217 / July 14, 2023
Sanjeev Bikhchandani on finding Zomato & taking the first tech company in India to IPO
Today I have with me the entrepreneur who I’ve always looked up to. I consider him the Dronacharya of the Indian startup ecosystem.
This man has never shied away from expressing himself freely. His company was the first tech company in India to go public and inspired a generation of companies to go public like MakeMyTrip, Zomato, and PolicyBazaar.
All entrepreneurs dream of taking their companies public and the very few who reach that milestone remain busy managing that company or end up taking retirement. But this man never rested. He is responsible for many startups in India that have gone public.
Today I have with me Padma Shri awardee Sanjeev Bikhchandani Sir.
This episode is about the unconventional choices of Sanjeev Sir and his philosophy of making India great.
I would also like to thank our sponsors Prime Venture Partners for sponsoring the Neon Show.
Hope you enjoy it.
Sanjeev Bikhchandani 00:00
I grew up in a capital-scarce environment, not from a business family. Father was a doctor in the government, so it’s not as if there was money at home growing up. (SPEAKS HINDI) So we became fundamentally, naturally frugal and capital efficient, because there was no other way. When I met Deepinder Goyal for the first time, there were three or four restaurant listing sites, but Zomato was then called Foodiebay. Foodiebay was the only one with all the menu cards and I found it very useful. You know, when I spoke to Rakesh Jhunjhunwala and he said ‘Sanjeev, can I tell you something… you know, if you find a good company, then hold it forever. We want you to go public, because this is a desire, a dream that we will go public one day, and be a big company. We will be independent and we will be world class and world scale out of India.’ (SPEAKS HINDI)
Siddhartha Ahluwalia 00:43
I have today on The Neon Show the entrepreneur who I have looked up to all my life. I consider him the Dronacharya of the Indian startup ecosystem. This man has never shied away from expressing himself freely. His company was the first tech company in India to go public. He inspired a generation of entrepreneurs after him who took their companies public in India, like Deep Kalra of MakeMyTrip, Deepinder Goyal of Zomato and Yashish Dahiya from PolicyBazaar. All entrepreneurs dream of taking a company public at some point in time, and the very few ones who are able to reach that milestone, remain busy managing that company or end up taking retirement. But this man has never rested. He’s responsible for the many startups in India that have gone public. Today, I have with me, Padma Shri awardee, Sanjeev Bikhchandani sir. This episode is about the unconventional choices of Sanjeev sir, his life, and his philosophy of making India great. I would like to thank our sponsors, Prime Venture Partners, for sponsoring this episode of Neon Show. Hope you enjoy it!
Siddhartha Ahluwalia 01:53
So it’s a pleasure, right, and you are a person I look up to. In 2008, I was in IIM Ahmedabad, working an internship under professor Sanjay Verma. (SPEAKS HINDI) At that point of time, they hosted an entrepreneur conference in 2008. So you were one of the speakers [chuckles]
Sanjeev Bikhchandani 02:07
I remember that… I remember the conference.
Siddhartha Ahluwalia 02:10
I asked you a question there so…
Sanjeev Bikhchandani 02:12
That I do not remember… [chuckles] (SPEAKS HINDI)
Siddhartha Ahluwalia 02:13
[laughing] (SPEAKS HINDI) Yeah you might not remember that question—
Sanjeev Bikhchandani 02:14
What was the question you had asked? (SPEAKS HINDI)
Siddhartha Ahluwalia 02:15
(SPEAKS HINDI) I had asked that what was the exit in the past… I was asking —
Sanjeev Bikhchandani 02:19
(SPEAKS HINDI) So what was my answer then?
Siddhartha Ahluwalia 02:21
You mentioned that ‘You have to build for a long term. Don’t worry about exits.’ (SPEAKS HINDI)
Sanjeev Bikhchandani 02:25
I still say that. [chuckles] See, we invested in PolicyBazaar in 2008… we are still shareholders. It has been 15-16 years. We invested in Zomato in 2010, we’re still there. It’s been 13 years. (SPEAKS HINDI) And real value is created over a long time usually, and you have to be patient, so India needs patient capital.
Siddhartha Ahluwalia 02:47
And sir, you built Info Edge… you quit your job in 1990, right? (SPEAKS HINDI) In 97′ you launched Naukri, right? So it was a large period of seven years of experimentation?
Sanjeev Bikhchandani 03:02
Yeah, I mean, you know, so I didn’t want… I had worked five years in two multinational corporations. And I was pretty clear by then that I didn’t want a career rising up the ranks in large multinational corporations, you know, as a junior executive, middle management, senior management, and over 25-30 years, you know, sort of you build your career. And I had come to the realisation that, look, I was chasing the wrong thing, you know. So, if my car is one foot longer than yours, I’m doing better than you. If my house has one more bedroom than yours, and I’m doing better than you. If my house is in this neighbourhood and not in the neighbourhood where you’re living two kilometres away… I’m doing better than you. And so I figured that look, I cannot measure my success on those parameters. I want to do something different. I want to be independent. I wanted to be creative. So I quit my job in 1990, but I had no big idea. But we did a bunch of small things. We did a salary survey, we did a trademark database, we did teaching, training, writing. Whatever came my way in order to survive. And for seven years, in hindsight, I would say I drifted. But, you know, in that seven years of drift, I learnt a lot. And a lot of that stuff that I learnt in the seven years of drift was very useful when we got Naukri, right? So I’ll give you a little example. Because I was broke with no money, I took up a second job as a journalist in the Pioneer newspaper. I was to go there in the afternoons, I was a consulting editor of the career supplement. I would get a monthly check and you know, that would be for personal expenses and the company was unable to pay me any salary, we were barely breaking even. And when I was there, the editor did a management buyout of the newspaper. And I was in the editorial side, I was the only person with management experience so he asked for my help. So I worked with him to help him buy our newspaper. So there was a point in time when I had roughly 800 people reporting to me. I’d never had that kind of team strength before; the largest team I’d ever had was 7-8 people, right? And I did that for two years, and I learned a lot. I went to financial institutions and raised money for them, help them. There was no CFO; I did the CFOs job, right? So all of that, it taught me a lot. I learned journalism in those days, while I was a consulting editor. I learnt to write. I learnt to write press releases, I learnt, you know, what gets printed? What doesn’t get printed? So that’s just one example.
