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Sequoia Capital India

Westbridge Capital Partners recently merged with Sequoia Capital to form Sequoia Capital India. They help entrepreneurs in making global connections and networks in companies like Google and YouTube. They also intend to provide a really powerful, global platform to entrepreneurs through Sequoia India.

Sequoia now has a foothold in Bangalore through companies like 24/7 Customer which employs 3500 people in Bangalore. People ask why there isn't any seed capital here in India or Bangalore but that is a myth.

Focusing on four companies - Apple Computers, Yahoo!, Google and YouTube, Michael Moritz said all these companies, as we know, are in different businesses. They were started at very different times. By being associated and involved with these companies, he spoke about some of the enduring lessons that his company has learnt from the very time of their birth. When these companies were formed the common wisdom was that it was too late to start another great company. But if you have the drive, ambition, power, passion and creativity, anything is possible.

Apple's Day

Apple was formed in 1976 (also the start of the personal computer industry). When you give up hope on the impact that an individual can have on a company, think of this story, one of the greatest corporate turn around stories in history. And this was financed by Sequoia Capital originally with $600,000. Apple began with a couple of college graduates Steve Jobs and Steve Wozniak. It was born out of the passion, interest and desire to develop a product that captured the imagination of the people.

The company was flat on its back in 1997 when one of the original founders Steve Jobs, (in a complicated way), returned to this company. At the time of his return, Apple had stale products and was deemed an irrelevant company. The management was not in tune with the personal computer business. So Jobs came back to a tired and weary management. When the marketing department was getting ready with their advertisements with a two-word phrase "We're back"; it was Jobs who pointed out that they weren't back but were flat on their back.

Since that year, Apple has grown tremendously. An example would be the enormous impact the ipod is making today in consumer entertainment. All of this can be attributed to the power of one man with the help of thousands around the world who are helping him do this. But without his guidance and passion, the company would not be in the position it is in today.

The difference between Dell and Apple Computers; in Dell the innovations have been in the tremendous distribution and logistics rather than venturing into absolutely uncharted territory.

A to Y...

Fast forwarding to 1995, we reach the far end of the alphabet, Yahoo! Two PhD students of Stanford University, David Filo and Jerry Yang connected with Sequoia Capital. The precursor to Yahoo! was something known as Jerry and David's Guide to the Internet. In April 1995, they had no idea that Yahoo! would develop into the company that it has. Filo and Yang were at a very interesting point in the evolution of the Internet because the guide they developed for themselves was of use to other people. This was again very much an accidental company. At that time the size of the Internet advertising market was zero. There was fear of putting up ads on the site because of crass commercialization of the site.

Search over

In 1999, Google was born. Larry Page and Sergey Brin were hardcore computer scientists doing research and were also very dissatisfied with the search experience provided by the other parties on the Internet. Page knew that this would be of interest to others because of Netscape and Yahoo!. At the beginning of Google, the business model that emerged was never considered. Eventually a model was setup that was far better for the consumer and also the advertiser than had been done before. What is common between Google and Apple is that there is a lot of  admiration that these companies have, for  devotion and fascination for the quality of user experience with the belief that unless you delight and thrill the customer, you are not going to have an incredible, long-term business.

YouTube & You

Nine months ago, YouTube had six people. Chad Hurley and Steve Chen, the founders, had an incredible passion. The company's humble beginnings in a garage and commitment to offering free services necessitated outside financial backing. In November 2005, Sequoia Capital invested an initial $3.5 million, followed by an additional $8 million into the company, which had experienced a boom of popularity and growth in just its first few months. According to a July 16, 2006 announcement, 100 million clips are viewed daily on YouTube, with an additional 65,000 new videos uploaded per 24 hours. It is going to be more viewed than Mtv or Nickleodeon.

Everybody asks if it is possible to build another Apple or Google and the answer undoubtedly is Yes. Two people, a user interface designer (Chad) and an Engineer (Steve). Who would have imagined that ten months ago this company would be on the tip of everybody's tongue. And YouTube has not spent a single penny in marketing or advertising, just like Apple Computers. This is a tale of what is possible today and tomorrow whether you are in California, Beijing, Israel or right here in Bangalore.

A Question and Answer session followed with Michael Moritz (MM), Sumir Chadha (SC), MD, Sequoia Capital India and Sandeep Singhal (SS), MD, Sequoia Capital India:

Here are excerpts:

YouTube doesn't seem to have gone through as many struggles as Apple, Google and other companies. What is the reason for this?

