in Odisha (India), Somesh had his upbringing in the US. After completing his graduation from UC Berkeley in 2001, as the US job-market was hit after 9/11 he came to India and joined Sony Entertainment.

Later in 2005, he joined Institutional Venture Partners (IVP) back in the US. IVP was founded over 40 years ago and has so far invested in over 400+ companies out of which 111 have gone public.

Some of its portfolio companies include – Twitter, Slack, and Soundcloud among others. In this podcast, Somesh shares his experience of investing in growth-stage companies across various sectors.

Notes –

02:20 – Building a portfolio with numerous public companies

05:52 – Two lessons the Startup Ecosystem can consider during Covid-19 crisis as learnings from similar past events

12:51 – Starting his career in India after 9/11

23:22 – Investing in companies in their growth-stage – Twitter, Thrive Global, Netflix among others

27:30 – Diversity in portfolio companies spread across Cyber Security, Consumer, Analytics & Enterprise Softwares

31:27 – Missing out on Salesforce & Zoom

39:08 – Second wave of Tailwinds which most people might missout in the startup ecosystem

43:50 – “A Startup’s aspirations shouldn’t be to raise the next Unicorn-venture round, it should be to build the next Microsoft or Google.”

53:27 – Importance of Mental Health from a VC perspective

 

Read the full transcript here:

Siddhartha 0:00

This is a Siddhartha Ahluwalia. Welcome to the 100x Entrepreneur podcast. Today I have with me Somesh Dash, General Partner at Institutional Venture Partners. Institutional Venture Partners is one of the oldest firms in the world in venture capital. They have invested in 400 companies, 114 of them have gone public. IVP is again one of the top-performing funds in the industry and has a 39 year IRR of 43%. Somesh, welcome to the podcast.

 

Somesh 1:00

Thank you, Siddhartha. Thank you for having me. It’s a real pleasure to be here with you and your audience today.

 

Siddhartha 1:05

Somesh, it’s a real pleasure to have you and to give a brief background about you to our audience, you joined IVP in 2005, you have focused on investment in internet software, wireless and technology-enabled service companies. Some of the companies where you have actively participated in IVP’s investments are AddThis which has been acquired by Oracle, Akamai, it’s a public company, Amplitude, AppDynamics which was acquired by CSCO, Datalogix, again, acquired by Oracle, Datadog a public company, Dropbox, again, a very well known public company FleetMatics, a public company, Loopnet, Motorsport, my SQL acquired by Oracle, Netflix, one of the largest companies in the world in OTT space. So there’s a list. I can continue to go on Rubrik, Shazam, SoundCloud, Thrive Global, TuneIn, Uber, and Zynga. So, Somesh, my first question is that how have you been able to just build a portfolio for many fantastic companies like it’s rare to see VCs with so many public companies where one of the partners has been actively investing.

 

Somesh 2:34

Thanks so much. I hope you and everybody on the team of 100x are safe and healthy in the midst of this global pandemic, which is affecting all of us in the United States and India. I joined IVP about 15 years ago. So, you know, some of this has just been around for a while you know, you are able to work on multiple transactions and venture capital, you know, that the general rule of thumb is if you make 10 investments, you know, one is aspirationally at 10 X, and you know, a bunch of the other ones will go to zero and then a few you’ll break even. I think our focus on growth has enabled us to pick companies up at different stages. So we are a multi-stage firm. So out of fairness, we are not series A investors or seed investors in all these companies. Some of them, as you noted, was public when we invested, some of them were, you know, kind of in their growth stage when we participated. So we get involved in different stages, what we really focus on is when companies hit an inflection point around growth, and you see that momentum build. We look for companies that are at you know, we say 10 to 100, 10 of ARR, 10 of revenue with the path to 100. And then many times we do get involved in companies where they not only reach 100, but they have a path to a billion revenue or ARR as we’ve seen with Netflix and we think that potential exists with Datadog and CrowdStrike, and many other companies that are public that we’re involved in, now Rubrik, which is private. So, I do think that some of this comes from just a hyper-focus on growth. For our firm, we’ve been exclusively focused on technology growth for 20 years now. And the firm has been around for 40 years. And going back to even preceding my time at the firm in the 80s and 90s. Even then IVP was investing in growth rounds investing at the IPO after the IPO. Our first investment ever was Seagate technologies in 1980. We invested and when that company went public in the mid 80s, we actually bought at the IPO when others were sort of looking to exit. So, one of the important things we learned is an IPO is financing. It is a great milestone for the company. It is an important event, but it is not the end. A lot of people think the IPO is the end destination, whereas we view it as just a part of the journey where you really succeed as a venture investor is by figuring out which companies not only can get public but actually become very successful public entities. And in our case, we have a crossover model where we can invest in the public markets, we can hold them to public markets, we obviously manage liquidity very closely. So where it makes sense we distribute our shares to our limited partners, and where it makes sense. And we see market asymmetry we double down and actually buy in the public markets. So we truly have a long term focus on partnering with entrepreneurs. I’ve been involved in Pure Storage now for about a decade. We originally met the company when it was around the series A stage and we continue to support the company and it’s about four years post IPO and we’re still involved with the company.

 

Siddhartha 5:48

Somesh, today we are sitting in June 2020, it is a very unprecedented time in the history all of us have seen even I would say in 100 years. Not only we are facing a global pandemic throughout the world, but the US also has events that have never seen a couple of days back. Immigration got banned by President Trump. India has its own set of challenges, you know, dealing with COVID and China. What’s your learning during the last three, four months? You know you got time to introspect?