Siddhartha Ahluwalia 05:48
And this is from which year to which year?
Sanjeev Bikhchandani 05:49
This is 96′ to 2000, right? I was there. Prior to that I had been teaching at business schools in and around Delhi. And in order to teach, you had to speak in front of an audience. I was a very nervous speaker before that. I couldn’t do any public speaking. But on sheer practice, because I had to earn two and a half thousand rupees a month just to sort of survive.
Siddhartha Ahluwalia 06:12
You were married then? Uh yes. Right. And, you know, so so, you know, I learned to speak in public, I learned to, you know, I learned more management while teaching management than while studying management. [Siddhartha chuckles] Because when you’re teaching management, you’re in front of an audience of 50 or 60, they’re asking your questions, right? If you’re studying management, you know, you can get away. The prof doesn’t pull you out and ask you a couple of questions. You’re okay and you’ve survived the class, right? So I studied management more during my teaching years than during my student years at IIM Ahmedabad . So I did many, many things. I think drifting for seven years taught me a lot and all of it came together afterwards. And the real company actually started getting built after 2000, right?
Sanjeev Bikhchandani 06:59
Well no. So Info Edge started in 89’/90′. At that time, it was a partnership firm, between myself and a gentleman by the name of Kapil Varma. We started two firms in partnership. One was in Indmark; it worked on trademark databases, and the other Info Edge, which did salary surveys. Around 1993, Kapil and I decided to part company and he kept Indmark and I kept Info Edge. In Info Edge, you know, I did a whole bunch of things. and we also did Naukri in 1997. So Info Edge has a history that predates Naukri. Small history, but seven years of history, right? We got Naukri in 97′ and we bootstrapped till the year 2000, which is when we were able to raise venture capital from ICICI venture. And that’s when we began to invest in growth because we had the capital. And we grew the company and went public in 2006. That’s a short synopsis but within that, of course, there are many ups and downs.
Siddhartha Ahluwalia 08:05
So were there more near-death moments after raising venture capital in Naukri era?
Sanjeev Bikhchandani 08:12
So yes, there were more… see prior to raising venture capital, we had kept our costs very low, right? We had, you know, just running out of my house; one floor of my father’s house. So even when I skipped rent one month… I didn’t, but if I had to, you know, it was okay. I wasn’t… often I wasn’t taking a salary. So in the first 10 years of being an entrepreneur from 1990 to 2000, I didn’t take a salary for approximately six years, right? Because from 90′-93′, we weren’t making money. From 97′ to 2000, we were putting everything back in Naukri, and so I wasn’t making a salary. And that’s when I was surviving as a journalist, and getting a salary from there. I was teaching, I was training. I was doing whatever it took to survive, right? But always feeding Naukri, because I felt there could be a future here. And when we raised venture capital, so I mean, there was frugal moments. They weren’t near death moments, because we had kept costs low. It is when you raise venture capital that you began to invest… you moved out of the house to a different office in Noida, you spend money on interiors, you hired people, you know, and that is when spending goes up… the cost went up, right? (SPEAKS HINDI) Costs went up, but revenue took time to scale up. So there was a point in time I remember when after we raised venture capital and we’ve done all this, first thing, within two weeks of raising venture capital, the market melted down. But we got our money.
Siddhartha Ahluwalia 09:55
The great dot-com bubble burst —
Sanjeev Bikhchandani 09:57
Yup, the dot-com bubble burst, right? So there was no hope of getting any further funding… what was there prior is what we had to make do with. (SPEAKS HINDI) We had to make do with what we raised, which was 7.3 crores, which was $1.7 million; exchange rate was 40 rupees at that time. So we moved into this new office in Noida, we spent money on interiors, we hired people, servers, product people, marketing people, salespeople, you know, technology people. So spending went up. (SPEAKS HINDI) I recall, there was a point in time when we, the sales collections every month was 25% of our salary bill. The salary bill was 4x of our sales collections, and we had some 16 months of money left, right? And that’s when sort of we realised that, you know, we’ll have to do something different, which we did do. We, you know, prior to that, we were selling by direct mail, right? Hitesh Oberoi, who is the current CEO and MD, had joined at that time as a Head of Sales and Marketing, and he said ‘Why don’t we hire some salespeople and see what happens?’ So we hired four salespeople in Delhi, as an experiment and said, instead of selling direct mail – we’ll continue to do – you also go out and meet prospective clients. And when we did that, we figured that in about six months time, the average salesperson was generating 50,000 rupees of revenue and collections because we collect money in advance. And the total spending was 22,000 rupees, which means that there’s a 28,000 rupee surplus he’s making on his or her own cost and total spending means salary conveyance, you know, commission, mobile phone bill, depreciation on computer, office ka rent, you know, air conditioning overhead, buy all good materials, right? (SPEAKS HINDI) And it doesn’t cost you extra money to put up one more job on Naukri. So this 28,000 rupees is all profit, right? And we said, hey, this is pretty cool. We have found, what we call now, our repeatable profitable unit. So if a company/startup wants to scale profitably, it has to find its repeatable profitable unit. What is your repeatable profitable unit? Now, in our case, we said it’s the salesperson. In a QSR company, it could be the burger, or it could be the outlet, but you need a repeatable profitable unit, every company that wants to scale profitably. We had stumbled upon ours and we said this is pretty cool. Let’s just keep adding salespeople until the last salesperson does not break-even on his or her own cost. And this 50,000 rupees was headed north each month… In 6 months, 50,000 rupees was being increased every month, right? And we just kept doing that. So at the end of two years, we had 240 salespeople across I think 16 cities in India or 11 cities, I forget, in India, maybe 11 cities at the end of two years, right? And the company was breaking even. So when we took venture capital (SPEAKS HINDI)… When we took venture capital, we had revenue of three lakhs a month. 36 lakhs a year. When we broke-even two/three years later, we had 30 exits, which basically means you’re doing 90 lakhs a month, and you’re breaking-even. Okay. And that’s when you realise that this is a big opportunity, because the market is giving us growth… we have made it happen.
