Sharad Sharma 00:00

You remember when upI was launched SBI and HDFC did not launch UPI in August 2016, a normal RBI would have succumbed to their biggest banks request to kill UPI. So you needed an RBI governor who was willing to stick his neck out. So our view is that change in India happens when you stumble into policymakers like this and they deserve the glory. All the neighbors have mobile operators or all of them are supplied by Huawei Ericsson, Nokia and Samsung, right? Why should the Indian company be missing from this list? 40 percent of the unicorns are technically not Indian at all right, they are Singaporean or America tomorrow when they make money, that money will benefit Singaporean society, the US society. If you don’t go through three valleys of death, you’re not doing, you know, anyways it will take 3 times(Speaks in Hindi). So then we show them the UPI chart because UPI for somebody to imagine that it went through three valleys of death is very difficult. If you go back 10 years, it’s IIT Bombay because that used to send lots of people they would go roughly 80% of the people would go abroad. Now 80% People choose to stay here.

Siddhartha Ahluwalia 01:07

Hi, this is Siddhartha Ahluwalia, and welcome to the neon show. This episode’s guest is a powerhouse in Indian startup ecosystem. 15 years ago, he was the CEO of Yahoo India r&d. Today he is co-founder of the company that has played a key role in building India stack, which includes UPI, digilocker, and eKYC. It’s my pleasure to welcome iSpirits. Sharad Sharma on the neon show. I would also like to thank our sponsors, Prime venture partners for sponsoring the neon show. Hope you enjoy it. Sir would love to start with your childhood, like what did it looks like? And where did you grow up? And how much that the city that you grew up in? shaped you change you in the present day.

Siddhartha Ahluwalia 01:45

Sir would love to start with your childhood, like what did it looks like? And where did you grow up? And how much that the city that you grew up in? shaped you change you in the present day.

Sharad Sharma 01:56

So my father is a anthropologist, and he used to be working in what is now Arunachal Pradesh, it used to be called NIFA. So when I was born, I was about to be born in 1964. I think my parents said no, no, we must have our child grow up in a big city. So he moved to Delhi and joined Planning Commission and he was there the rest of his life. So my childhood was in Delhi. I grew up in a in a colony called RK Puram, I went to school DPS RK puram.

Siddhartha Ahluwalia 02:27

Most famous school –

Sharad Sharma 02:28

It wasn’t that famous then, as I like to tell that story. We were the fourth batch and and I think the first few batches started doing very well. And then they turned that into a franchise machine. Right. So, So then after that I did my engineering from Delhi College of Engineering, and then I’ve been working so so, I had a happy childhood. I have a sister who’s three years younger than me-

Siddhartha Ahluwalia 02:55

And you were always in government quarters?

Sharad Sharma 02:57

I was always in government, A very middle class, upbringing, but a very happy upbringing. Very simple.

Siddhartha Ahluwalia 03:04

People around you like yourself, right? There is no-

Sharad Sharma 03:06

There were in fact, my parents, my friends, all this was look, all that we can give you is education, what you want to do with it , Do it(Speaks in Hindi). Right, this was the the the approach that was there. And then obviously, amongst your cousins, and amongst the neighbours, you know, there would be some children who are doing well then they would be highlighted as role models. So a two year older friend of mine, his name was his name is Sham. And so sham was cited as a role model . So the thing that happens is(Speaks in Hindi), why can’t you be like Sham? Why can’t you be like this?

Siddhartha Ahluwalia 03:32

Sham was IITian or DCS?

Sharad Sharma 03:38

He ended up going to it. Okay, so I have a story about that, too.

Sharad Sharma 03:52

So I have very high myopia. And most of my family was in government service, civil service, you know, except for my Uncle, who was an engineer, everybody else was a non-engineer. And so I’m, I finished my schooling in 1982. In 1980s, there was a medical tests for all professional courses, including engineering. And the standard for that was that if you are minus eight and above in your eyes, then you were medically unfit. And very early on, I was above minus eight in both my eyes. So I was technically not competent to go to the engineering college and my Uncle who passed away very recently had a very important role to play. Because he encouraged me he says, Look, you want to be that you will find a way there will be something that will appear. So then eventually it became clear that there were two engineering colleges at that time that were rumoured not to do any medical test. And that was Rudki and Delhi College of Engineering. So my zero in thing is I have to get into this(Speaks in Hindi). So I, of course, I was keen to be an engineer because I like tinkering, I used to build things. And I it was like, that was my way of that was something I enjoy do mode of expression that was my mode of expression. And so I wanted to become an engineer. And so I was keen. So therefore that happened, but there was no clarity. Remember, this is well before mobile phone, internet. So there was no clarity whether this rumour is true or not. And the thinking was, if you go and ask them that is only inviting trouble. So so my at that time, I decided that either I’ll do engineering, or I will study philosophy. So as a backup, maybe I’ll get kicked out from college because they’ll do a medical test and find I am medically unfit. So just to avoid wasting a year, I also signed up for philosophy honours in Hindu College, and people are very surprised, because people with good marks would not go for philosophy, but that is how my, my thing and that has actually helped me Well, I’ve always had interest in philosophy. And I think technology and philosophy are coming together. So it is something that-

Siddhartha Ahluwalia 04:10

The best technology leaders have have made technology happened at marriage of technology and Philosophy. Like Steve Jobs.