 

Somesh 6:29

Yeah, it’s a great question. I grew up as an Indian American. And I remember a quote when I was a teenager, from one of the residents, Swami Ji, who said, disappointment comes to those who make appointments with the future. And I think there’s been no greater evidence of that in the last six months. The reality is all of us are well informed and pretty up to speed on what’s going on globally. And yet, I don’t think anybody would have predicted on December 31, less than six months ago, a global pandemic economic volatility, obviously a huge amount of unrest on the civil rights race side in the United States, potentially a war between India and China. And then a whole plethora of other micro-events that you know, whether it’s small things happening to companies or the Fed in the United States pumping in $2 trillion at record speed. All of this is unprecedented. So I think you and I were joking before the show. If any of these events happened in one year, it’d be the most significant event of that year. We’ve had four or five of these events happen in the first half of 2020. So we are really in historic times. I think, there’s been a number of lessons that I’ve drawn from this experience. The first is, you know, a great way to understand the future is to look at the past. So, Silicon Valley is exceptional looking at the future but negligent looking at the past. There are lessons to be learned from 2002 and 2008. The first is that companies who can manage their own destiny, and in terms of their own capitalization typically survive and thrive when the economy comes back. So, in 2002, in 2008, high burn companies that were volatile and unpredictable, many of them failed, they just didn’t live to see another day. Companies that cut their burn rates, managed through these tough economic periods by doubling down on exceptional product-market fit, investing in R&D, but cutting all discretionary spend, I think is a huge, huge advantage. The unique thing that COVID-19 is teaching us is that the two biggest areas of spend for any venture Funded company in the states are rent and labour. And when it comes to rent, I think we’re all realising that commercial real estate is predominantly a big waste of money. I think we’re all learning that there are hybrid work modes that we will all move into even post COVID that are just better. People are more productive, they’re less stressed, they are hybrid, there are many things that you want to do in person in small groups. But there are also so many things, especially one on one communication that you can do through video conferencing. I think zoom and slack have evidence to all of us that there is a better mode than doing every single interaction in person, especially with urban areas becoming crowded. So that’s one lesson we’ve taken away in a post COVID world. We’re likely to stay hybrid, remote work as the other and that touches labour. So, the reality is there’s going to be a global workforce of skilled tech workers, and I think it really stands to benefit the Indian startup ecosystem because India is one of the best labour forces when it comes to deep steam training, engineering and business process minded knowledge workers. And the reality now is geographic barriers will not be as much of an impediment as they once were. The next generation of startups will have people in the United States, they will harness people in India and parts of Asia, they’ll look for potential sales talent and go to market on Europe. And I think there’ll be much more hybrid and fluid. It also helps I think, with Indian companies, I think Indian startups will be able to recruit experienced people in Silicon Valley and other parts of the United States to join their teams, where in the past, it was sort of mandatory that you had to live where the company’s headquarters was or where a company’s offices were. So I think that is the other lesson I’m seeing. I think companies that come out of this era will be actually best, will be even better served than had this era not happen because I think this focus on the right kind of growth. In, you know, Bill Gurley talks about this in a lot of podcasts, when the bubble burst, it really burst fast and busts hard. And that’s a little bit of what’s happening now, you may not see it in the economic numbers because the stock market’s been robust. There’s been, I think, some great performance we’ve seen, but we’re in the early days, we’re only in a month, you know, call it three and a half to four. We’re not in, you know, the last cycle lasted in 2008 for almost two years. And so we have a long way to go. And I think that companies that use COVID, as an opportunity as much as a threat will really do well. And I think it’s going to be in some sense, I actually predict there will be an Indian particular, not just more unicorns formed because I think the concept of a unicorn is a little bit myopic. It is a private company valuation that an investor puts.To me, the sign of true ecosystem success is how many public companies are formed, that not only go public at a price but when you look 2, 3, 5 years out, the performance of the company and the share prices are a multiple of what they were when they went public. And I think many of those companies will be formed in this time period.

 

Siddhartha 12:20

Thanks for sharing that, Somesh. Just going back a little, you started your career in Mumbai, just post 9/11. That would have been, again, a historic event for you. You were in Mumbai, just done your graduation, and working for Sony in Andheri. And I believe you have a very unique perspective among the valley born bred VCs. And given that you had an experience at a very formative age at an MNC in India, what was at that point in time? What did you feel like? How was that experience?

 