Sanjeev Bikhchandani 13:58
This sales strategy worked, just go out and sell, right? And our sales strategy was very simple. We said which is the best b2b sales company in the market. And we figured a really good b2b sales company is Xerox, right? And Xerox at the time was going through some difficult patches. So we said we want Xerox Xerox people. And that’s what we did. We hired two senior people, both ex-Xerox and said, just replicate a great b2b sales operation here. Hiring telethia location systems, processes training, communication, we did all that, and did a great job of it. (SPEAKS HINDI)
Siddhartha Ahluwalia 14:35
And this is a journey to 10 cr of yearly revenue?
Sanjeev Bikhchandani 14:39
From the year we raised money in April 2000. And so 2000/2001 We did, I think, one and a half crores, up from the 36 lakhs the previous year. So 36 lakhs to one and a half crores to two and a half crores and then 10 crores. So from 2 and a half years to 10 crores it happened in 1 year.
Siddhartha Ahluwalia 14:58
And by the time you went from 2003 to 10 cr, by 2006 you were at 100 cr when you went public.
Sanjeev Bikhchandani 15:04
We were 84 cr in March 2006, went public in October. And in March 2007, we did 147 cr. So I think 86 to 147 in one year, I mean it was around 100.
Siddhartha Ahluwalia 15:22
And you never went back to any, either ICICI ventures or any other venture capitalist, back then Westbridge-Sequoia marriage was starting to happen in India, you know, you need more money to stay private more longer?
Sanjeev Bikhchandani 15:36
No, we didn’t want to stay private longer. We wanted to go public, because this was the desire, the dream that we will go public one day and become a very big company. (SPEAKS HINDI) We will be independent and we’ll be world class and world scale out of India. To do that your best independence from venture capital NP agreements is profit and is going public, because when you go public, all VCP agreements fall away. That’s the law.
Siddhartha Ahluwalia 16:03
So what was your evaluation from the market when you went public? (SPEAKS HINDI)
Sanjeev Bikhchandani 16:10
About 800 crores.
Siddhartha Ahluwalia 16:11
8x to 10x of ARR?
Sanjeev Bikhchandani 16:13
About 8x, but you see, it was really about getting valuated for growth. We also had scarcity premium, that we are the only internet company out of India going public. Internet, you know, public internet companies were big in the US: NASDAQ and NYSE. They were big out of China. But there was very few public internet companies out of India, showing the kind of growth that we were doing. And therefore we had scarcity value/premium. You know, and we got lucky.
Siddhartha Ahluwalia 16:49
And this profit also became the cash cow through which you later invested in Zomato, PolicyBazaar and numerous other companies.
Sanjeev Bikhchandani 16:56
Yes. So you know, when we wanted to go public, there were a set of reasons that we had, you know. We wanted to be independent, we wanted to get the vCard exit, wanted the ESOP to have value, we want to be in a different strategic space where our stock had currency for acquisitions, and so on. However, the bankers told us, ‘if you put these reasons, you will never get yourself permission.’, right? You got to put five standard reasons. Well, the truth is, you know, as a company going public, you’re doing it for the first time, you’re nervous. You listen to your bankers, in many, many things. So we copy-pasted that and said organic growth, general corporate purposes, you know, these are the 3-5 standard reasons. (SPEAKS HINDI) So we went public. The truth is we are already profitable and we had money in the bank. We didn’t have a use for this money, right? And every quarter, the auditors would come and say use of IPO proceeds.
Sanjeev Bikhchandani 18:01
So by the third time it happened, our board said, you know, what is going on? You guys better start using this money. So that’s when we went out and we said, okay, inorganic growth, let’s try and find something to buy, and we found there was nothing worthwhile to buy and whatever there was, was too expensive. So, we said, investing in startups is also an organic growth. Right. And we began to invest in startups. In the starting, the board had told me that ‘listen you don’t have an investment target. You don’t have a date by which you have to invest an X amount of money, you’re not a fund. So you should have a very high bar for quality and you should invest slowly.” They said no, don’t make hasty decisions but up to 150 to 200 euros you can invest over the next three to five years. (SPEAKS HINDI) That proceeds you had generated from — That was there, not an IPO but we were profitable also. There was intended rules so we did that. (SPEAKS HINDI) We began to invest… between 2007 when we made our first investment to 2012, in those 5 years we invested around 200 crores. (SPEAKS HINDI)
Siddhartha Ahluwalia 19:08
Very concentrated portfolio. Into how many companies if you remember?
Sanjeev Bikhchandani 19:12
I recall there were around 6-8 companies. (SPEAKS HINDI) Yeah… but we didn’t know those words then… concentrated portfolio and we didn’t know anything about that. We just said if you’re fine, good startups to invest in and we thought we found eight good startups, out of which one was Zomato and one was PolicyBazaar, our biggest successes. (SPEAKS HINDI) But by 2012, one or two had blown up and by 2012, it was not clear Zomato and PolicyBazaar would succeed. It was too early. So our shareholders and investors and analysts were getting worried that you know, what is Info Edge doing? It is blowing up good money behind startups that won’t work or may not work, you know? So I recall our CFO, Investors relations head, Hitesh were told from enough investors would come and say ‘You know Sanjeev is stupid. He’s a fool. He’s blowing up money. Hitesh you are earning the money, Sanju is blowing it up. He got lucky, he’s not that smart. He got lucky in Naukri one time. He’s not going to get lucky a second time (SPEAKS HINDI. So he doesn’t really know what he’s doing. And they would say that and you know, this feedback would come and naturally, we’d all get nervous, right? The board would get nervous. So we finally agreed in 2012, the board and I agreed that we will not do any more new companies for a while. We could support the old companies if needed, but we won’t be investing in anymore new companies (SPEAKS HINDI). So from 2012 to 2015, we did no new companies. By 2015, two things had happened. One is it had become clear that Zomato and PolicyBazaar—
Siddhartha Ahluwalia 20:53
They are market leaders. —
Sanjeev Bikhchandani 20:54
Would give a good return. How much return? We didn’t know but money will be made. So the first portfolios, you know, the first phase of investing has worked, right? And seems to be showing some results. And second, we had done a QYP in 2014 and raised around 700 crores because to back 99Acres because we were up against housing which is spending money so we raised 100 million dollars? We raised 700-750 million dollars I think. I forget the exact amount. And we announced that this is a war chest for 99 acres, and we had that money. Around that time, housing sort of imploded. And we didn’t have use for the money which we have said we had, so we had the money, you know, Zomato and PolicyBazaar looked like succeeding, right, and market looked like there were opportunities. So 2015 we began to invest again in fresh startups. So between 2015 and 2019 we invested in a second lot, right? Shopkirana, Gramophone, Shipsy, Adda 247, and many more in that lot (SPEAKS HINDI).