Sharad Sharma 06:15

Some of Yeah, and see some of even in India, that is true also for the West. But even in India, I think some of the entrepreneurs are philosopher CEOs, you know, some of you know, because like Sridhar Vembu, he goes to first principles, things philosophycaly. We don’t appreciate the other person so much, but he has had a very, very important role to play in our software product ecosystem. His name is Bharat Goenka. And that is tally, there was no tally and had tally not shown and proven to all of us, that you can do a software product for India and make money doing it and be very ethical in doing it. I mean, they’ve done it very, very well. We wouldn’t have had the confidence to move forward. And currently the person that we have, who’s very quiet, you should invite him for a podcast I’ll help you get him is when Vimal Kumar of Just pay? You know, he’s a truly a philosopher, CEO and thinks deeply about things, you know, not visible outside, I think the only CEO I know who sometimes sends memos as poems. So So I think, you know, philosopher, CEO, this is the era of philosopher CEOs also. And of course, because of AI, you know, technology must, must have a soul must have values. And that means you need to integrate, you know, people who do engineering, but also philosophy. So, these are, of course, convergences that are taking place as we speak.

Siddhartha Ahluwalia 07:51

And you later build a iSpirit on which Avinash and Vijay give credit that if a iSpirit was not there, they wouldn’t have been on this journey or whatever they are today on.

Sharad Sharma 08:01

Yes and No, but I think the more important thing, look iSpirit is an unfinished journey, because iSpirit is really about making India a product nation right? And what is a product nation? Product nation is that look, all the neighbors have a mobile operator, right? In fact, every country has a mobile there are hundreds of mobile operators, but all of them are supplied by by hence Huawei Ericsson Nokia and Samsung right now that’s a circle of four, why should the Indian company be missing from this list? Right? So why can’t India be in that circle of four or five? Same is the case with almost anything that you can imagine right? You you take the case of the fact that we are talking about the airlines every country has an airline, but they all buy it from three places only, you know Boeing, Airbus and Embraer, right. So what will it take for India to be in that circle of three how to make that four now these are very hard problems to solve because the innovation ecosystem for a Boeing and Airbus is fundamentally different from innovation ecosystem of a Vistara and Indigo, right? And no matter how good Jio becomes, or how good Airtel becomes, they won’t become a Juniper or Cisco or, or, or Nokia or as Ericsson because they are fundamentally different DNS for innovation. The nature of innovation is very different. So in India, because of the 72 because of the 1992 economic change that took place, I think we’ve learned how to build very successful services companies. So we are very good IT services companies, you know, there is of course TCS, Infosys, Wipro, many others. We’ve built very success Full airlines. We built, you know, hospitals, we built, mobile operators and more. But in each of these cases, the value capture is somewhere else. So for example, you know, Microsoft, of course, the profits are through the roof, but the low profit here for them was 2013. But even in that low profit here, they made more profits than the top 20 IT services companies of the world put together. Now don’t even talk about it now, right? There’s not even comparable. Cisco is having a bad profit here. And yet Cisco makes more profit than the top five European mobile operators, which includes Vodafone, Telefonica and others, I could go on and on, you know, Airbus, and Boeing make more money than all the airlines put together. So in our mindset, what we have to do is to say, can we give India another innings? And in that innings can we create these product companies that would actually be in that circle of five in their own area? Now, obviously, this is possible, how do we know this is possible? Because you’ve done it in space? Right? We did that with COVID vaccine, for example. You know, India stack has helped people think of platforms in a way that was not possible earlier. So if we apply our mind to it, then we can do it. But this innovation ecosystem-

Sharad Sharma 11:24

-is fundamentally different from the services ecosystem that we have. And this is something that is beginning to now be understood. And part of the reason is, G-20. Part of the reason is China. You know, why G-20? Because if you look at G-20. Alone, you know, there is France in G-20. But the Spain is not in G-20. Right. Now, you say why Spain is a big economy, it’s about the same size as France. So why would they have one and not the other? But think of it deeply? What do we buy from France? We buy an Airbus, we buy a rifle, we buy nuclear power plants, we buy a submarines. What do we buy from Spain?

Siddhartha Ahluwalia 12:13

Olive?(Chuckles)

Sharad Sharma 12:14

Olive oil. Right? So the same is the case between Thailand and Korea. Right? You can’t name a single product brand from Thailand. But Korea, of course you can. But in 1974, Thailand, per capita income was higher than Korea. It was in 1974, that Korea decided and said, I don’t want this(Speaks in Hindi), I can do better. And I can do better ended up meaning building a part of the economy that they had not focused on earlier. And by building that part of the economy with a circle of five kind of product economy, they are now 5.6 times the per capita income of Thailand. So the question for India is, will we become a Thailand? I think we are on that path now. Right. But the question is, can we become a Korea? Can we become a France? Can we become an Israel? That means crossover? The middle income? Trap, as they call it? Answer is we have to aspire to do that. And to aspire. If he aspired for it, we will be able to do it, it will still take us 15-20 years to do we will already you know

