The news reached epidemic proportions a few hours earlier with journalists calling to ask if I (and many others) now thought that Indian entrepreneurship was dealt a terrible blow with Nikesh Arora’s resignation from Softbank.
Especially after he got what we like to call a “clean chit” from an independent body on allegations raised against him.
No. One man’s resignation letter to his boss does not an Indian start-up disaster make.
Keep calm, folks.
Let’s focus on what the resignation was about. It seems, from reading between the lines on what both parties have said is that the terms of Nikesh’s employment had changed. Earlier, he was the heir apparent to Masayashi Son at Softbank. I’d assume there was a clear agreement on a timetable to the ascension and coronation.
But then there was a hue and cry about financial irregularities and bad judgment calls that the Softbank board had to investigate – given it’s a public company and all. And the investigation came back with an “all clear” on the financial irregularities part. So there’s no integrity issue.
As far as the other issue – bad judgment calls go, I assume the Softbank India portfolio hasn’t been doing well lately. Now, a 18-month track record isn’t enough to judge an investor. Sometimes funds do come in at the top of the market only to see the whole market fall away from beneath their feet. That could be luck, or it could be a bad thesis. You probably should see how someone does over 10 years before judging them as a VC. And Nikesh Arora had not even spent two years as one. (Not that this stopped The Times Of India and Economic Times from giving him some random “Investor of the Year” and “Indian of the year” type of awards.)
Nevertheless, that red on the portfolio mark-to-market could have spooked some impatient board members. So then perhaps the Chairman decided that his heir-apparent needed a lot more time – 5 or 10 years or more - in waiting before gaining the throne.
Which may have come as a breach of contract to our man Nikesh, and who then probably decided that he didn't want to take more of this scrutiny for this length of time, and decided to move on.
This isn't an indictment of India and its startups.
It’s a guy resigning from a job. That’s all.
Sure, it was a highly paid job. His reported annual salary was more than what many Indian funds invest over 10 years in startups. But so what.
And he may have made a few bad calls. But so what, we all have made many of those.
In this case specifically, he came to India with a $2 billion war chest and sprayed the money across a few companies.
The portfolio comprises hugely-funded, and perhaps even over-funded start-ups – and they’re not all shining stars right now.
Ola has seen Uber catch up with it and start to slowly draw ahead. Oyo went through a ridiculous non-merger with Zo Rooms and has faced flak that it puts out Ponzi accounting numbers. Snapdeal and the other Indian e-com giants have faced downward valuation pressures. Housing.com, well, the less said the better. And InMobi ain’t what it used to be.
So I’m assuming the pink of health that the Softbank India portfolio displayed just 6 months ago is less pink and more red these days.
But that doesn’t mean the India story is dead.
Quite the contrary. Sure, we hit Peak Valuations last year. And Flipkart is trying desperately not to take that 50% haircut from its $15 billion value last year.
But that’s not because there’s anything wrong with India. It’s just because these firms were wrongly and ridiculously over-valued in the first place.
Softbank was one of the folks who graciously threw large truckloads of money at our me-too businesses. But they weren’t alone. Tiger did that. So did Accel. And Sequoia. And Alibaba. And J P Morgan. And dozens of other funds.
They’re all writing down valuations. And that’s the right thing to do. Because the numbers will go up again, over time, with actual user growth and actual profit growth. At which point valuations will go up again.
Our GDP is growing strongly, despite some belief that the government’s quoted numbers have as much credibility as Oyo’s quoted revenues.
More entrepreneurs are being created every day. More people buy online. More people have credit cards. More e-governance is happening. More angels are backing businesses.
The genie’s out of the bottle. It’s not going back in.
So what’s the difference now?
Sure, we have fewer of what we call the ‘Bangalore model’ companies – whose modus operandi was “copy-paste from US, get big funding, and do bigger topi”. And we have more of reality and rationality in startups now. And more real innovation happening.
We’re seeing companies come up in sectors other than motorbike-based delivery, or as we call it, food tech.
We’re seeing more older entrepreneurs, and more younger ones. And more female entrepreneurs.
Investors are actually talking about firms going public. Earlier they just depended on the circular “you-give-my-investee-a-3X-on-series-B-i-will-give-yours-the same”. Now they’re actually looking for real exits.
This de-horning of our unicorns is a good thing. It’s never healthy to live under a delusion. It may take another boom-and-bust cycle for the get-rich-quick mentality to go away and for us to get back to the more viable “get rich slow”.
But it’s happening. This de-valuation is sour medicine we have to take, to bring us back to our senses.
And it’s making us healthier.
Back to Mr. Arora.
So what of the chest-beating and wailing over the “loss of an invaluable supporter of the Indian startup scene”. Well, some of that was understandably from the overfunded ones. They would say that, wouldn't they? The easy mark and the easy money has perhaps gone away. Hard work actually has to be done now perhaps.
But Nikesh is unlikely to do badly from this. His last salary was somewhere in the Rs. 100 crore a month range, and he’ll land on his feet. He’s an accomplished professional, and he’ll do well wherever he lands next. And hopefully he doesn’t need to wait another 5 years like Softbank’s Son wanted him to, to become a big boss himself.
The ball’s not in his court. It’s in ours.
These cycles happen. I guess our steel and infrastructure companies saw that happening too, under Raghuram Rajan’s watch.
The funny money has gone. It’s time to work truer. And to work harder.
Oh yes, and to keep calm about it all.
Mahesh Murthy is a commentator, investor and marketer. He tweets @MaheshMurthy. Reproduced from LinkedIn
Image credit : Bloomberg.