Sanjeev Bikhchandani 22:15
By 2018, it became apparent to us that or maybe in 2019 that Zomato and PolicyBazaar would be huge successes, beyond what we’d imagined. We also realised that we may have a problem, which is that if we get a wild exit in Zomato and PolicyBazaar in one year, then Info Edge might end up becoming an NBFC because our financial income would exceed our operating income. Now NBFC means that if Naukri wants to open a new sales office, you might need RBI permission. You know, RBA will get the returns every quarter/year. We’re not really an NBFC but we get classified as one and frankly once you are an NBFC, so I’m unaware of any process where you can unbecome an NBFC so we got worried and we said you know, this investing activity is now getting very serious. So we should separate it from the rest of the company and we should float an AIF, which is what we did in 2019. We floated an AIF; we called it Info Edge ventures and we committed some 50 crores to it because we said what is the amount we’re investing every year: 250 crores so how much will we do in 3 years, 750 crores so we made an AIF application and got the AIF (SPEAKS HINDI). Infido and an associate company was the only LPs at that stage. In 2020, COVID happened. Complete lockdown March 24 onwards. We didn’t know what had happened. Naukri sales growth, billings growth in April/June 2020 was minus 44% so everybody was nervous. There was no antidote, no vaccine, no cure and when the lockdown would end and how big the pandemic would be, nobody knew anything. So, there was a board call in which it was determined that the AIF that we have will do for 50 million and not 100 million just to be on the safer side, we pulled back 50 million. Sensible decision, I think I supported it which was the right thing to do. But we had done our planning, hiring, everything on 100 million. So then I asked about the board in that call that listen, while inflating coming 50 million, we still need 100 million in the fund so can I go out and get it. Is it okay to go out and get it, which is when we went to Temasek and we had a good relation with Temasek. We’d done work with them. They’d anchored our last QIP, they’d come into Zomato, they’d come into PolicyBazaar. We knew them well, they knew us well. And we went to Temasek and we said, Would you like to put in 50 million? And they said yes. So then it became a fund, which was 50-50: Info Edge and Temasek, right? Since then, we’ve got a total of four funds, total commitment for 25 million, half from Temasek and half from Info Edge. And the initial 100 mil that you had raised for 99acres, that also got pulled into it or that got utilised — See, all money is fungible, right? The truth is, Naukri is making enough profit to support the losses in 99acres, in Jeevansathi. Shiksha is near profit, sometimes profits, sometimes break-even, sometimes losses, but it’s kind of flirting with profit. Even after that we had enough money to invest in the fund. So the company currently has got about 3400 crores of cash in the books I think. So whatever we want to invest in these funds, Info Edge has more than enough.
Siddhartha Ahluwalia 26:13
And then it took you relatively like 10 years from the day you started Naukri in 97′, to list it, right?
Sanjeev Bikhchandani 26:23
Yes, nine years, roughly. Six years from CBD. And CBD was the only round we ever had.
Siddhartha Ahluwalia 26:29
I often wonder why are not many startups replicating this playbook, because nine to 10 years is a good period of time.
Sanjeev Bikhchandani 26:36
Well, you see, I grew up in a capital-scarce environment, right? Not from a business family. My father was a doctor in the government. So it’s not as if there was lots of money at home (SPEAKS HINDI). I had worked five years in two companies. It’s not that, you know, the salaries in the 80s weren’t what they are today. The average salary, the average salary in my class, I remember, in 1989, was 3800 rupees a month.
Siddhartha Ahluwalia 27:11
Your first salary was 1500, right, I recall.
Sanjeev Bikhchandani 27:13
That was 1984, right, before my MBA. But post MBA, you know, in my class, the average salaries are 3800 rupees per month (SPEAKS HINDI), you couldn’t save a lot, right, at those kind of salaries. So you had some money, but very little actually, you couldn’t build a business out of it, right? Venture capital wasn’t there at that time and loans would not be provided by the banks because for service industry you don’t have collateral. So really, you have to sort of with meagre capital, somehow try and build a business, which means that you have to build our customer money. So this kind of frugality and fiscal discipline got ingrained in our system for the first 10 years, right? So we became fundamentally, naturally frugal and capital efficient, because there was no other way.
Sanjeev Bikhchandani 28:06
What has happened last 13-14 years, since the global financial crisis in 2008, is that every time between 2008 and 2021 there was a problem, the Fed would print more money, which meant there was abundance of capital globally. And a fair bit found its way to India, where the public markets, private markets, whenever, companies were able to raise money and very often as much money as they needed, or sometimes even more money than they needed, right? And therefore, you did not have to make a profit to survive… you just had to raise more money to survive. That changed in 2022 or towards the end of 2021. Companies now had to make a profit/have to make a profit. So there are several who are doing it making good progress in the direction and some will have a problem. But the market has changed and shifted and that’s life.
Siddhartha Ahluwalia 29:17
So this kind of change you have, I believe, seen the first time right, since Info Edge got listed? The access capital completely got dried up.