Sharad Sharma 13:30

ill be able to do it, it will still take us 15-20 years to do we will already you know

iSpirit work has been there since 2009. Although I spirit was formed as a legal entity in 2013. But as a group of volunteers, we’ve been around since 2009. And so it’s already been kind of 14 years. But right from the beginning, we set it as a 30 year journey, and we have 14-15 years more to go. But I think we can get there. And why do we need to get there? Why is it important whether we get there or not? Because it appears, it appears we’re not sure may not happen. But it appears that China is making this pivot. China is walking away from job work, and actually wanting to sell products. You can see that in EVs and cars. You can see that in cell therapy, gene therapy. You can see that in AI, you know, this is the pivot that they’re making, they’re going through a bad patch. Now, some people say this back patch is only an adjustment from one type of economy to other something that, you know, irritates many of us is that you can even see that here in Bangalore, it’s in front of our eyes, but we choose not to see. So Bangalore is known for garment export, where there are lots of garment exporters here. Now, if you go back 12 years ago, and you looked at which industrial sewing machines they were buying, they were buying German and Japanese today 82% to the industrial sewing machines that we import are Chinese so and industrial sewing machines are not easy machines, they need precision parts. They’re programmable. Right. And so the complex machines, there is, frankly, China will make more money from our garment exports than we will make ourselves. Because the real money is not in the job work that you do. The real money is in the damn machines. And for them to have created a ecosystem that steals share away from Germany and Japan is not easy, but they’ve done it. You don’t the the joke is that it’s a sad joke. But nevertheless, that is real. And, and, and Switzerland, and the companies make more money from our diamond cutting and exports than Surat makes itself because we get low value added work. But it happens on complex machines, all those machines are from those places. So the question is, will we go back into the ecosystem to build that stuff. And and, and the only way that is possible is that if a startups embrace this idea, and for the startups to embrace this idea, it is important that they embrace a new way of innovating. For the new way of innovating. There has to be some entwined twins(Hindi word) the between either public research or public infrastructure and private innovation. So this has been the journey for a long time. And that journey became crystallised, not because of the government stuff is because of a SAS industry. Because then you can see this, the amount of money a SaaS companies make the same amount of money are cloud infrastructure providers will make, right yeah, and there’s 20 %, and they’re starting to squeeze. Because, you know, they know they can squeeze it, so their share of the profit pool will go up, the share of the person who actually has made the business application and put it on on and made it available to others will shrink. So this is an economic model that we have to understand. And then operate in the part of the economic model that matters to us in a big way.

Siddhartha Ahluwalia 17:08

We talked about how value capture is happening by China, by Israel, because they are building the core components of where the value is getting captured. And these are to summarise machines, which are complex in nature. And China’s doing away with job work, because they don’t want their people to be in factories for 12 to 14 hours a day. And India’s happy to take that away.

Sharad Sharma 17:36

Yes, although I would say to be for both China and India, we need both, we need the job work because that provides jobs. And we need the deeper part the product part of it, because that provides wealth. Because if you only do the job part, the Thailand or Spain equalent, the Thailand equalent, then you will only hit a middle income kind of a part, you can’t go beyond that. And as you know, very few countries have managed to become wealthy countries, you know, developed countries, because they were able to overcome the middle income trap, the middle income trap, overcoming requires you to be part of the profit pool, you’re part of the ecosystem where there is a profit put, and you have to create valuable companies to be able to do that. And and that requires those companies don’t happen by by happenstance. You know, for example, you know, space transportation, you know, if you go back to 2008, when SpaceX was struggling, and you said, look, let’s fast forward 15 years, right from there, and, and the winner of the Space Transportation thing will be this piddly little startup. Most people would have said No,no, you know, it will be Boeing, it will be Lockheed Martin, it’ll be somebody else. See, look, the market picks the winner. And the mindset is that it should be the Davids that should win that market. That’s how the value and the wealth get created. So So therefore, that we can’t predict who the winners will be, but we have to create ecosystems where enough companies are going after that area, the valuable area so that it is one of them can be a winner, if not more as we go forward.

Siddhartha Ahluwalia 19:18

Coming back to your David versus Goliath story. So Elon Musk has always positioned himself as a David be it Tesla be it you know, SpaceX.