Somesh 12:58

So, this is gonna be fun for me, because I don’t usually get to talk about that area of my life. But I was, as you mentioned, Siddhartha I was born in the United States in California, I always joke I hit the genetic lottery because I was born in California in the late 70s. I grew up in the Bay Area in the 80s and 90s. I mean, there was no better place in some sense to grow up and be surrounded by innovation. As a kid, we would go see family, friends, and literally my parents would point out to me, this is where Apple Computer got started, you know, this is where Oracle got started. This is where Sun Microsystems got started. So it was always a part of kind of our surroundings, and especially in the Indian diaspora in the Bay Area has done so exceptionally well over the last 50 years that they were instrumental in many of the growth and foundings of these seminal companies and seminal industries, frankly, in the semiconductor industry, the optical networking boom of the 90s of course, the software industry. So I went to India every year or every other year with my parents to see relatives. My parents are both from Orissa originally. So we would go there but also spend time in Delhi, Bombay, Calcutta, traveling around India, but I went as a tourist, I never went really, as an independent sort of professional. And I always had a dream of actually living in India and I’m a die-hard Indian from, you know, my favourite food and from the music, I love Bollywood, I played music growing up and watched movies and went through lots of Indian Sunday schools and read AmarChitraKathas and I was sort of hoping to get a PhD in South Asian Studies even at one time, so I really valued my upbringing and my roots. Steve Jobs, in his famous commencement, address at Stanford University, from 2005, Looking forward, you can never predict but looking backward, it actually makes a lot of sense. So in 2001, the recession started in the United States, NASDAQ had hit 5000. And suddenly things started falling and what is commonly known as the dot com Boom, turning to the dot com burst, in my own purview. I was going to go work for a consulting firm in the Bay Area. And I was all set to do it right out of campus. And then I got deferred for a year. And I had an opportunity to think about what did I want to do for that year, and immediately I went to seek out opportunities in India. I was very fortunate that one of my family friends was involved at Sony as an investor when India’s cable business was liberalised. In the early 90s, a few multinational networks were formed, the most noteworthy of which was, of course, the star which was formed by News Corp, the Murdoch’s and the other one was Sony, which tied up with a number of local Indian and Singaporean promoters. And so I had a chance to go live in Mumbai, work in Andheri and Lokhandwala, for the amazing team at Sony Entertainment Television. And I got to basically spearheaded Corp Dev, new media strategy initiative, which was kind of a horizontal role. I got to do things like creating an online Film Festival to look into film acquisition. And we actually created the original framework to bid on the World Cup ICC rights for 2003 which ended up being a very important thing for Sony. So I really enjoyed my time there. I think most I learned a couple of things that I still apply today from my experience in India. The first is I underestimated how hard it is to get things done, you know, just with the Indian system. So I was very lucky I worked for an MNC as you said, and Sony was well managed, but even then, just you know, trying to get something done in India was harder than I was used to in the US. So the sense of accomplishment but also the tenacity and grit you get from just being a worker in India is something that gives you an advantage when you’re working in other markets that are not like that. I learned that India by its very nature is just very entrepreneurial. Everybody is sort of a mini entrepreneur, everyone is innovative. So you don’t have to teach an entrepreneurial mindset in India. It’s just part of daily life. You know, grandparents, moms, kids, everybody’s an entrepreneur and the way they think they may be doing different things. They’re not all starting venture-funded companies, but they’re all kind of mini entrepreneurs, which I think made me a huge optimist on the Indian ecosystem overall. I also just learned that people really believe in the underdog, you know, I think in some sense, as a result of liberalization and the reforms of the early 90s as a result of independence in the late 40s. I think this idea that somebody can start from nothing and make it whether you go back to the history of you know, kind of Mahatma Gandhi story or Dhirubhai Ambani and the reliance story. I mean, there’s so many of those examples around. I do think one of the problems is the media. And the ecosystem hasn’t done a good enough job of promoting those role models and kind of putting them into curriculum Kto12. And really celebrating those successes versus taking them down at the first opportunity. So, that was perhaps the most seminal year of my career. And it’s set in motion, so many things I did later on. But I really got to see the startup ecosystem to I went to events in 2001. And at that time, you know, Westbridge, and Chris capital were two active venture funds, there was a number of new funds getting started, you know, Sanjiv Bikchandani and Naukri was sort of the big success story in those early days of Indian startups and I got to see it firsthand and meet those people. And that began, I think, a lifelong admiration for the Indian ecosystem and, also while at IVP, I spent a lot of my time focused on US growth companies. In my personal capacity, I have spent a fair amount of time investing, advising, and working with both Indian venture capitalists as well as Indian startups.

 

Siddhartha 19:10

Fantastic, I believe, there are very few venture capitalists with such diverse experience and such diverse backgrounds. Somesh, tell us, you know, you say that you had a lucky chip on your shoulders being born and brought up in the valley. But how was going to Berkeley and Stanford, big educational opportunities for you as a first-generation Indian American, and what doors did it open for you?

 

Somesh 19:36

Yeah, to be fair, my parents both emigrated to Canada originally and then the United States to do graduate school. And so my father went to the University of Waterloo and studied computer science in the 70s before it was really a dedicated discipline. He was early in some of the pioneering work they did. My mother came to the University of Toronto to get her master’s in economics with a focus on econometrics. So it’s not fair to say that education was always prioritized in our family both in India and my immediate family in the united states because it was really the thing that opened up the opportunity. And that still is something incredibly important to me, as a parent to two young kids today. Education I think is even more important today than it was back then. I will say that I was the first in my immediate family and even extended family to go to a US undergrad institution and go to graduate school in the United States. And it was really special because I saw from a young age, you know, my parents taking me to universities and exposing me to their history, making me understand the kind of research that was being done and how cutting edge. There’s was a deep sense of admiration and respect for academia for professors, many of my friends, and family friends or professors that were there. So in some sense, I was not someone who grew up around Wall Street or finance or capital markets. All of that was news to me when I learned about it later on. UC Berkeley is a special place in a lot of ways. It was one of the seminal places for a great cutting edge work in science engineering. There’s a number of Nobel Prize winners who are still on the faculty today. There’s also always been a place that was the epicenter of sort of civic disobedience, which as you know, as an Indian, is so core to our identity and DNA from the freedom struggle. But also, you know, when the civil rights movement started, in earnest, the United States of the real push in the 60s, Berkeley was the epicenter for a lot of that. So I always wanted to go to a place that combined a fantastic education with a sense of purpose and identity and Berkeley gave me that and I listened to a talk a few years ago by Anand Mahindra, who had a really good perspective of one of the great things about the US education system is it gives you the opportunity to explore and be broadly intellectually curious and Berkeley was that for me. I took classes, you know, in physics, chemistry, biology, I took classes in the humanities, whether it was American poetry, I took classes in South Asian Studies, as I referred to earlier, I took of course classes and have a degree from the business school which had an undergraduate programme in economics. At the time I was there, you know, Christina Romer, Laura Tyson, some of the people that went on to literally be the economic czars the United States were faculty members, Janet Yellen actually taught her undergrad class on macro became the head of the Federal Reserve. So it was a very special time to be there. And I’m continuing to stay involved in the university. When I went to India, the year I was there, I helped kickstart Haas’s alumni activities in India and I continue to stay involved today, especially around areas of innovation and entrepreneurship. So yeah, it’s a very special place for me and I’m lucky that I live only about an hour away. So I continue to try to get to campus whenever I can.