MM: These companies look spectacular from afar. But when you are participating in the company, you know about the various contract negotiations, problems with people, advertisers or users. Newspapers inevitably label you "an overnight success". Google went through this. Things are a lot harder. There will be a point in a company when there is a very narrow line between its success and failure. At one point Jerry Yang thought Netscape was going to kill Yahoo!. In 1987, Cisco went through a rough patch. HP, their biggest customer was furious with their product.

In all these companies there have been key moments when they have had to bring in management from outside. What can Indian entrepreneurs learn from this experience?

MM: It depends on circumstances and individuals. I am convinced of the importance that founders play in the companies for an incredibly long time. I'm always quite crestfallen when something like this doesn't work out. The incoming managers who have ten years experience should have a lot of patience in dealing with the younger founders who question everything and want to do it their way. Some higher managers are able to do that and that's what happened when Steve (Jobs) left Apple.

What is the X-ray vision that you (Sequoia) have when you see these startup companies?

MM: The real secret is that we have just made more mistakes then everybody else. I haven't talked about disasters we have been associated with. We have invented more ways to lose money in more companies and places than any other venture capital firm in the world. The only secret is to try not to make the same mistake twice.

What are the different areas in which Sequoia makes investments?

MM: We operate partnerships that are reasonably diversified. We keep financing communication systems companies or services companies. You have to adjust to the different circumstances of that market. In India there are a lot of different businesses outside of technology where the growth rates are wonderful. We have invested pretty much across sectors here in Bangalore, for instance- Café Coffee Day.

The initial numbers in terms of revenue doesn't look as attractive in India. Is that the reason why investment hasn't moved up that fast in India?

MM: The problem in California was that people got too enthusiastic and optimistic about short-term opportunities. But we are investing in the long term opportunities. In 1995 the Internet advertising market was zero. But it's a $20 billion market this year in the US. So whatever is here today is going to be a lot bigger ten years from now. The market will eventually come to you but make sure you don't spend too much money.

Say I come with an idea but don't have the management with me, but I have a prototype. How will Sequoia help me?

SC: When we say management we don't necessarily mean somebody who is 55 years old. We are pretty open-minded. We recently invested 2 crores in 20-something-year-olds who have only been engineers. There are no hard and fast rules. The short answer is come and talk to us.

MM: This may sound silly. Forget about the prototype or the management. If you can come up with a wonderful idea for a business then you can very clearly convey it. If you boil down your ideas and thoughts to a very simple proposition that is understandable, that will always get our attention.

How do you know that a particular idea will work?

MM: If you have the desire to thrill an audience that grows then you will be rewarded because that audience has considerable value. A 20 year old recently started a company which works on mobile applications and he has been able to convince one of the very largest carriers in the US to help him in the operating system. What he had designed was so convincing that they felt they needed to have it. People recognize value and they will pay for it. I'm hugely convinced about this.

You have spoken about 20 year olds faring well in Silicon Valley. There are a lot of 20-something Indians also in Silicon Valley. How come they haven't fared similarly?

MM: A lot of companies that we have been involved within California have had a heritage in India. There is a company called Aspect development. It was incredibly successful. It was started by a young man called Ramesh Wadhwani. He was the one who first woke us up to India. He pointed out the opportunities of doing business from California to India. In the last ten years around 30 companies have been associated with Sequoia.

In India itself companies like Wipro and Infosys are doing well which is fantastic. We are huge believers in the incredible power of immigrants of first generation Americans in California to develop companies. In 20 years time we will have similar success stories of companies born in India.

Entrepreneurs cite Google as an example to defend their statement that they don't have a revenue plan. Do you subscribe to that kind of an approach by entrepreneurs and if you do how do you rationalize an investment like that?

MM: That isn't true. It's just that the first revenue stream of Google didn't materialize which was the licensing business.i.e licensing search engines to either web companies or to large corporations. The trouble with this is that it is a very small business. That was the original plan. That was how Google was going to get revenue. Eventually the founders improved massively on a way to develop revenue. Though accidental it was started with a very mercantile gaze by the founders. Anybody who has had the benefit of meeting Larry (Page) or Sergey (Brin) will know they are very shrewd, careful, thoughtful and analytical businessmen. 

Reported by Vaishnavi Vittal, a consulting correspondent for Businessgyan 

Issue BG67 Oct06

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