Sharad Sharma 19:28

Best works comes when you actually put it as is. So in our eyes iSpirit stuff. You know, we are always the underdogs. In fact, two conditions that you need to meet with and the other one you hinted at already. Second is you have to do contrarian stuff way based on first principles, because whatever is the general consensus, usually not Yeah, right. Or it’s shallow. It’s not even if it’s not wrong. So you have a you must have the ability to say that our way of thinking this off This problem is different ours, and therefore, you frame the problem differently, you frame the solution differently. That’s number one. Second is you must see yourself as an underdog. Because if you don’t see yourself as an underdog, then you the first time the wind comes and defeats you, and makes you fall down, then you would fall down, right? I mean, we tell our new volunteers, the story that if you don’t go through three valleys of death, means you’re not doing, you know, anyway’s it will take 3(Speaks in Hindi). So so then we show them the UPI chart, because UPI for somebody to imagine that it went through three valleys of death is very difficult. No. So when you show them that chart, Journey line, actually, this concept of a journey line comes from Thyagarajan. Now in Upekkha, and we would make we make this journey line for almost anything that we do, even if we were doing an event, we would say, what’s the journey? Like? What are the low points where the high points, because the difference between success and failure is how you deal with those low points. And how you deal with your low points is a function of your mindset. And if you have not put yourself in a mindset of an underdog, then to you can’t put it at that point in time, you have to be in that concept of a mindset of underdog, right all the way through. So when things are going well with you, you don’t get carried away when things are not going well, you want to pick yourself up and move forward. So I think all the players and I think that two types of players, they’re either startups that want to ding the universe, they have to be underdog mindset. And I think what in some sense, what is happening in India Originally with a iSpirit now hopefully, there’ll be 30 iSpirits over time, is that what is what in a way, what is Silicon Valley entrepreneurship is saying we’ll ding the universe. And by the way, get rich in the bargain. Right. So Paul Graham says it very beautifully, that your missionary entrepreneurs and mercenary entrepreneurs, and he explains in his essay, why missionary entrepreneurs are likely to be more successful than mercenary entrepreneurs. And that makes complete sense. So these missionary entrepreneurs are on a mission, Elon Musk is on a mission. byproduct of that is that he’s perhaps one of the richest people in the world, that that’s not his mission, his mission is the real mission. Right. And and, and that was the case with Intel. That’s been the case with even the Google founders, many other people they define their entrepreneurship, as a mission of changing the world dinging the world. You know, Steve Jobs said this beautifully in his speech, right? So you want to dent the universe? I think what, what the Indian innovation to this is that in a two by two, if you say that you can, you either will set up a business, let’s say a Korean restaurant, which is not there in in Koramangala. That’s not digging the universe that’s filling a gap in the market. The digging the universe is that I will change how restaurants happen in the country. Right? So you could do both Silicon Valley celebrates the latter, right? Now you could also have a situation where you could say that, about this about iSpirit, iSpirits culture is about dinging the universe. But by saying I don’t need to become rich, I’ll do it as a no greed, no glory volunteer, right. So this quadrant of dinging the universe and not desiring to make money is a unique quadrant. That is not it’s very difficult to explain this in the US if you go to the US, because their way of thinking is, if you don’t have skin in the game, you don’t have money as skin in the game, Why could you be serious about this? Right? And so therefore, they don’t think you’re serious about it. In India, you get actually the ability to influence because you have taken this approach of being no greed, no glory. So you can now say, I’m genuinely doing it for this cause, there is no hidden agenda that I have, which is either to get glory or to make money. And so you are able to co-opt others in the process. So you are able to give the glory to the to the policymakers, because in India for a policymaker, you have to understand this, it is very difficult to do something out of the norm. You know, so anything that has that has,

Sharad Sharma 24:35

-At least in India stack that has happened, including I would say UPI you remember when UPI was launched SBI and HDFC did not launch UPI in August 2016. A normal RBI would have succumb to the biggest banks request to kill UPI. So you needed an RBI governor who was willing to stick his neck out for something,that was not proven at all. Right? So our view is that change in India happens when you stumble into policymakers like this. And they deserve the glory. And also change happens because startups decide to embrace something that is not yet proven and pour their energy to kind of build on top of it and solve a problem that is important to solve. Let’s say like PhonePe, solved. Paytm has solved, you know, Just pay and many others Bharat pay. These people were doing it at a time with UPI, when it was not fashionable to do it with UPI. So they deserve the money that they make out of it, is it not? So if you then approach this and say, if this is the ecosystem that you want to build, then the best way to co-opt the policymaker and the entrepreneur is to be yourself? No greed, no glory right. Now, how many people want to be No greed , no glory? Very, very few. But our thing is that look, we need only 150 volunteers within iSpirit. And which means we need only one person for every crore Indian that we will get(Speaks in Hindi). So that is the thought process that is there.

Siddhartha Ahluwalia 26:12

I want to take a step back, right, from your observations you’ve worked in in US a lot. And you’re far away well aware of what’s happening globally. Right. That’s, that’s how your, your thought process has shaped up. So according to you, how has India grown as a country in the last 30-40 years? And how are we keeping up with the world’s advancements?

