In his first big bet after selling his 5% stake in Flipkart last year, Sachin Bansal has invested Rs 650 crore in ride-hailing major Ola. With this, Bansal, who co-founded Flipkart in 2007, is backing Ola co-founder Bhavish Aggarwal in his battle with US ride-hailing giant Uber and the company’s international expansion.
The duo have known each other since 2012, with Aggarwal saying that Bansal was always someone that he “looked up to”. Both founders have faced similar challenges through their journey, with their startups taking on well-capitalised, US-based rivals. In late 2016, the two also spoke out against the influence of foreign capital in the domestic startup ecosystem, kicking off a debate on whether India should take lessons from China.
In an exclusive interaction with TOI, Bansal and Aggarwal talked on a range of topics. Excerpts:
How did this investment happen? When did you guys start talking about this?
Bhavish: I haven’t said this very publicly but when I started Ola, there used to be one company which was getting to the iconic stage — Flipkart. I got in touch with Sachin around 2012-13 — when Ola was just starting to grow. Even then he was very encouraging. I always looked up to Sachin. For me, the relationship was built over many years and I think the investment came in the last phase.
Sachin: Yeah, it was kind of continuation of the relationship itself. When I happened to have a lot of liquidity in the middle of last year, I approached Bhavish, on whether he would be interested (in such an investment) because I was very keen. If I look at the whole ecosystem of companies or technology companies in India, this is one which I have believed in since 2012-13.
What makes Ola so attractive that you are putting a significant amount of capital in the company?
Sachin: If you look at it from a macro perspective, India’s economy right now is $3 trillion. It was $1 trillion when Flipkart started. There is another 2-3 times jump that will happen in the next 10 years. So, I believe, when that happens, a massive amount of value is going to get created.
If you look at the top 10 companies in China, US and India, the biggest difference is India doesn’t have tech companies in the top 10, yet. So that is going to change.
Then I looked at which are the companies that have the best chance, the sectors that have the best chance — transportation is definitely going to be one of them.
Solutions like Ola’s are coming in at a stage when car penetration in India hasn’t reached the high levels of western countries. So we are going to skip car ownership to having a car at your doorstep with the touch of an app.
Bhavish: If you take a middleclass family — husband working, wife working and two kids, they would be spending 20-30% of their income on transport. We started off with a simple car service, today we are a multi-modal platform across the first-mile and last-mile solutions, including dock-less bikes and auto. The car services have also expanded more. We are getting into public transportation, we acquired Ridlr last year.
We have seen transportation companies expanding into e-commerce in Southeast Asia. Do you see some of that happening in India also?
Bhavish: I believe every large economy will be slightly different from each other. If you see the US, it’s a different evolution. In China and Southeast Asia, it’s a different evolution. But the thing that is common is the transactional velocity — because you need mobility two-three times a day.
Given that this is one of the largest transacting platforms in the world, naturally it will lend to ancillary businesses. Now some companies will go into e-commerce, some companies will get into food delivery. Still to be seen is which strategy plays out in India. Our focus is to go deeper into some local services because it leverages our consumer base, our transactional & logistics network and the technology we have created. We want to make a big play in different types of local services.
You are expanding internationally, into several developed markets. How important is that? Do you see it as an important strategy for Indian internet companies?
Bhavish: There is an opportunity on two fronts — the evolution of the industry here is parallel to the global market. It’s not like India is evolving 10 years late. We are roughly growing parallel to our peers globally.
Secondly, the technology, cost structure and entrepreneurial style of work and operating style that we have built in India are second to none, in our view.
We wanted to take that jump once our India business was at a certain sustainable level and in the last six-eight months — of expanding into Australia, New Zealand, and the UK — has been very exciting. We are looking forward to going very deep into international markets.
Sachin: What Bhavish said is absolutely correct. Indian talent is already proven all over the world. There are Indian CEOs, management professionals and technologists in prominent positions.
I think more Indian companies are also coming out. I think we have a global outlook. We are not regional in our thinking and companies have proven that — whether it’s the IT services companies, or Zomato or Oyo. I think more and more global companies will come out of India.
How do you view the debate around angel tax? Do you think it’s impacting things on the ground?
Sachin: It’s an unnecessary distraction. Small startups don’t have resources and time to think about it. Bigger companies can still deal with it by hiring the right lawyers and the right set of experienced folks. I think some steps have been taken but they are not enough and more can be done.
I also understand that from a tax point of view there shouldn’t be loopholes which can be exploited. But at the same time, it is a deterrent. An unfortunate situation would be if companies start incorporating outside India. That would not be good.
What do you make of the state of entrepreneurship in India right now? How important is it for the Indian startup/digital ecosystem to have their own large independent companies like US or China?
Bhavish: The kind of challenges and opportunities that our country and economy face, it is very essential that there are a lot more entrepreneurs building a lot more companies. We used to see very few niche areas where internet companies were being built. Today, we see a lot more unique Indian problems being solved by very smart entrepreneurs. Entrepreneurs are becoming younger, but they are also smarter.
From a long-term view, technology-led ecosystem will be a strategic asset for the country. India should definitely build its own large companies in many different technology domains.
Some companies should create large global businesses and lead the world. We are at a stage where we can show the world the future. That plays into our strengths like talent and also shows the unique place India has in the world — traditional business models are significantly under-penetrated and under-developed. India can be the laboratory to build globally-relevant technologies and businesses.
Do you think the government can take measures to empower founders?
Bhavish: I think the government is engaging very deeply with all sizes of startups — big players like ourselves and even smaller ones. The understanding of the problems is also there. But coming up with solutions will take time, and it cannot happen on day one. In my experience, the government has been very forthcoming. What those solutions are, I don’t think we should prescribe to the government.
But in general, what can be done is to allow these companies to take more risk because the kind of businesses we end up building require a lot of capital. And how do we take more risk while retaining control of our destinies is the key point.
Sachin: I think India is also going through a cycle. Even the early Chinese internet companies were heavily diluted. Back when BAT (Baidu, Alibaba, and Tencent — most valued Chinese internet companies) started in the early 2000s the Chinese economy was also small. Today, China does not need any capital from outside and, in fact, they are investing around the world. We will get there as our startup ecosystem improves and we are already seeing signs of that. That is the natural progression.
Both Flipkart and Ola have seen several cycles, including downrounds. What lessons have you learnt from it? Should entrepreneurs always look at maximising valuation when they are raising capital?
Bhavish: I think the aim of an entrepreneur and an organisation should be long-term valuecreation and not short-term valuation. Both are different concepts. An entrepreneur is fundamentally creating a value-creation venture and not a valuation venture. Valuation is a shortterm optimisation that one would do opportunistically and high valuation is not entrepreneurs’ mistake (laughs).
That said, one should not bloat the company’s valuation and they operate in market context — there are ups and downs. As long as you are headed in the long-term valuecreation direction it is good for all stakeholders — entrepreneur, investor, employees, and society.
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