Vani Kola, MD, Kalaari Capital, and Nikesh Arora, President & Chief Operating Officer of SoftBank Corp, chat about entrepreneurs, SoftBank’s plans in India and lessons from Nikesh’s personal life.

Vani: How much will you invest in 2016? What is the minimum cheque size?

Nikesh: Our Alibaba stake is worth about $40-50 billion, and hopefully it does better in the future. That allows us to invest about $2-4 billion a year over the next 10 years. Cheque size could be between $50 -100 million. When we started going out we realised that the global VC investment universe spanned roughly a million companies. We just don’t have the bandwidth or the ability to parse through those many companies. So instead we go one step higher, work with the best venture capitalists out there, look at their portfolio and ask them about their best assets. That universe is between 500-750 companies we track around the world, which is much easier to analyse. There’s probably a handful of people around the world who can consistently write big cheques to a select few of these 500-750 companies.

Vani: How do entrepreneurs and VCs reach you? Do you respond to cold emails?

Nikesh: In one year, we’ve deployed $ 3.7 Billion. We have 15 companies we have to pay attention to. We are trying to run as fast as we can. We have a team of 15 people who try and respond to all emails, even though it’s hard as we get so many emails and not everybody understands our investment criteria. Sometimes even we don’t. Sometimes we are not smart enough to see how smart the entrepreneurs are. But, it will be very hard for us to invest in something where we don’t see traction. We don’t mind if someone walks in with $500 million valuation as long as they have the potential to be massive. We are not smart enough to buy something at $20 million and expect it to go over $10 billion. Plus, we don’t have the pressure of having to return a fund. Our shareholders are patient and perfectly fine if our balance sheet shows $40 billion dollars for the next 15 years.

Vani: Do you think about any sector or geographic allocation at all?

Nikesh: No we don’t. It’s very hard for us to look at a space where there are 50 companies to invest in. We wait for the market to go up a little bit and shake out until there are 5 left. We can understand 5. We just don’t have resources to look at 50. Sometimes we don’t get a chance to invest, which is fine.

Vani: Do you believe in unicorns and how do you look for them? Is there something that we haven’t fully figured out yet about how they look?

Nikesh: Sad thing is: you only find out after they’ve become unicorns. It’s hard to be boring about this, but when I went to business school I learnt that the value of a company is the present value of its discounted future cash flows. I think that still holds true. At some point companies have to get de-addicted from OPM (Other people’s money). All these startups in India are addicted to OPM. Nobody is making profits. They burn cash, then come back asking for more.

Vani: I don’t know anyone else who has this unique distinction of having worked across so many geographies- US, Japan, China, India. Is there anything common across all companies, all entrepreneurs or geographies? Any learnings that apply universally?

Nikesh: In the specific context of VCs, what we have to appreciate is that the risk appetite in Silicon Valley has become cultural. People have appreciation for failure. The Indian ecosystem has to go through its own learning over time. The great thing is that people are excited about startups. It’s becoming a more open market and people want to invest. Surely it will have its ups and downs, but our values are always tested when we get challenged. Masa was the richest man in the world for eighty days when people started coming to him and asking him to open a charitable trust. He lost $70 billion in a day after the dotcom crash. At that time, he bought a company for $20 billion, of which he borrowed $19 billion and turned it around. Culturally, we should have that appetite. We have to find a way to institutionalise at least some of his values, so the future generation can execute the same way he does without breaking the spirit of how he does it.

Vani: Where do you see India 10 years down the line?

Nikesh: Some things are indisputable. Will there be more mobile phones? Yes. More people comfortable ordering online? Yes. In the US, Walmart and Amazon have $100 billion dollar GMV, but in India the largest GMV of any e-tailer is $6-8 billion today. Indian commerce market is a $2.5 trillion market. E-commerce right now is $ 10-15 billion. If it goes up 10 times in the next 10 years, that’s a $150 billion market, if rationality prevails and the players are de-addicted from burning other people’s money. I’ll take a share of a $30-50 billion company 10 years from now.

Vani: Have you always been a successful person?

Nikesh: I’ve always tried hard. It is a combination of luck, hard work and talent. Sometimes people are talented and work hard but miss out on the luck. Sometimes they are lucky but miss out on the talent and hard work. So these 3 things work in some combination. At a time, I was considering doing my own startup and was about to leave my job, but was a bit intimidated. I had dinner with one of my friends from T-mobile, who told me that he got a call from a head hunter trying to hire him for an internet company in Silicon Valley (Google) and that he is not interested in it because it’s too small for him. I talked to them and opted to join Google rather than doing my own startup. So this was pure luck. If I didn’t talk to my friend that day, who knows?

Vani: Most people plateau in their thinking, but what do you do differently?

Nikesh: It’s the restlessness. I tell that often to the young people. Any time you can predict your trajectory, you change it. Every job you take up is 50% hard work and 50% risk.

Vani: Do you think Softbank will satiate you? Do you think you’ll be doing something else down the line, politics perhaps?

Nikesh: I was recounting this story earlier, where Meg Whitman was having dinner with Larry Page and he asked her what she had learnt from her failed attempt at running for governor of California. She said that after such a long period in corporate life, the mind is used to placing ‘merit’ before ‘popularity’. However, in politics, ‘popularity’ takes centre stage. It will be unlikely that I will enter politics down the line. For now, this is interesting enough that it could be my last gig. I get to meet phenomenally interesting young founders and entrepreneurs and share my views. It is intellectually stimulating because now I’m not captive to one company and the 8-10 products they decide to build. I like the flexibility that I have.

 

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