Sharad Sharma 26:38

Yeah, no, I, I would say that. That first of all, I think the 92 economic revolution setting stage for us to be able to build world class companies at scale, right. So our IT services companies are as big as anybody else. Right? I have a feeling that with these two, 5.. 250 billion to $500 billion orders placed by Air India, and indigo, airlines will be the largest in the world. Will we be surprised by that? No. Why? Because today Airtel, and Jio are amongst the largest operators in the world, you know, to have our hospitals be amongst the largest in the world, wouldn’t, surprise anybody at all. So I think one big change that has taken place is that we have the national confidence, you know, to be able to build large services companies that are well run and so on and so forth. Right. And I think that is extraordinarily helpful. Now, we have to build the other part of this right, which I think is going to require some unlearning and relearning, obviously, for that to happen. And I think we are on a path to do that. So I, I feel that if you invite me back, you know, I will leave this for the audience. So remember, I mentioned to you HENS, HENS Huawei, Ericsson, Nokia and Samsung, these four people essentially supply mobile equipment to the rest of the world, of which much of that world, more than 50% of that world does not want to buy from Huawei for geopolitical reasons. So the question is, who will replace it? Right? So if you go and ask in the US, they’ll say maybe Cisco will be that or Mavenir is another company that is doing well. If you go to Europe, they say maybe Alcatel will do it. Right. If I asked you here in India, you won’t have an answer. Nobody has. Nobody has an answer. But what if I tell you if. What if I tell you that a year from now? It will be Tejas. Okay, right? And if it is Tejas that you have to take me out for lunch or and if it is not Tejas, I’ll take all of you out for lunch, right, as having lost the bet. And I think this this understanding of what it takes to be able to do that is still poor. And and you know, we need to to explain this to our young entrepreneurs, because our young entrepreneurs don’t need to make the same mistakes that let’s say India stack made the Tejas has made or Bharat biotech because they made a COVID vaccine they have made or idea forge because of what they’re doing in defense drones that they have made, or what you will do in electronics. So because they’re all the things are bubbling up now. You know, Tejas itself is a 23 year old company, right? There’s been 20 years of work that has happened behind the scenes and the learnings from all of This should be actually available to everybody else, because then they will make a new set of mistakes. Right and not repeat the old ones. So we have to over the next few years, demystify this process of what does it mean? I think you had, for example, Tarun from Aether here, right. And so if I take that as an example, right? Aether itself, their sense is that I got to build a good product, little or no doubt. But if you look at what Swapnil is trying to do, the other co founder and CTO, his thing is that I’ve also got to build a great organization, great factory that produces the product, this is what Tesla is doing, right? Tesla car has to be special. But that’s not good enough, that’s not enough, you also must have outstanding factory, you know, you which you’re built from the ground up, you put in the same energy, perhaps even more energy, in rethinking the factory, so that you can rethink the product, you are now operating at two levels. Now, this thinking is very, very important. So I would say a third exhibits this, you know, there’s another Bangalore company we don’t talk much about, it’s called Seasick. Six. You know, they do a lot of work in seaweeds and stuff like that. You will, they are operating like this, right? So I and that’s why you need a philosopher CEO. Remember, we talked about it in the beginning, because what is philosophy, philosophy is to understand the humdrum of life, but also understand the deeper stuff that is happening. So if you want to build a successful product company, you actually need to be a great architect of a product, you have to be a great product architect, you have to be great factory architect. And for that to happen, you need some people who will be good ecosystem architects, because all the three layers need to come together. And I think that is beginning to happen here in India. So if there are people who are in their early 20s, I would encourage them that this is the revolution, your question was, you know, how far have we come? And where are we going and I think where we are going is into this new era, where the kind of companies that you want to build are these companies where you will be building a tremendous product, but also the engine that builds that product. And they would you would do it in an environment where there are other people who are helping think through what the ecosystem architecture will be, so that everything can come together as we go forward. So that’s really the shift that I think is taking place. And I think it will pick up momentum. And, and you know, maybe 15 years from now, we will truly be a product Nation. So

Siddhartha Ahluwalia 32:49

So I can tell you about how we as Neon show, operate. The purpose behind it and neon fund operation has a purpose behind it. The neon show is dedicated to bring out stories like this that can give more confidence to Indian entrepreneurs that you can create it. Right. Right. Right, and what they hear the unsung heroes. And I think India has done a very poor job in marketing itself.

Sharad Sharma 33:14

Right. So I’ll tell you, this UPI story UPI was coming out in UPI was announced by the then governor in February of 2015. And in on, on on February 11, of February 13, I forget the date of 2016 was in in Taj, Vivanta the Sandbox that was launched. And 321 people came for that. I remember that because you know, everyone had to register. There was only one VC amongst them. His name is Alog Goyle, he had joined safe, right? So he’d come from Red bus CEO, Google Red bus and and we started teasing him at the end and said, Alok, where are your colleagues? Why How come nobody else came? And he also sheepishly looked at this and said, I came because i am vogler(Speaks in Hindi). That’s why I came. Right. So we really started asking people, you know, why are they not there? And the general consensus was that this looks nothing like a Chinese payment system, or an American payment system. How can it succeed? Right. So, so I tell the story that we went, we had to convince companies, we went to five companies in Koramangala. I’m not even going beyond that. Chiller who had moved from Kerala to Koramangala. We said this is great for you. They used to have an app. So if you’re an HDFC customer, and I was an HDFC. Customer, we could send money to each other using the chiller app. You said this is Godsend for you. They said maybe we’ll check with HDFC, HDFC said no, no, because they were not keen on UPI, so they didn’t do it. We went to Instamojo, which used to actually offer Link, right against which you could pay, we said this gonna be a Godsend for you. They didn’t embrace this right? There a bloom portfolio company, we in fact, did two big meetings of iSpirit their because you remember iSpirit has no office. So when you have to do a meeting, we have to ask people . And we are very grateful that people go out of their way to offer space. So in this case, we actually picked Instamojo, hoping that that discussion, will, you know, galvanize it did not right Razorpay, or other Koramangala company embraced it with both hands. In fact, I would say in August, if you went and type UPI on organic search, it was Razorpay webinars that would come up on organic search. But they had taken money from MasterCard, MasterCard, said, what are you doing(Speaks in India), and they lost a year, because, you know, the board, which was composed mostly of VCs, did not understand that what’s good for razorpay is not synonymous with what is good for MasterCard, right? Otherwise, they would have been the most successful payment company, then there was PhonePe. And PhonePe had a term sheet which went away. And you know, all that drama happened. So they had to go back to their old employers to get money. And Sachin and Biny were super smart in giving them a lot of money, which, of course, has been a benefit to Walmart, you know, at this point in time. But they took it up, but there was a young startup that just started off, and Juspay took it up because they were young startup. So the two companies that have done very well, but the ones who had no legacy.

Sharad Sharma 36:45

See, our problem is that we are old culture. And the reason we have survived as a old culture is because we have tremendous respect for legacy.

Siddhartha Ahluwalia 36:57

Will we keep going back to the old way, the old stories?