Sanjeev Bikhchandani 29:28
Well, you see, I’ve been an entrepreneur since 1990. So it’s been about 33 years (SPEAKS HINDI). In those 33 years, this is the sixth or seventh time I have seen either a slowdown or recession. I think 1990 was a slowdown. That was a year India was forced to liberalise because we didn’t have enough money. Our economy had slowed down. 96′ was a second slowdown. 2000 was a meltdown-slowdown. 2008 was a global crisis, then 2015, and then COVID in 2020. So there were six… There are six shocks that you know we have experienced as a company, whether before listing or after listing. So, one thing we have learned… a couple of things actually. One is your business model, your products should be so good and so robust and so resilient, that they can withstand any slowdown that people will be still willing to buy your products, which means you are a market leader better than the rest (SPEAKS HINDI). If there are four job sites, and your client comes down to ‘I’ll only take one’, it should be yours, because I don’t have someone having to pay us. So really focus on the product and the value prop. Second is keep a lot of cash with you. So one thing that you will notice that, post 2004-05, we have always had a lot of cash on our books and our balance sheet and in our bank. More than most investors, analysts will say is required. But we do that because that’s what gives you the ability and confidence to go through difficult periods.
Sanjeev Bikhchandani 31:36
I’ll give you an example. In 2020, there was COVID and everybody’s tense (SPEAKS HINDI). And you don’t want to sack people, right? Because this is a wrong time to sack people, they are your people. So as it is they are tense about their lives and they will not get another job that time. So you don’t want to sack, right? So I… we spoke to the CFO, and we asked him a simple question. Now Naukri is still down 44% YOY, right? We don’t know what’s going to happen next six months, nine months, 12 months. And we asked the CFO, if sales were under zero but we give zero increments and spend zero on marketing but we won’t sack anybody, how long will we survive for? And I said we must honour our contracts, so I don’t even want to renegotiate the wrench down, because the landlord that we have given the contract to, we should honour it, even though the government had put out a law which said that listen act of God was pleasure. We said these are people who have trusted us, we must honour our commitment. And Justin, and his team did the maths and then we could last three years and that is what gave us the confidence to not sack anybody. We’ll see what happens… we’ll last three years (SPEAKS HINDI). Let’s see what happens, which I think was the right decision that it’s okay to sacrifice profits before we sacrifice people.
Siddhartha Ahluwalia 33:18
And that kind of culture into —
Sanjeev Bikhchandani 33:21
2008-09 we’d done the same thing. 2008-09 we’d done the same thing. We had not gone for large-scale sacking even though at that time, the global financial crisis, there was a fair bit of difficulty in the market.
Siddhartha Ahluwalia 33:33
What I have noticed a common pattern in your investing is Naukri became the first aggregator for jobs in India, right? And that’s how you got so much pull from the market or and you also say, right, invest in those categories based on consumer insights, where once you build a product, there’s a natural pull from the market (SPEAKS HINDI). You don’t have to invest in customer acquisition. That’s the last thing that you should do. [Sanjeev nods] Same happened in Zomato. [Sanjeev nods] They did it, food menus. The same happened in policy Bazaar, they aggregated everything insurance, but in 2023 in my opinion, there is nothing new which will happen on aggregation site because —
Sanjeev Bikhchandani 34:15
You don’t know… you don’t know. So it’s not just aggregation. See, our strategy is not aggregation. Our strategy is solve an unsolved problem. Aggregation in these areas are one method to solve an unsolved problem, right? And what we always say or think, successful businesses are built on deep customer insights. Deep customer insights about what? About unsolved problems that the customer is facing. Now unsolved problem is one solution: aggregation but that’s not the only solution. Where did the idea of Naukri come from? In my last job, I was working in a company let then called HMM, now it’s called GlaxoSmithKline. I was in consumer, I was in marketing, it’s a consumer product company. And I was working on the brand Horlicks, I used to observe that when the office copy of Business India would come in, all my colleagues would read it from the back and we used to sit in an open hall so I could observe. There were 6-10 of us in a hall so I used to observe how one copy of Business India would go from desk-to-desk (SPEAKS HINDI). I saw them reading it from the back because there were 35 to 40 pages of appointment ads at the back of the magazine. And then they start discussing there’s a job going here, what do you think? and I found it interesting behaviour. They are not reading appointment ads but rather resignation from job ads (SPEAKS HINDI) And they’re actually not going to switch jobs because you know, if you wanted FMCG, you wanted marketing, which means head office, which means Delhi, right? You wanted MNC, right? There were just two companies, Nestle and HMM. This is pre-liberalisation; now these Gurgaon companies of none of these good, well, hopefully, they will not develop them. So you were in the best job that you could be in because they would not hire me from each other, these two companies, right? And so they will not apply anywhere, but they will talk. So from there I found an insight, that jobs are a high-interest category. The second thing I observed was that because there were 8-10 people who are all from the IIMS in one place with FMCG, MNC marketing experience; this is a good headhunting pool of talent. And every week one or two or three headhunters will call up and try and hit on one or the other of my colleagues. And every time it’s a different job in a different company, and these jobs are all advertised in Business India or Times of India or you know, anywhere. So I figured that there are maybe hundreds, maybe a couple of 1000 headhunters out there. So losing maybe 10s of 1000s of clients, with many times more number of jobs. And these jobs are not advertised. And jobs are a high interest category of innovation, which means that what appears in print is mainly a tip of the iceberg. There’s a massive market below the surface. So I concluded, you know, that there is something here, I don’t know exactly what. This is 1990, there is no internet. There’s no land, there’s no computer level, there’s no laptops, there’s no word for nothing but there’s something here (SPEAKS HINDI), exactly what I do not know. There was an insight. When I saw the internet for the first time in 97′. I said, let’s just take jobs from newspapers around the country, and magazines, and just put them on the net and see what happens. And that’s how we got Naukri. I used to get 29 newspapers and magazines from around the country into our office, and two data-entry guys would test it and put the appointment ads in our own words, in our own format, and we uploaded. Traffic was high because jobs are high interest (SPEAKS HINDI). Now the jargon for it now is it became viral. That jargon did not exist, right? But we got traffic. Once the traffic comes in, we began to charge for listings, and that’s how we got our revenue model. And that’s how the business is built: customer insight. Whenever Deepinder Goyal for the first time, see, there were three or four restaurant listing sites. Zomato was then called Foodiebay. So Foodiebay was the only one with all the menu cards and I found it very useful.
Siddhartha Ahluwalia 37:03
You were using it?