 

Siddhartha 22:59

Somesh, coming on to your current role, some of the sectors in which you invest heavily are enterprise, infrastructure, and security, for example, companies like Amplitude, Rubrik, Datadog CrowdStrike the other sectors are future of work in which you have Slack, Thrive Global, and social platforms like Twitter, Snap. Why these sectors and if you can dive deep into some of them, what made you particularly invest in these companies at the growth stage?

 

Somesh 23:37

Siddhartha, part of how we manage the firm and IVP where I’m a general partner is we look at every investment as a firm investment, we don’t look at them as this is a Somesh’s deal or this individual’s deal. So you know, we share credit, and we take accountability and blame when things go really well across the portfolio or they go poorly and I think that’s an important thing. We’re celebrating our 40th year as a as a firm. And I think that is one of the key reasons this firm has continued to succeed and thrive and also seen generational transition is we don’t have a siloed view of sort of an individual versus the group itself. So I’d say on the enterprise side, part of the heritage of IVP was always to invest in great technologies that were looking to solve issues that were within the corporate sector, Seagate was one of our all time great investments, if you look at IVP is what got us on the map in the 80s. It was really the growth of the storage industry and that time we think of storage very differently, we think of cloud storage, but at that time, it was really tape and which then transitioned to disc. So Seagate was one of those early pioneers in that the semiconductor industry, the integrated circuit boom that occurred in the 80s. Intel of course, is the most famous success story but we were early investors in LSI logic Altera and apple in the 90s. And then the internet boom really started in earnest in the early 90s. IVP was an early investor and one of our most I’d say important investments last 40 years was being the founding investors in Netflix. And I think when I joined IVP, I really spent some time talking to the founder of IVP. Reid Dennis, who’s still alive in 94 today and an amazing pioneer of the venture business broadly, getting a sense of that history. And some of my older partners had been through those cycles and had seen, you know, the 80s and 90s. And we’re just so kind and willing to share their perspectives. I really soaked it up. I was like a kid in a candy store. I was always fascinated with just shifts in technology, and shifts in markets. And the first shift I saw when I joined in the mid 2000s was on premise licence models. We’re moving to SaaS, and a great example that was coming We were early investors in Concur travel and expense software company today owned by SAP. But at the time, it was a public company, and Steve Singh, and Rob Singh, two brothers, who were their co-founders and ran the company made a tough decision in 2002. And the markets were done to change the business model and basically go into an on delivery model. And so we actually bought the public markets from the stock went down in 2002, and had a great investment through that. And we saw the broader trend of SaaS as being one that we really wanted to get ahead of. So we were early investors in a number of SaaS companies, both in the public and private markets. But we also saw open source as a trend that we got really excited about which led us to our investment in mySQL, one of my first investments I got to work on, which helped pioneer in some sense the open source model and today is much more commonplace and popular. Back then it was really a dual licence model. Today opens source is a combination of proprietary code written by these great companies, but also a community aspect that helps with distribution, marketing. And of course development. When I joined the firm, I was just fascinated how the internet was transforming everything. That time, if you believed in consumer internet, you’re actually a bit of a contrarian in kind of early oh five late oh four because most of the dot com morass was really, Internet companies, B2C companies that had gone under. But in this time, a good friend of mine joined a small startup as employee number seven, I got a chance to hang out with them. And that startup was actually Facebook. I got to see in my first year at IVP, how Facebook quietly was sort of innovating and building a whole new form of advertising model, a social engagement model on the web. And it was sort of eye-opening to me that I think perspective led us to leading the Series B of Twitter and February 2000, the financial markets seemed like they were going to end and valuations were plummeting. And in that, we and benchmark capital coalesced around in Twitter at around a $200 million valuation. I remember distinctly we got emails from many smart people saying you guys are crazy if this company’s going to go under and Facebook is going to beat it. You know, it also led us in May of 2013 to lead the Series B of snap a company we’ve been involved in now for seven years and known for about nine. Everybody said Instagram is going to kill it and Facebook is going to destroy it. And WhatsApp can do a lot of the same feature functionality. And I’m really proud that I’ve been in a team there have led snap to be a $30 billion market cap company today and a real pioneer on sort of mobile engagement, Gaming, we did our Zynga investment in the summer of 2008. So we have always had this focus on both enterprise and consumer. Security was a market that we really looked at and played in the mid 2000, when I joined we were early investors in ArcSight and Tripwire. I think what changed was, frankly, that the quantity and magnitude of intrusions and hacks just went up exponentially as threats came from everywhere, they came from within enterprises, they came from outside enterprises outside the firewall, they came from nation state hackers. So the common theme you see across our security investments is that the nature of this problem is changing. Even during COVID-19, the number of threats and the magnitude of threats has gone up. And so security is more important today than ever before. And we look at it more like a market bet. So we look at companies like CrowdStrike, they do Endpoint Protection. We look at companies like Tanium that are in the systems management part of the change management. We look at companies like Expanse. They’re really focused on Internet of Things and sort of what’s behind the dark web. When companies get acquired or people leave, or their assets that are going undetected, pin drop security focuses much more on call centre and authentication. So, there’s lots of different ways to play it. Analytics is another space. We spent a lot of time in Amplitude is pioneered some of that work when it comes to analytics for product managers, really product analytics. We were also investors early on in Omniture, which did that for marketers about 15 years ago. So I couldn’t be more excited actually, about the kinds of companies being created the growth trends that were jumping around. I think, in some sense, the success of these entities is of course, wonderful. And it’s great to see our limited partners, our investors, be rewarded for their faith in us by some of these companies exiting and having great outcomes. The best part for me is actually the work with the founders. I mean, if one thing founders are the most resilient group and tribe of people I’ve ever seen, but more specifically through COVID-19 what I’ve seen It’s already hard enough to be a founder to try to navigate a startup company through these times is just insane. And to see the resilience with which our founders are doing it, it’s really, really quite humbling. I mean, they’re the ones who are putting companies on their back, they’re doing the hard work. And the lion’s share of credit goes to them for kind of what these companies end up becoming. And I think the best investors know how to support those founders, to push them when they need to be pushed up their thinking. But ultimately, our job is to be sounding boards, to these founders. It’s not to have a control mentality. It’s not to try to get in the way of founders and take credit when the credit should be due to them. You know, I think node coach had a really good quote, which is, you know, to be in some sense, tough critics, in private, the biggest cheerleaders in public and I think that is a good mentality to have, especially in times like this.