Sharad Sharma 37:00

The old way, the old stories, unfortunately, that is now preventing us from this short legacy of 20 years or 30 years of entrepreneurship, which was only a starter legacy, the share price, not even terrific legacy is not as if, you know, it’s a phenomenal legacy. It’s a good legacy. Don’t misunderstand me. But it’s an incomplete legacy. And but that is beginning to hold us back. So coming back to your question.

Sharad Sharma 37:31

Why is it startups are so successful in China? And not so successful in Taiwan?

Siddhartha Ahluwalia 37:40

Due to the nationalist thing that we want to build it ourselves?

Sharad Sharma 37:43

No. What happened is that China, like India had a very strong sense of how to build a business. Yeah, right. Because India, Kay, in many people, it’s in their family for god knows 1000 years, right? Yeah, not surprising at all. So there is a tacit knowledge about how to build a business. That tacit knowledge that was there all ran away, because those businessmen ran away to where to Taiwan the ones who were left(Speaks in Hindi) Mao Cultural Revolution, wiped it out. So they had a clean slate to start with. And in that clean slate, they adopted whatever it took to build the kind of businesses that they want to do, which in Taiwan, you’re not able to do? Is it not? So let’s examine what is it that we must unlearn? We talked about what we must learn? Let’s examine what must we unlearn from traditional businesses, which prevents us to be successful in the new world? Is that a fairly fair thing to talk about? So first and foremost, is a traditional businessman in India, right? Would say that emotion is our field business is our field(Speaks in Hindi). I will build my conviction in this when the numbers start looking good. Right. The numbers for UPI started ticking up slowly only in September of 2017. And whoever entered the UPI market, after September 2017 does not effectively exist. Because the S curve when the first inflection happens, because these are all s curve inflections, right? Today, tech is all about S curve inflection. After the first S curve inflection happens, it’s already too late to enter the market, not only for the entrepreneur, but even for early stage investor, I say to early stage investors that it’s already come in Times of India is already too late for you, right. So because that s curve, inflection is very important. So how do you then build conviction if that market data is not the source of conviction?

Sharad Sharma 39:58

So I tell this story that in December of 2016 UPI. Even the BHIM app has not been launched that was launched on December 30 2016. UPI is just, you know, limping along at that time. We get a message from Sequoia saying John is coming to meet you on Thursday and Friday. And please meet him. John Collison of Stripe. Yeah. That time the company was valued only at 18 billion. I don’t know what it is today. 100 is plus 100 plus billion. But even then, he held the title for being the youngest person to turn a billionaire, which he holds today to too he turned a billionaire at age younger than Mark Zuckerberg. Right. Now, what should that do? It should give you a sense. That, you know I’ve arrived, but instead he happens to reach Vivek Wadhwa’s column in Washington Post in the middle of 2016 saying Silicon Valley, watch out this India stack is coming. His digs further, he finds stuff on UPI, and he is now on Thursday morning and Royal Orchid hotel sitting in front of us. And very nice. He said I’m very grateful because I had made a resolution that I have to meet the people who wrote the UPI architecture 67 Page architecture since the 60s. So he said, I’ve read everything about UPI I am very impressed. And I wanted to meet all of you that so I took the visa and 15 days before the year is over. Here I am, right. And the snarky guy that I am. I said But our. He said I’ve read all 251 pages of this. And I said but our architecture document is only 67 pages. Right? I thought I got him Yeah. Right. So so he’s then said, no, no, but I read these other three documents also. Now I’m not joking, while he’s doing the talking, I open my laptop, I pull up those documents, I see the page numbers and total them up and they’re 251. And then you can see I’m now looking at him with a fresh pair of eyes with respect. And you know, on Friday evening, he had extra time because he was going to be a flight’s go very late. So Shekar Karani, who’s been in a very critical part of iSpirit and helped co-found iSpirit also in Koramangala. So I asked Shekar, you know, would you like to meet? Of course, he said yes. And then after at the end of it, he says, Man, we are screwed. Because our assessment was that none of our entrepreneurs had bothered to read the 67 page document.

Siddhartha Ahluwalia 42:40

And somebody has read 251 pages

Sharad Sharma 42:41

And somebody and in a market that he didn’t want to serve. See, I tell the story again, you if you go back to Satya’s book, there is a section on India stack well before India stack became famous. So he was coming he set up time for one and a half hour meeting. We thought we will go to Whiteboard and tell everything(Speaks in Hindi). For most of the time he was on the white boat. We asked him what? How did you know about this?(Speaks in Hindi) He said no, I did six preparatory calls before I came here. He said why? He said no, no, because my job is because I operate as a platform business. I find this very fascinating. We can learn a lot from this.