Sanjeev Bikhchandani 37:29
Yes. Hitesh was using it. We talked and Hitesh said ‘look at it’ and I said okay. My son was using it. We would discuss as to where to eat on the weekends after seeing the menu cards (SPEAKS HINDI). So I went to Network Solutions, I did the who is: Searching the domain name, and I found Deepinder Goyal’s name as admin contact. Then I searched in Deepinder Goyal and I found some email ID somewhere and I sent a cold email saying ‘Are you the same Deepinder Goyal who’s done Foodiebay? If so, well done. I am so and so, can we talk this is my mobile number? He called me back after two, three days, first he thought I was trying to send him a Naukri invite. But then he did a Google search of my name and he figured that I probably want to talk about something so he called me back. And we met and first question I asked was ‘where did you get the idea from to put the menu cards in’ (SPEAKS HINDI). He said ‘I used to work in Bain consulting in Gurgaon and Bain was this, you know, maybe 50-60 people work there. Mostly young, mostly single, many males, many living away from home. They’d come from different cities and towns, which means they don’t get food from home, right?’ (SPEAKS HINDI) Working hours were long, you invariably had lunch and dinner in the office networks Outside there is a cafeteria, which would not serve food, but you could get your own food and have it there. To make life easy for the staff, the admin team had collected some 70 or 80 menu cards, from restaurants that will deliver there, right? There’ll be menu cards and put them in a file, couple of files and kept those files in the cafeteria. And Deepinder would say, you know, 1pm, it’s a long line to access these files, and you get one way to look at it and you quickly call up, place your order and you come back after one hour when the food is delivered. And then you eat. He said ‘Boss, I got work to do, deadlines to meet. You know, I’m hungry. I’m under stress, huge pain.’ Do out this whole process. Complicated process. So this one weekend, I came into office and scanned all these menu cards and put them up on my personal page on the office internet. And two days, the IT guy came to me and said, man, what have you done? Why is 95% of internal traffic going to your page? What’s going on? He says ‘penny dropped.’ I had the customer insight that aggregation of menu cards got value, just as 15 years ago, I’d figured aggregation of jobs will have value, right? The market gave a signal, the customer gave a signal. He was smart enough to observe it and say there’s something in this (SPEAKS HINDI). He’d be able to go out on weekends and pick up menu cards. When he had 800 restaurants’ menu cards he launched Foodiebay; instant traffic. And that’s how Zomato started; customer insight.
Siddhartha Ahluwalia 42:03
You wrote the first two checks in Zomato,
Sanjeev Bikhchandani 42:06
We were at least solo for the first four rounds. In the fifth round, Sequoia came in.
Siddhartha Ahluwalia 42:12
I remember Mohit coming in with a 20 or 30 mil cheque in the fifth round.
Sanjeev Bikhchandani 42:21
I think 27 million… I forget but something like that.
Siddhartha Ahluwalia 42:26
But you kept on believing in the company for a long period of time…
Sanjeev Bikhchandani 42:31
You know, I think to be fair, we had the confidence of ignorance. It’s not that we are particularly smart, but, you know, we said go ahead and let’s see what happens (SPEAKS HINDI). So I would not take credit of being very smart. I would say we were stupid, and we were lucky.
Siddhartha Ahluwalia 42:53
And the same happened with PolicyBazaar.
Sanjeev Bikhchandani 42:55
See PolicyBazaar, you know, we did I think in the second round itself, the first one was large. We invested 20 crores on a PowerPoint before the product was launched and therefore it was a big sum of money for us. So we began a bit nervous, with this cheque size. See Zomato first check was four and a half crores. Second cheque was 13 crores. Third check was 13.5 crores. So we’d invested 30 crores across three rounds, right? The fourth cheque was large in Zomato. For us, I mean, not large, by today’s standards. Not large for large VC funds, but large for our balance sheet. So we’ve gone in gradually, right? So we’re more comfortable with that exposure. PolicyBazaar, you know, 20 crores first round… By the second round, we said you know, get a co-investor and they got a co-investor. They had got enough inbound interest, right? And we kept it and we co-invested in a couple of rounds and then fundamentally both these companies, their requirements of capital became so large that it was a little big for a balance sheet. And that’s when you know other investors came in with much larger checks in both these companies. But that worked.
Siddhartha Ahluwalia 44:20
And then you have followed the similar pattern across the portfolio right?
Sanjeev Bikhchandani 44:25
Not necessarily, I mean, we have not invested as much in other companies as we invested in these companies. But you see, we did it, we staged it right. As the company kept succeeding, we kept putting more and more money.
Siddhartha Ahluwalia 44:40
That was your first innings as an investor.
Sanjeev Bikhchandani 44:45
Siddhartha Ahluwalia 44:46
So back then with today’s terms such as target addressable market, TAM, etc I don’t think —
Sanjeev Bikhchandani 44:54
You know, we are not great believers in figuring out TAM. We do it because we should do it but personally see, and I’ll tell you why. When we were raising the Naukri first round in the year 1999-00. Bubble time, I didn’t hire a banker, and I didn’t hire a lawyer, as I did everything on my own (SPEAKS HINDI) Quite stupidly because I wanted to save money, but it would have been helpful if I’d call a banker and a lawyer but anyway, I went out alone. Now, the thing about a bubble is that, you know, I met four investors, I got three term sheets, right? The fourth guy who declined the investment… at the end of my pitch, he said, ‘Listen, your pitch really well, you’re a great salesman. Right? But I’m not investing. So I asked him, why not? He said ‘what is the total size of the print advertising market in India for recoupment?’ So I didn’t know. I told him it’s around 300-400 crores because I don’t know but you know, but it should be around there (SPEAKS HINDI). So he says what is the price difference between a job listing is Naukri versus a print ad in Times of India on the asset. I said one is 1000, one is to 5000. He says ‘Then boss, if you take away all the jobs in the market, right, you will shrink the market to three-four crores and therefore if you’re 100% share you will be a four crore company and that’s why I’m not investing and said no. And when we submitted our business plan to ICICI
Siddhartha Ahluwalia 46:31
Bebika was leading ICICI? —
Sanjeev Bikhchandani 46:32
No was leading no objection. I submitted them and the plan we had done, Sid, we were going to complete that year of 36 lakhs. I’d said that four years out we will do 12 crores. So 3 lakhs monthly now will become 1 crore monthly in our wildest dreams (SPEAKS HINDI) Four years out, we were 84 crores so we had underestimated by 7x, our own business. All I’m saying is that when new markets are being created, when industry is being restructured, what you thought was TAM may not be the TAM, right? So we focus on team. We focus on is there an unsolved problem. We focus on an very, very key thing. We have termed it natural attraction. Does this app, this website, this offering… Does it have natural attraction? Now what is natural attraction? Natural attraction is the customer coming in and they’re using it more and more and more people are coming without spending on advertising, which means the growth graphic is naturally increasing. (SPEAKS HINDI) And that’s when you know, something is there in this idea (SPEAKS HINDI).