 

Siddhartha 31:54

That’s a very unique view, Somesh. And relating to COVID-19 impact, what are some of the tailwinds you see on certain sectors and companies and headwinds on others. So I would just like to mention one thing that you are so focused on enterprise, the two companies, I’m wondering how did you afford to miss them, one was early Salesforce in 2000 and Zoom in 2009-2010?

 

Somesh 32:28

This is the part of the podcast where I have to pause and go cry. No, I’m kidding. So, Salesforce preceded me. So I don’t know the exact specifics of that relationship. But from what I’ve learned from listening to Marc Benioff and Parker Harris and others, Salesforce didn’t really go through a normal venture capital fundraising process. In fact, I remember Salesforce had a couple of these, what we call today kind of super Angel rounds that gave it the money in the early day Salesforce turned profitable faster than most enterprise companies today do. It was a very different time in the late 90s, after Marc left Oracle, that he was building that company. And they went public a lot earlier than the classic IPO today. So, you know, that one, we don’t spend as much time thinking about. Zoom, unfortunately, we did have an opportunity to invest in multiple times. And first of all, a huge thank you to Eric Yuan and the team at zoom. I mean, to say zoom has been the tool to help all of us stay connected in this tumultuous time is an understatement. I mean, they’ve done just an incredible job. It’s a great example of both a product that continues to evolve but also a company that has really a fantastic business model to capitalise on that. I checked, I think Zoom’s market cap today is north of $60 billion, which is just unbelievable. And deserving given sort of what they’ve done. We part of how our firm works is when we meet new companies, it comes through a combination of pro active sourcing where we reach out to companies, we follow trends, we have relationships with a number of founders and early investors. And also inbound where many board members refer us to companies. They know our firm, they understand our brand, they know where we’re helpful. They know what we’re not. And so Zoom was through a combination of those things were we knew it, we were investors in WebEx in the public markets. We’ve been tracking Eric, who was a core member of the WebEx squad, and saw it taken off. I remember visiting the company’s offices in San Jose and getting to meet the team and see their early plans about four or five years ago. And I think we what we got wrong on that. One is we underestimated the sheer size of the transition going on with sort of cloud communications. And we also probably overestimated the ability of the incumbents, namely Cisco, and others to beat the startups and I think we learned the lesson in a very price pricey way So they just continue to execute and hats off to Sequoia Capital and a number of other growth firms that got in there. But it’s a, it’s a painful Miss, we did invest in slack relatively early and continue to be huge fans of that company. So we did play that trend in that way. And I’m involved in a company called discord, which in some ways is a consumer version in a lot of ways of zoom. Discord, for those that may not know, was originally a chat app built for gamers hardcore gamers that wanted to communicate while they’re playing games. It has now moved much more horizontal and is being used in lots of different use cases, you can use it as a chat app when you’re either whether you’re playing a game or not, you can use it as an audio only app. And you could use it for video streaming, both on the web, on their dedicated PC app and also on mobile. And so a lot of the trends we see at zoom that have been tailwinds. I’ve also been Tillman’s for Discord. Going to your earlier question. Our portfolio is about 85 or so active investments. And within that we see probably about 20 of our companies that have seen marked tail winds accelerations that we didn’t expect. We didn’t predict. We see about half a dozen to a dozen that I’ve seen tougher times headwinds. And if I had to synthesise the tail winds that we see the most of. One of them is, of course, we just talked about communications. So any company that touches communications within the enterprise within the prosumer space or within the consumer space has seen huge lifts, education technology, we’re seeing more and more of education go online as schools were shut down. And parents, administrators teachers have needed to educate you know, from the preschool age all the way to the postgraduate age, huge populations. I think there’s massive innovation coming there. telemedicine within the healthcare sector has been huge. We have a number of companies that play in this space. And we’re seeing that be a huge tailwind. Of course in the consumer space, gaming and sort of entertainment optimised for mobile phones. We’re big investors in MasterClass, which has done exceptionally well in this period and announced a financing recently. They bring masters and have them talk to audiences that are curated around what is it about their craft that, you know, is really distinct. And also, it’s interactive. I mean, you have a chance to participate, learn things that you can apply whether you’re you want to be a professional writer, or you just have some interest in hearing Aaron Sorkin talk about his craft. On the headwinds, I’d say travel and hospitality have been hit hard. So whether they’re enterprise companies that have a lot of big customers from that vertical, or if they’re consumer companies, and they touch that, I think those have seen, you know, big headwinds in transportation, micro mobility, you know, stuff around aviation. I think that’s where we see the headwinds in our portfolio. But all in all I have to say, when this happened early in March, we expected there to be a steeper decline and more headwinds and tailwind. I’d say assessing now and end of June, we’ve been really impressed with just how our companies have stayed resilient, robust, how quickly entrepreneurs cut, burn, extended lines of credit. We, of course supported many of our companies as they went from kind of six months of cash to a year to two years. Many of our companies have the ability now to weather the storm even if it continues for another 12 to 18 months.