Sharad Sharma 43:18

Right? So the point is that this learning mindset, See, our education system also creates a cheat sheet culture. So the how do you build conviction, you build conviction by actually reading everything there is on it. And and and then actually saying this makes sense to me. I can I can bet on this. Now that bet works in an S curve. Model. The the business got bigger(Speaks in Hindi) bet does not work in this model. So that’s number one. Number two is that when you do this, you have to be able to understand that inside this is something that you can leverage, I would even use the word exploit. Right. And then you have to make a determination how to do it. Right. So for Juspay for PhonePe, UPI was not proven, but they had said we will leverage it right. We will exploit it as we go forward right as the UPI protocol and all the system, how to do that is often not clear when something is very, very new. So supposing I tell you there is a new way of, of collaborating between modelers and data providers, and that’s called DEPA and explain DEPA to you and you’ve never seen anything like this. And you study it and you say, look, I like it, I’m going to make a bet on this. But if you go and ask people and say okay, how should I do it? Yeah, there’s nobody to tell you. Right? Right. So therefore, you have to have the ability to figure that out. Have you there are no pre built Devotional song(Hindi Word) at that time. So if today you go What was I spirit famous for in SASS is the playbook roundtable on desk marketing and selling that we did with, you know, people like Sridhar Vembu, Girees, Palav Nathani, all the people that you’re talking about sharing their playbook with everybody else. So there was a Devotional song(Hindi Word)to go around. And that Devotional song(Hindi Word) was created by bringing all the Devotional song singers(Hindi Word)s together, right, that was, and the credit goes to all of them that they were willing to share the company Devotional song(Hindi Word) with everybody else. And this is what I think Avinash is geniuses because he’s able to enrol people in ways that I don’t think anybody else can. So so. So I think that Devotional song(Hindi Word) was at least there because best marketing and selling had been done by others. But what was the Devotional song(Hindi Word) available to Zoho? Which is that that is the Devotional song(Hindi Word) that Girish got no?

Siddhartha Ahluwalia 44:05

Girish got it very early. He was the first person to get the Devotional song(Hindi Word) of Zoho.

Sharad Sharma 46:00

Isn’t it? Yeah. But so the point is, though, who became Zoho because it created its damn Devotional song(Hindi Word), it didn’t have the luxury to get it from anybody else. Sridhar and his team had to create the Devotional song(Hindi Word). Second is you cannot be successful. If you are implementer of a Devotional song(Hindi Word), you have to be a creator of a Devotional song(Hindi Word), which means you have to go deeper. Are you with me? Right? The third thing that that is also very important, is that now that you’ve done that, you got a product in the market. Now, usually, when you get into the market, you are serving an underserved market, which people have not cracked open. So for example, if you now are doing open open credit enablement network, you are going and serving those MSMEs who can’t get a one year working capital limit from the bank. They are very happy you’re doing it for them. For them, they will take this with both hands, right. So in the beginning, when you serve a white space, you are in a seller’s market. But that seller’s market changes to a buyers market very quickly. And when it changes to a buyers market very quickly, you have to up your game, your products has to be better. Your What if your if the way you deliver that product data experience your NPS has to the high right. So I tell the story. You know I live very close to

Sharad Sharma 47:30

The Forum mall in the early days of Flipkart, you know you had to buy an extra battery because they were replaceable batteries. We started buying them on Flipkart. And then I remember people would make fun of us and said you could have walked 200 yards and you would have got it from the Sangeetha store. You are Why are you so lazy, because the experience of Flipkart and that is how Flipkart succeeded. The NPS of flippart was Flipkart was very, very high. Right. By the time Amazon came Junglee came, they didn’t kill Flipkart, Flipkart had destroyed its NPS on its own by then. And now therefore, they were able to take the high ground Yeah, this, you know, we used to buy fresh menu food and FreshMen came, it was very popular. Then when the Bowling company came, they offered a better did anybody had loyalty, everybody switched. Now even Freshmen, you despite being a startup, for them to adjust, and change the product and experience sufficiently and quickly is very, very hot. So the third learning is aimed for high NPS even though the market does not need it. Now, the problem in the Indian traditional business thinking is that you’re leaving money on the table? Why are you leaving money on the table? So the traditional business ethics say don’t leave money on the table. So therefore what happens is we we actually aim for what Kunal Shah says, for a lower score. And when the market, Re-organises itself at a higher level, you are not in a position to actually use you lose your first mover advantage. Now, think of this, this is not a new idea. This is an idea that Amazon brought to us, because the only company Google is not the first mover it’s in search, you know, nor in in browser, you know, almost in nothing nor in Android, right? Not an email nor in email, right. Yeah. So look, so learning from that what Jeff Bezos said was that if I have to be a first mover and stay a first mover and not be a victim to somebody else, my NPS has to be high right from the beginning. And he managed to convince public shareholders in the US Yeah, that this is the right thing to do, and they’re stuck by him for years. And, you know, after Warren Buffett letters, it’s the Amazon, Jeff Bezos letters that are popular. Find me a letter, which does not have improved NPS score on the first page, right? There’s not a single letter, because you will find revenue growth in the second or third page. But NPS growth is on the first page. So this is contrary to our traditional business. So this is the unlearning that we must have. So we need a conversation in India, about athletic of Gavaskar or choke point is no longer whether the ecosystem is ready when the market is ready, whether the investors are ready, are frankly, or entrepreneurs are not ready. And we have to therefore help them be ready. And that means they must have a mindset of what does it mean to be a good cricketer? What does it mean to be a good entrepreneur? And that definition has to be a different definition than the one that we have today.

Siddhartha Ahluwalia 50:59

I was telling you and you know, the one reason why our fund exists, we say for every SaaS company that we invest in, we try to make sure that the company can hit 10 mil error in three years of investment should precede seed stage. Sure, what does it ensure that, you know, wherever the valuation game will continue, whatever happens that a company has a shot at $100 million ARR journey? Right after? Right? So here’s an entrepreneur has tasted a large success, right 10 million, decent success, and when Entrepreneur comes up to you then he can confidently say, I don’t want to sell my company. I can play a long innings. Absolutely. So So I think.