Siddhartha Ahluwalia 47:53
So for PolicyBazaar you cut a 20 cr cheque based on a PPT…
Sanjeev Bikhchandani 47:58
That was pre-product, pre-launch…
Siddhartha Ahluwalia 47:59
So there was no natural —
Sanjeev Bikhchandani 48:01
[Chuckles] I agree. So that was a little bit of a leap of faith. Right? Well, see in that, first of all, this team had experience in doing a similar product for the European market, right (SPEAKS HINDI)? So they knew the nuts and bolts of how to build a product. Second,see, Yashish sat across the table with me in 2008. In my cabin, in office, and he said, I’m willing to bet you are paying 60% more for your car insurance than you need to. And I said don’t be daft. I bought the insurance from the dealer when I bought the car and I renew it every year, it’s a public sector company. National Insurance. There is no way they’re overcharging me, right? I trust them, this is the public sector, the government (SPEAKS HINDI). He said, ‘There are different companies a different way of pricing a risk and understanding risk, and you will be surprised. So take out your insurance policy.’ So I carry my entire policy in a backpack. So I took it out. Right, and he took the details. And he queried something online, not his site, but some other database. And within 45 minutes as he was querying the individual sites of all insurance companies, right. And within 25 minutes, he produced a spreadsheet which showed comparison between eight or 10 insurance companies with the same policy, same car, same policy, same model insurance, right. And sure enough, what I was paying for my insurance was 40% higher than the lowest quote and he said there is massive opacity. And it’s very difficult to compare across insurance companies with the same policy. And I said, Look, if there’s this kind of price difference, we’ll say In policy across insurance companies, so this thing has to succeed because we just felt this value prop is so powerful. If there is a 40% difference, then people will compare but right now they just don’t know it yet (SPEAKS HINDI). Moment you go out there and you make it apparent they will come. And that’s what happened.
Siddhartha Ahluwalia 50:22
So once, you know, Zomato and PolicyBazaar listed, right, you would have seen more inbound from your board from analysts that this was your first batch of companies. Out of eight two became decacorns, right? It’s very unnatural part of venture capital, they would have told you, why can’t we do more of this? Earlier, they were saying don’t do more of that now… [chuckles]
Sanjeev Bikhchandani 50:48
Our thesis had invalidated. You know, investing is now seen in four businesses: jobs, real estate, matrimony and education. Now we’ve got a fifth business which is investing. These are our five businesses and that is clearly established, right (SPEAKS HINDI)? Of course, we have to see what happens to the few other companies. They have to deliver and let’s see…
Siddhartha Ahluwalia 51:12
But you, you came in these companies in 2008. It took them 13-14 years to deliver their outcome…
Sanjeev Bikhchandani 51:20
You have to be patient in India. See, if you look at in India, strategic sales don’t happen much and if they do, you leave out Flipkart. They typically don’t give you the kind of return that a VC investor would expect and hope for, right? Company buyback does not give you that kind of money. So what’s your exit? Or monetization? And your exit… Therefore, the best exit is a good IPO, right?
Sanjeev Bikhchandani 51:55
But then, you know, when I spoke to Rakesh Jhunjhunwala about 2-3 years ago during COVID on zoom, he said ‘Sanjeev, can I tell you something… you know, if you find a good company, then hold it forever.’ (SPEAKS HINDI). You must have the option to exit, it doesn’t mean you have to execute it. Now, I’m not saying we’ll hold this forever. But all I’m saying is just because listed does not mean we have to exit if you believe there’s growth and for the valuation that why should we not hold?
Siddhartha Ahluwalia 52:32
And you don’t have to be —
Sanjeev Bikhchandani 52:33
Our game is to create long term value for our shareholders. Right? And if companies are growing and getting the profit, we should not sell just because it is listed.
Siddhartha Ahluwalia 52:46
So you are willing to hold them maybe for four or five more years?
Sanjeev Bikhchandani 52:49
I don’t know. I can’t put a number to it. Yeah. Maybe longer, maybe less? I don’t know.
Siddhartha Ahluwalia 52:53
And you have that optionality? Because this is the company’s money. You don’t have any external LPs. That’s the advantage there.
Sanjeev Bikhchandani 53:01
Correct. But you see, even in our AIF, even in our fund… You know, our life of fund is —
Siddhartha Ahluwalia 53:10
Is 10 years…
Sanjeev Bikhchandani 53:10
No, it is 12 plus two years. So it’s a 14 year fund. I mean, 12 plus two so you can end up with a 14 year fund. Right? It gives you a very long holding period, which means, you know, you can afford to be very patient. So in India as an investor, early stage investor, patience is really important.
Siddhartha Ahluwalia 53:27
And you have never thought about making it a strategy of exiting partially early on right? When there were so many backers like when Softbank came in?
Sanjeev Bikhchandani 53:35
I’ll explain to you. We have exited the Zomato a bit. Right. When Ant international came in because Ant said we want a secondary, a little bit. We’re supporting the company. Likewise in PolicyBazaar, we exited a bit, right, early on for similar reasons to support the company,
Siddhartha Ahluwalia 53:59
But it was not driven on de-risking your investment?
Sanjeev Bikhchandani 54:03
See, you’re always tempted that you’re getting money so take it off the table and you don’t know what will happen going forward. You might get stuck in the company going forward, who knows (SPEAKS HINDI).
Siddhartha Ahluwalia 54:17
And these are unprofitable by the time you are getting secondary offers.