 

Siddhartha 38:39

So, my next question to you Somesh is what are the other sectors? You already mentioned about security on the internet for enterprises? The other thing we discussed was communication based tools, both for personal and enterprise use. What is the second degree of tailwinds you believe will come that people are not expecting or VCs are not looking at because the first order is always followed by a second order side effects?

 

Somesh 39:14

That’s a great question. So, I’d say we can split it up again into the enterprise. One of the trends that we’re seeing in the enterprise is really an acceleration of rethinking the stack with which developers are going to be building tools. So, we already have a number of investments in this space that are helping create new tools for developers or new systems and processes. But that’s accelerating. If you look at kind of now with remote work developer teams, or distributed, developers themselves need more tools that are kind of local resident versus centralised to build stuff. So we have a lot of focus on the DevOps tools market. Startups and growth companies that we’ve seen have huge tail winds. Analytics are even more important. So we’re seeing in some sense, the rebuilding of the business intelligence stack. I mean, there was sort of ETL. Now we jokingly call it ELT. We’re seeing great companies being built in each parts of the stack. In some sense, you can imagine the new age, Business Objects, or Informatica tip goes coming from this era where there are companies that are building the new tools that are cloud native, integrated with public store with the public clouds, delivered obviously on demand with a SaaS model. And really focusing on specific pain points in the development process versus a top down CIO approach. We’re seeing that trend. You can look at Twilio is a great example in the communication space of doing that the public markets but there’s so many other sub segments that enterprise that’s happening to now. We’re actually seeing a lot of growth frankly, in the AR VR world, I think in the consumer space. We’re seeing more and more people wanting to virtualize entertainment experiences as hardware becomes cheaper. And I think the software stack enables more and more feature functionality in headsets. You know, we saw early forays from Google snap and the large public companies into this, but now we’re seeing private companies really filled that gap. So that’s been an exciting space as well. We talked a bit about education. You know, one that’s particularly interesting to me is the power of community. So the truth of COVID-19 is, it has exposed frankly, how community and and groups are important not just for our our workplaces, but for our mental well being and our sense of purpose and identity. And I think companies that harness that idea of community and commonality are going to do really well discord and masterclass are two examples that are in our portfolio. But I do think that a lot of the traditional offline businesses that we think about when it comes to community Community Centre churches, synagogues, temples, are in the United States getting reimagined even, I mean, Indian culture has such a rich heritage of mythology, and religion and tradition and ritual. And truth be told that a lot of that has not online yet. And I think in the next generation, people are going to be looking for digital subscription services that enable them to teach both the mythology and the stories to young children as a supplement to what they get in schools, but also have a community where kids will have the chance to meet other kids that have like minded interests. Um, you know, in the midst of seeing my kids go through summer camp, and it’s not just a place for them to get taught, or have curriculums. It’s a place for them to form relationships. And there’s no more powerful thing the internet can do then, to bring people together. We’ve seen the perils of the internet, where it can drive people apart if used for the wrong things. But I do fundamentally believe in both the Indian and the US ecosystems that there’s going to be more faith based community oriented subscription services that supplement a lot of the ad based models or commerce based models that we saw the last 10 to 15 years

 

Siddhartha 43:05

Those are very interesting insights, Somesh. I hope some of these tail winds of the second order become first order in the coming months and give more opportunities for different kinds of companies to flourish. So coming on to, you know, the venture capital environment, because you have many friends, you have you said you have mentoring companies, and are invested both in the VC ecosystem in India and in Valley, what are the key common themes and what other differences do you see between the both ecosystem? And what do you think, where’s the Indian VC ecosystem going in the next one year two years?

 

