[MUSIC]. What other things are on your mind that might be interesting for entrepreneurs who are in the early stages of starting a business and who could learn something from India and from an investor in India? Anything else? >> I think one of the most major important points, which is a gripe as well as something that makes me feel sad for entrepreneurs is how they- >> Is this a gripe from you as an angel or is it a gripe for the entrepreneur? >> It's a gripe from me as an angel. >> Yeah. >> But I also am sympathetic to the entrepreneur because they probably don't know this starting out, is how the concept of revenue being outdated has been taken just too far. As in their entire effort is, and by the way I didn't even say profit, I just said revenue. So all the other non-monetary metrics have been taken so far as the only measure of success, that we are already seeing collapses in certain sectors which have gone through like series B's, C's, D's and what have you. And now they're realizing if you do not have money, you have nothing. Because you are restricted to the last lead investor you have. So I think this is something that people really need to understand. That as the world moves faster, naturally, there's a natural tendency to become shorter and shorter sighted. Because you think things are moving very fast just like if you were driving very fast you'll be awfully concerned about things which are in your near horizon because those are the ones that you would have an accident. But what has happened by virtue of this speed is that we have lost sight of the fact that, the most common sense fact, that you cannot possibly continue if you do not have cash flows. >> Yeah. >> The general belief that you could move from a model which was scale without cash flow and ease yourself into a cash flow model is culturally so different than somebody who is just focused on more transactions, more communication, more app downloads, that I do not see that migration happening. And if you could think of this early on in your startup career, I think you would survive. Though you may not have that hockey stick or mythical hockey stick that the Silicon Valley model of entrepreneurship is promoting but you will survive it and you will be in a long term sustainable business. >> Well you know Peter Drucker, perhaps the most important management scholar in the 20th century said, if you don't have a customer, you don't have a business either. Now, you could argue that Twitter is, and some others, are trying to prove otherwise. Twitter doesn't have, they have a lot of users, but they don't have very many paying customers, that is there's not very much advert revenue yet. Like every entrepreneur thinks he can be a Twitter or a Mark Zuckerberg, but actually, most of them can't, right? >> So my lesson to people has always been that even if you were setting up a business 100 years ago, there was probably a short period lasting days, weeks, and maybe months, which was your gestation period. Where you were doing things like setting up your business, giving out free samples, attending meetings, etc. Then you didn't make money, but you somehow were moving along the path of growing business. And with the availability of capital, this period has increased from days, weeks, and months to years. The problem is that now this period has increased so much that there is this underlying belief that it is perpetual, which is a fundamental problem. Otherwise, the fact that a Twitter remains revenue-less, or virtually revenue-less for some time is okay because that is how probably Google was, probably Facebook was, so that is okay. But usually headed in the direction of becoming revenue positive, cash flow positive. I think that is the huge problem. That somehow we are living in a world which can not see as far as that, and that is my gripe. >> Yeah, so what's going to change that? >> What is going to change is, take the examples of valuations of some of the largest companies in the world, if they are counting to remain at the same multiples of their sales as they are now or for that matter, if they continue to buy customers, and this is what probably Peter Drucker did not think about, because Peter Drucker says you need to have a customer. So what e-commerce companies are saying, sure I will go and buy one. >> I will buy them. Yeah >> I'll give you money, I'll give you money to buy from me. So eventually in the second phase of that circuit, the customer is giving you your money back. Right? Theoretically, or technically your customer, what is going to happen is that you progress this line a little further and see is this sustainable. Will the valuations of startups soon be greater than the GDP of the world? And start asking those kind of questions. And you know it's not sustainable. So you will soon see a deceleration as a sector, but when things move when you look at an industry aggregate I don't see too much of a problem. It is the individual startups who have just gone crazy, that will experience a blood box. And that has quite the reverse impact on the psychology of the investors as what we are experiencing today where there is a lot of optimism and just a few words of caution here and there. So I see a blood box in the near horizon. I do not think I am the only one who's forecasting that but the fact is that we are all hoping that we want to be the one left holding the baby, that I know this is stupid but maybe I'll get out of this before that thing happens. And to all that ends, right? >> Yeah, we all know how that ends. So with all this money now chasing these early stage deals, what's the effect it's had on valuations of early stage companies? >> So, we are actually seeing a pretty interesting reversal of the trend. First, let me tell you what the trend is. These numbers are India specific numbers, so they may not necessarily make sense when seen at the global context. From 2007 to I would say 2012, which was an early stage of angel investing in India, startups who had done some traction had the product ready, and were doing some business would typically see valuations of a little under a million dollars. And this was at the dollar rate of that time, which was lower than today. >> Yup. >> From 2012, 2013 going all the way up to early this year which is early 2015, I saw that valuations or the median kind of valuations roughly double, which means you are now getting 2x as valuation for being exactly the same business that you could have been let's say three or four years prior to that. But now that we are towards the end of 2015 I'm again seeing some resistance because c, d's, a's are not happening or subsequent [INAUDIBLE] grounds are not happening. I'm again noticing some resistance and in some cases, the entrepreneurs are losing their patience. They are going back and heading in the direction of the valuations that existed three years ago. There aren't too many examples of that, but there are sufficient number of them to see early signs of a reversal trend. >> So, you're optimistic that valuations will remain somewhat realistic for these early stage companies and not get to out of line given all the money chasing in the deals. >> I think they have already got too out of line. I am optimistic that this too out of line trend would not continue. And I would like to give you an interesting example. If you take the case of Flipkart, which is just kind of the you know, the flagship of Indian startups. Its valuation as a multiple of its sales, just a few years ago, was in the vicinity of 40 and 50. Today, it is down to something like two and three. And this has been a progressive reduction, which means their sales have actually risen at a much faster pace than their valuations. So I think that's a very good sign because today I can not see Flipkart continuing to raise private money for much longer than this. They are at something like a series J or a series K. What do you do after you reach series Z or zed, right? So I think that a multiple of two, two and a half, three over sales is probably still seen as very high, given that they're predominately a marketplace, and people want a multiple of 0.08. But I still think that going from 30, and 40, and 50, down to two and three is a positive sign. At least I like the fact that some of these larger games are headed in the right direction. Of course, not all of them are and we are going to see a blood box for those investors and startups who refuse to accept common sense. >> Yep, yep. Well, at the end of the day, we all need common sense, both as investors and as entrepreneurs, of course. And when common sense gets in short supply, we end up in bubbles and some people get burned. >> That is correct. >> So Ajeet, I want to thank you so much for joining us today. This is fantastic, it's great to have an Indian perspective here that people from around the world can see, and understand, and maybe adapt to their own settings. So I really appreciate your coming on board. Thanks so much and I look forward to seeing you soon. [MUSIC]