Sanjeev Bikhchandani 54:19
They’ve never been profitable.
Siddhartha Ahluwalia 54:20
Yeah. Still, still they’re about to reach that number.
Sanjeev Bikhchandani 54:21
So you know what, that always crosses your mind but then if you see a future you hang on, it’s worked out well for us (SPEAKS HINDI).
Siddhartha Ahluwalia 54:29
So I come from your school of thought that companies should list themselves at 100/200 crores. Now it’s maximum 300-400 but maximum 500 crores like you were previously saying (SPEAKS HINDI). Because the earlier liquidity that you create for your employees, right, they may not sell like as the shareholder can have option not to sell. And you raise again here from QIBs in 2014, but still we follow the American model of venture capital that we keep on keeping the companies private till five, $10 billion valuation. I think India is not ready for it in my opinion.
Sanjeev Bikhchandani 55:10
Look, we’re saying this now with the wisdom of hindsight after you’ve seen what happened after 2022, right (SPEAKS HINDI)? But if the markets had continued to head north, right, it could be a sound strategy to stay private and keep on raising money, then you don’t have to deal with so many investors and shareholders. You don’t have to deal with the complexities of going public and having SEBI regulations, NSE, BSE regulations, right? It’s more complex. And secondly, you should only go public, when your company is ready to go public, which is of a certain size or scale, certain profitability, and certain growth. Now, as a loss making company to go public, you better be sure that you’re going to be making a profit in one or two years after you go public. I don’t think public markets are willing to tolerate losses for five years, seven years further, right. And public markets want further growth. So ideally, you should be profitable then go public, but even if that’s not the case… You should be getting to a profit in a year or two, with clear visibility. And it should be obvious to the investors that this will happen because Indian markets typically do not value loss making companies that much (SPEAKS HINDI).
Siddhartha Ahluwalia 56:24
That’s our DNA, right. And I think why I am conflicted is that our venture capital model is borrowed from America, which is most of the money’s American, at least at the growth stage, right, which is keep the company as much private as possible. But where the final yardstick is, where we’ll be measured is the Indian QIVs, Indian retail investors. So they both need to merge somewhere.
Sanjeev Bikhchandani 56:48
See, even your VCAP investor even though overseas they will do the exit sometimes. Their fund has got a finite life. As an Indian company, what can your exit be? Your best exit for a good company very often is an IPO, not always but very often. And to do an IPO, you should be either profitable and growing or getting to profit in one or two years but still growing. Growth and profitability either now or within two years. That’s when you can go public. So you have to get your company in a place where it can go public for you to go public. What you don’t want is, you know is you’ve done the IPO, but after that you know, the company valuation tanks, and stays there (SPEAKS HINDI). If you look at some of the companies that went public, including some Zomato and PolicyBazaar, some of the criticism is the valuation is now lower than the IPO price.
Siddhartha Ahluwalia 57:48
Yeah, there was not much left for the retail investor on the table.
Sanjeev Bikhchandani 57:51
That’s not true, because the growth is still coming. Right? The valuation of several of these companies corrected because market corrected. Right. But if you look at some of the results that they are delivering now, whether it’s Paytm, whether it’s PolicyBazaar or whether it is Zomato, I mean, it’s looking like it’s improving, you know, every quarter, and perhaps they will live up to their promise. And so maybe a year from now, these questions will not be asked, maybe, maybe, we don’t know.
Siddhartha Ahluwalia 58:22
But you’re still hopeful that companies can still go public in India at five to $10 billion valuations in the future market.
Sanjeev Bikhchandani 58:28
It depends on what size, scale, profit of the company is. You can’t go at a valuation which is completely irrational, and that’s stupid of you to do that. Market won’t take it and if the market does take it… So while you force it, the valuation will correct in the aftermarket. And that’s not a good idea.
Siddhartha Ahluwalia 58:44
So my one last question is, right… In your previous interviews, I observed you come from a middle class background. Father, doctor, right? You yourself had taken unconventional choices like choosing Stephens over IIT, right? You had the option of going IIM Kalka to Lm Calcutta on the year zero after graduating, but you chose the three year window, right? And you quit your job in 1990 without figuring out what to do next. You had some experiments in mind…
Sanjeev Bikhchandani 59:16
Well, I had a couple of small experiments. There was no big idea.
Siddhartha Ahluwalia 59:20
There was no big idea. Right? I would say courage. Courage is a big quality that I would say to take that decision.
Sanjeev Bikhchandani 59:29
I am very scared (SPEAKS HINDI). I am not at all courageous and I’m very risk-averse. Right. So I think it’s if you’re a really good entrepreneur doesn’t just look at opportunity and return. He also understands risk and how to manage risk. Because you can be a successful entrepreneur for 10 years while looking at opportune return. but if you want to be successful for 30-40 years, 50 years… You have to understand risk. When your market is booming, nobody talks about risk. People start talking about risk only when the market crashes. And we have been through six sort of slowdowns. So we have learnt our lessons.
Siddhartha Ahluwalia 1:00:08
So one attribute that you would say why Info Edge is successful because it’s all always team founders, that you had this long term mindset and you were risk averse.
Sanjeev Bikhchandani 1:00:22
I would say we are capital efficient. I would say we understand the consumer. I would say we have a great team and we are… we try to be very good to our people. We understand that this company has not been made only by me. It’s been made by many people (SPEAKS HINDI). So you cannot be sacking them just because COVID has come or just because global financial crisis is here (SPEAKS HINDI). It’s everyone’s company.
Siddhartha Ahluwalia 1:00:49
But the DNA comes from the founder right sir? The 1000s of people who’ve joined believe the founder and the company DNA becomes—
Sanjeev Bikhchandani 1:00:57
Uhh, it must be true… Yes, possibly true. But I would say now that the companies are five and a half thousand employees. It’s not so much about the founders alone anymore. It’s about a whole bunch of other people.
Siddhartha Ahluwalia 1:01:09
Thank you so much sir.
Sanjeev Bikhchandani 1:01:10
Thank you so much. Thank you.
Siddhartha Ahluwalia 1:01:12
You’ve been such a pleasure. Thank you.
Sanjeev Bikhchandani 1:01:13
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