Somesh 43:49

Yeah. So I think the first comment I’d make is obviously the the roots of the Silicon Valley entrepreneurial ecosystem go back to Frederick Terman at Stanford University in his two graduate students, David Packard and Bill Hewlett who formed HP. That’s the first kind of origin drive story. There’s also of course, the semiconductor industry, which was a direct result of Bill Shockley Fairchild Semiconductor, which then spawned off Intel, AMD national and a whole industry. So there’s been this kind of to use the Hindi word, there’s a Parampara in Silicon Valley, which has been small kernels of innovation, spawning industries, and large, independent companies that thrive even today. And that’s, I mean, you can see that in the semiconductor industry in the software industry. You know, the PayPal alumni group has been instrumental in the internet and payments industry. So I think it’s that ecosystem concept. That’s personally for me been the most interesting to study here. And I think the Indian startup ecosystem is younger and I think it is quite robust. I’ve spent time with the founders of Flipkart Snapdeal. I see how much they’re doing in their personal capacities now that they have liquidity and success to help faster the next generation of entrepreneurs. And I think that’s stellar. But I think the most important thing to remember is nothing replaces the success of a large, independent public company. And I think the aspiration shouldn’t be to raise a unicorn round. Because remember, that is a illiquid that is not liquid. a unicorn round is just a milestone that a investor or a group of investors puts on a company in a point of time. I think what’s more important is to not say the aspiration is to sell to Google or Amazon or Microsoft. It’s actually to build the next Microsoft, it’s to build the next Google and that takes time. That takes patience. That’ll take not five years, not even sometimes 10 years. That’ll take 20 years to build a company that’s worth over 100 billion dollars. If you look at the Chinese ecosystem, what’s made that so resilient robust is you have a set of companies that have executed exceptionally well and adventure ecosystem designed to find the next set of those companies where there are more companies in China today that are liquid and worth over 100 billion dollars, then, frankly, being created the United States at the same pace. And I think for India to create that there really has to be incentives designed to keep employees going to keep founders rewarded to keep investors in the game long, so that you will actually have that same sort of ecosystem. I think where VCs can be the most helpful is by serving a sounding boards and thinking a bit about how to actually be long term aligned with their limited partners so that if you do find a next Amazon or Microsoft that’ll have such great effects for the franchise. They’ll have such great effects for, you know, obviously the returns, that should be the goal. It should be to find the great winners, selling out early should not be rewarded. You should not force entrepreneurs, if it’s against their will to sell their companies prematurely. You should not be seeking out premature liquidity just to give your investors a baseline return. That should not be the goal of early stage investing early stage and venture investing should always be about holding on to your winners as long as possible. And I think there needs to be reform I think in the public markets system also. SEBI is doing work on this, but I think the BSE, you know, really needs to be a more robust environment where you could see the institutional float come in what makes the US public market successful is you have so much capital being provided by the tiro price is the Wellington’s the fidelity’s that support companies where they can write multi billion dollar checks along with the long hedge funds. I actually support companies to go from, you know, 10 billion to 50 billion, 50 billion to 100 billion. That’s what I think needs to happen most importantly, for the ecosystem to really be robust. I’m bullish that it will happen under this administration in India. I just hope it gets catalysed and galvanised a bit faster. Because I think, until there’s our own examples of a Tencent, you know, or Alibaba, we will we will be selling ourselves short. I am personally hopeful that in my lifetime, I’ll see a trillion dollar market cap Indian company, founded in India and supported by Indian venture capitalists. But that’s not going to happen in the next 10 years. I hope that happens somehow, in the next 20 to 30 years.

 

Siddhartha 48:46

And do you also see now because of COVID and borders really becoming a thing of the past because growing elaboration has completely taken on to the next level. Indian entrepreneur doesn’t need to be in US to sell to US companies. So many Indian companies, especially in SaaS, and enterprise space, becoming billion dollar entities in US today, as of today, there are eight Indian SaaS companies, which are unicorns. This includes the likes of Freshworks, Dhruva. What was your take on that?

 

Somesh 49:29

I think it’s great. It’s a great start. I think we need to be careful though. So in our firm, we focus much more on company fundamentals. So a unicorn to me is a billion dollar valuation, the thing we look for much more is 100 million dollar ARR business or a billion dollar business. So I think, ideally, some of these companies are on that path, if they are not already. I think that’s very important. I do think that we started the conversation, in some sense, the greatest headwind to the United States is faulty immigration policy that is leading the best and brightest who aspired in my parents generation to come to the United States, not only study here, but live here, set their families up here build the careers here to second guessed that that’s been happening for a few years now. But that’s only going to accelerate if the number of h1B visas is truncated, as we saw a few days ago with the Trump administration. So I think in some sense, there’s a structural advantage now that Indian entrepreneurs have which is you can stay in India and there’s a robust startup ecosystem there. That’s forming and growing. capital is also much, much less siloed saying that I physically have an office in Sand Hill Road I only do deals in Sand Hill Road. IVP has you know, made our first investment which we’re announcing a few weeks completely remote, we met the entrepreneur through Zoom. We did diligence virtually and we are leading a pretty big round in his company and So, I actually think that because of remote work, you flip the paradigm. And there will be fantastic entrepreneurs that will stay in India and build these companies. And actually, many of them are going to be able to access the best talent in the valley. And so the valley is going to be even more competitive to hang on to some of the best people here when I actually think that, you know, companies across the world in Brazil, Russia, China, India, will be able to recruit that same talent over time. And it’ll be a wake up call to Silicon Valley, hopefully a wake up call to our public administrators here to reform some of these these idiotic immigration policies that are being created right now. And I personally predict that, in particular, when it comes to communications, the domestic market in India is so robust, right, we’re seeing the money pour into Jio, which is just a fantastic success story in India. But I think even more broadly there was going to be unique platforms built in India. Jio, of course, is one of them that’s emerging. But we’re going to see more of those get created. I think, as we both know, as Indians, Indians love to communicate, verbally, you know, through text. And so I think audio is another platform where the next generation of Alexa Google Voice will probably be created in India. And there’s going to be a lot of innovation happening both enterprise and consumer and the voice space the next 10 years. So, I couldn’t be more bullish on the Indian startup ecosystem. I do think that there needs to be continued push by limited partners of Indian venture capital firms to make sure that their incentives are aligned with trying to build the next generation of great companies versus just looking for a minimum return and the risk return curve. There are easier and better ways if you’re looking for a high single digit net return to achieve that, than doing it through early stage venture capital. So they’re probably misalignment of who the LPs are for some of the early stage funds and what their expectations are. And I hope that as family offices get created in Asia, we’re seeing that trend and specifically in India, more and more of those more risk taking entities will come into the Indian startup ecosystem either as direct investors or also LPs of funds.