Sharad Sharma 51:42

So I think look, this is possible. It’s happening in the ecosystem. We just need to have this become the mainstream way out. Yeah. See, the question, of course is. So one of the things that we have to acknowledge is that that all the people who become a product nation, so an example being Korea, yeah, they needed Seeding of the technology. In the case of Korea, a lot of the tech transfer took place by the US as explicit policy. Right. In China, you know, our Chinese friends will hate this statement, but they stole a lot of that technology. There’s no little doubt about that. India also needs a tech transfer to seed this revolution. India has a very unique way of doing this actually, that unique way is that that tech transfer is taking place with people returning back. Yeah. So if you look at India stack India stack is you know, people like Sanjay Jain Pramod Verma, Vivek Raghavan, you know, and many more people, Bala Parthasarathy. And more, they all people are people who came back from the US, you know, they’re all people like, we were all working in the r&d part in the US, and we chose to come come back. So although we didn’t steal anything, but in a very kosher way, we brought technology back. And that’s been very helpful. And that will continue. Because if we have to become an AI nation, we will need to get a new set of people. And so if you can create the right ecosystem, people are willing to come back, right, yeah. Because there is now a new belief in India, there is a sense of India’s future will be great. So especially the people who are now you know, under 40, even then the US, they are happy to explore this. And frankly, you know, a lot of MNC r&d players brought the r&d people back who then you know, even Sachin and Binny were part of Amazon r&d. And that helped him go forward. So so that brain train that happened, is actually going to pay off. Now, this is not the only place where it has happened. Israel also saw the same thing. Israel started this whole process of revolution, by by having a red carpet for Russian immigrants. And that in 2008, became an important part. So so a lot of this reverse brain drain that happened, which is people from Russia, in Russia came into Israel or like Indians are coming back to India is turned out to be important. So my feeling is, look, this is open world, let the people go wherever they want to. But as long as we can pull them back, and I think we can because India is such a powerful idea that it never goes away from people’s right. Yeah. And our family systems are so strong, that that’s another reason. So if India can build a good ecosystem with the ecosystem, architects can do a good job, then we’ll always have the benefit of being able to see that with the right technology by having the right technologists coming back and doing that. So for example, in quantum computing, this is exactly what is happening. You know, Axillae XC Quint, one of the companies that is there is a person who’s come back from the US and set this up here in Hyderabad and driving it. So I think in many of the new areas, you will see this happen as we go forward. So I don’t think we should worry too much about brain drain, because if things go right for India, that will become an asset for us to lean on, as we go forward.

Siddhartha Ahluwalia 55:33

But you think is happening in masses, because every year the number of people who are giving Indian citizenship is going higher.

Sharad Sharma 55:41

But it’s not going higher in the tech sector, right. So if you go back 10 years, and you saw from, let’s say, IIT, Bombay, because that used to send lots of people, I don’t know the exact numbers, but they’re out in the open, they would be able to roughly 80% of the people would go abroad. Now 80% People choose to stay here. So I think it is not happening in this mix. It is happening for other job categories, where people feel they don’t have they don’t have enough opportunities here in India. And, and some of those are like in Canada, some of those are trucking, jobs, teaching jobs, nursing jobs, it is happening in those areas. I don’t think this is a very big problem today in the tech sector. And therefore we should be fine

Siddhartha Ahluwalia 56:29

In research, it’s also pointing out that the number of Indian millionaires or Indian crorepathis were giving up citizenship is also at the highest. Right? And it’s not just us, it’s like Dubai, right? places which are giving them like zero tax heavens.

Sharad Sharma 56:46

Right. You know, and this is a topic for another time, is that I think the way to tackle all this is to fix the system in India. So for example, many of our SaaS companies are not domiciled in India, the way to solve this is not to put more restrictions on that, but is to solve the irritations that forced them to go to some other place. And so therefore, for many years, you know, we we, as with others, run a programme called stay in India checklist, which is there on a blog, if you see that, you will see what all has happened. And there’s been some progress. But this is one of those cases, which is like cooking, even if in cooking, you had the right ingredients, you kept it in the on the gas for the right amount of time, but you put too much salt in it, you made one mistake in the dish is spoiled. So I think we need the government to understand that you’re saying we have resolved 17 of the 25 issues is no good. Because you know, you have to get completeness here. And then only the system changes. And the good news is that I think we have policymakers there who are willing to understand this, but we have still the hard work to do to actually turn good intentions into reality. So hopefully that will happen as we go forward.

Siddhartha Ahluwalia 58:03

So I wish Girish if that has happened earlier, Girish would have IPO’d FreshWorks in India.

Sharad Sharma 58:09

Exactly. Flipkart would have stayed in Indian company. InMobi would have been an Indian company, right. So by virtue of not having them as Indian companies, you know, the biggest beneficiaries are, are the Singaporeans right? I mean, there are 800 high quality companies that are domiciled in Singapore, this is a gift that we have given to them. Right, you know, 40% of the unicorns are technically not Indian at all right? They’re Singaporean or American. So we count them in our list. But yeah, that’s really not the case. Their back end is here, but it tomorrow when they make money, that money will benefit Singaporean society, the US society. So we have that challenge, which we have to resolve as we go forward.

Siddhartha Ahluwalia 58:55

But thank you so much! Been such a pleasure! I enjoyed every second of conversation.

Sharad Sharma 59:01

it’s been an honor for me! Thank you for inviting me and wish you all the best!

Siddhartha Ahluwalia 59:05

It’s been a very different conversation.

Sharad Sharma 59:06

Yeah. Thank you so much!