 

Siddhartha 53:22

Thanks, Somesh, for sharing that. Now, coming towards the conclusion of the podcast and diving into the one last topic which is very dear to you mental health. Your most recent investment is in Lyra health and this topic around mental health is very relevant to India considering you know, one of the tragic events recently the death of Sushant Singh Rajput, one of the beloved actors, completely self made from Bihar. What are your thoughts regarding mental health, considering you know, you interact with many Indians Staying in your community in Silicon Valley? And what kind of events we would see, you know, come up or what kind of solution you have seen, you know, to make to make sure that you know, these, we don’t see such things happen.

 

Somesh 54:17

Well, thanks for asking that. This is a very dear topic to my heart. So I’ll answer in two parts. So first on our investments in this area. Even in the United States, mental health was and is a taboo topic and many corridors. And so one of the things that we’ve seen, especially in COVID-19 is a real recognition of the fact that wellness, mindfulness, mental health are not just fringe topics and things that the rich need to focus on or, you know, have the ability to indulge in, but actually, they’re fundamental to the well being of the American population, the American economy and Yyu know, my first you know venture investment the space was a company called Thrive Global run by a very well known founder, entrepreneur Arianna Huffington, who is a Greek immigrant United States started Huffington Post, she had really cornered this idea that sleep and mindfulness were not only a ways to increase happiness, they’re actually ways to increase productivity. And so over the course of the last few years, she has developed micro steps to really help with recreating that sense of purpose well being and happiness for employees of large companies in the United States and abroad, but also from a managerial perspective. It gives managers in some sense, a dashboard and a blueprint for how to help manage mental health and wellness within companies. So that is one investment we’ve made and it’s been an amazing journey with her she’s created content around this space and the company’s done exceptionally well. Lyra is our most recent investment I met the founder of this company, David Abrams met about a decade ago when actually he was CFO Facebook. David was the CFO of Genantic and Facebook and in some sense, has the perfect background where he was part of one of the most successful biotech companies in American history and Genentech and also CFO, Facebook and its key growth stage took the company public. He is one of the greatest executives I’ve had the privilege of working with. He had a personal calling towards this issue, and realise that one of the biggest problems is the lack of availability of therapists and the curation of a therapist network. So what he set out to do and has done is find a all the therapists that use certain strategies to identify mental health issues, work with patients around them and then help correct them. And he’s got the largest network of therapists now among any private company, and has a list of amazing customers. We’re now if you are an employee of Facebook or employee of Genentech or Tesla, you can actually just from your phone, get access to a coach or a therapist and get that help in these tumultuous times. And if we live in a society in which, you know, most employers cover vision plans and dental plans, why can’t they cover mental health plans that is just as important as our eyesight or our teeth? I think we can all agree it’s more important in many cases. And so I think there’s a lot of innovation waiting to happen in that world. coming to India, as I mentioned, I worked at Sony, my parents are from Odisa and Jamshedpur and Bihar as a kid and I know how hard it is to kind of come out of those circumstances and make it especially in an industry like Bollywood. And so obviously the death of Sushant Singh Rajput is just tragic on so many dimensions. But perhaps the most tragic to me is the fact that, you know, really, it seems like he was suffering from a menace. To hold perspective and I think I’ve been following the news cycles. And I had a couple thoughts. The first is, mental health is not a choice. It is a chemical reaction that occurs, you don’t choose to have it or not have it. I think people need to be aware that it is just as debilitating if not more than a physical ailment. Number two, it is okay to seek therapy it is okay to seek help you shouldn’t have a stigma associated with you, you should be celebrated for doing that. The United States I think has made great strides and inroads towards that envy is still a bit backwards. It’s unfortunate that a lot of the dialogue around his death is trying to you know finger point at certain producers production houses, actors who may have you know, had camps. I think that’s frankly irrelevant. And I think that takes away from the main issue which is there are so many others Sushant Singh, Rajput in India, successful and on the rise who need that intervention who need that help or need that community. Some of them have severe cases where they need medication and hospitalisation. Others need a coach and a friend. And so there’s a spectrum of ailments that, you know, can be out there. And I just pray and hope that there’s going to be more awareness around us. So we don’t see more suicides happen in our lifetime from great talents like Sushant Singh Rajput, with so much potential, I had a chance to watch some of his movies recently, even after he passed away, and I’m just blown away with what that guy could have done, you know, broadly and, you know, it’s just really sad. And I just hope, a little bit like we’re seeing here with the killings of George Floyd and, and others in the United States. You know, I hope that there’s reform and there’s awareness before the next one happens. That’s sort of my hope.

 

Siddhartha 59:49

Thank you so much for sharing your heart out on the podcast. Really appreciate it. And I hope the listeners enjoy as much as I did.

 

Somesh 59:58

Thank you so much for having I’m just really grateful that you’re doing this because I think I hope that they mean ecosystem will hit its potential. And I think by creating awareness around a lot of these topics, I’ve been a fan of your pod and had a chance to listen to some of my friends and colleagues who I know well on the pod as guests who are much more eloquent than me. I’m really hopeful that aspiring entrepreneurs, aspiring investors have a chance to listen to this and be inspired and see that they themselves can start companies and build the next they don’t have to go work for the next, you know, for Google or Flipkart. They can build the next Google or Flipkart sitting in India.

 

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