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Capital is a heat seeking missile, it smells return and goes where there is opportunity: Sanjeev Bikhchandani

Zomato decided to list in India. There are at least 20 top bracket institutional investors who had never invested in India earlier who opened accounts in India because of our model, says Sanjeev Bikhchandani, Co-Founder, Info Edge.

Can you talk about your investment and do you think there is a froth in the market?
We meet may be 300 startups a month. We have a team doing it and whatever looks good with interesting founders, good ideas and getting customer traction, we study deeper and then maybe go into two or three each quarter, after meeting a 1,000. We are discerning, we go in early and as the company’s progress, we invest further and further. In Zomato for example, we first put in Rs 4.5 crore, then Rs 13 crore, then another Rs 13 crore, then Rs 60 crore and in the fifth round, there was a coinvestor.

The credit for the success stories goes more to the founders and the management teams than to us. Our job is to spot them and the secret of successful early stage investing is to invest behind founders and teams who are going to succeed anyway, with us or without us! Sure if we are around, maybe they can succeed 2% more, 3% faster. But that is more at the margins. The main thing is whether the team is good enough, chasing a good enough idea and a good enough opportunity that they will succeed anyway. Money at the end of the day is a commodity. It is entrepreneurship that is right and if one can spot good entrepreneurs and get behind them and they let you in, then probably one will have a residual success over a decade or so.

During the Zomato IPO, Aswath Damodaran was talking about a Rs 40 valuation but what the market thought about it is for everyone to see. Now policybazaar is coming out and that is going to be the next big IPO?
Again we did not go into policybazaar with the notion that we need to have something in the insurance sector. We just met the founders, saw the idea and figured out that it could work. It is a very powerful value proposition right and we are behind them.

We invested from our balance sheet in both cases, which means that we do not have a fund which needs to go back in seven, eight, 10 years to somebody else. So, we are not in a hurry to exit. India requires patient capital because from inception to IPO can take a decade or more as we have seen.

Zomato was founded in 2008 and went public after 13 years. That means that if there was a typical 8-year fund, they would have exited before the investment came to fruition. We did not get nervous year six or seven years and I got a final exit. We can play the long game. That is required in India by the early stage venture capital.

Is there froth in the IPO market? Can the latter play a spoilsport in the next month or two? Will we see at least two to three big IPOs from the start-up ecosystem?
Every company is different and institutional investors are smart and if it is a loss-making company, then 75% of the offering is to go to institutional investors and institutional investors are smart. They do their analysis properly and only then they go in. So, it is not as if they are going to go into something with their eyes closed. When a loss-making company is going public and 75% of it is taken by institutions, then the IPO succeeds. You can be sure that institutions know what they are doing.

Sensex is at 60,000 and Nifty has touched a new record high at 18,000 and this rally is not just led by FIIs; retail investors are playing a very big part. What is this going to mean for all these IPOs?
What happened in the case of Zomato was that Zomato’s customers participated in the stock market for the first time in their lives because they believed in the company. The feedback we got from the online brokerages was that in the week before the Zomato IPO, we saw a record number of new account openings. Zomato seems to have catalysed a very large number of millennials who had never ever participated in the equity market earlier to start a demat account and apply for Zomato IPO.

So let us see what happens with the other companies. I would imagine that in all these start-ups, at least their customers will be interested in participating.

Can the Nykaa IPO attract more women and younger ladies to the stock market?

I hope it does. It will be very good but let us wait and watch.

10-15 years from now, do you think the Nifty and the Sensex are going to look very different? Or like NASDAQ, should we have a parallel index for start-ups?
A few weeks back I did some research on the evolution of the Sensex over last 20, 30, 40 years. The Sensex started in 1980 and very few companies have stayed constant in the Sensex over the last 30 years. People have come and gone right and these things happen. I think many of these companies have a) high market cap, b) highly traded and have growing profitability. I am not sure whether the Nifty or the Sensex will permit the loss-making companies. Now all these companies are going public and are capable of making a profit for the next two to three years. So what will happen I cannot say but yes it might.

Do you think the Indian investor is willing to wait for 10 to 12 years with unprofitable companies?
No, I do not think it will be 10 to 12 years. Many of these companies are talking about two to three years. Zomato, for example, can turn profitable if they want to. They want to grow faster and so they are saying we will take a loss for a few years. It is okay. It is the same with policybazaar. The others I have not seen so deeply. But I think many of these companies can be profitable pretty quickly.

It is your and ’s full time job to spot the trends and the next Zomatos etc. What should a retail investor look at?
I think you should look at the underlying; how fast will the growth be? Is there a lot of secondary in the IPO or is it only a small secondary and mostly primary who is selling? You should look at what is the path to profit and then get your goals clear. Do you want to go in and slip or do you want to go in and stay?

Those who go in and slip are a different lot. They do not understand too well. But if you are going in to stay, then in a good IPO, chances are you would not get too much allocation in the IPO but you can start from there and then over a period of two, three, four, six months you can do a SIP and keep on accumulating and get a good average price and then stay for the long haul.

There is a clarion call within the members of start up ecosystem to have direct overseas listing and may be flipping as well. Fresh Works has listed at the Nasdaq, it has created 500 crore-patis overnight with its IPO. Do you think India should allow direct overseas listing? Will it help to keep our IP within our shores?
It is a tough one. There are arguments on both sides. But I will say one thing, capital is a heat seeking missile. It seeks out opportunity, it smells return and it goes where there is opportunity. Now conventional wisdom would have suggested Zomato list in the US, but Zomato decided to list in India. There are at least 20 top bracket institutional investors who had never invested in India earlier who opened accounts in India because of our model.

So if you actually have a stable of great companies listed in India, you will find it does not matter whether you are listed in India or US because capital will come here. Looking at the Zomato valuation in India, I do not believe they would have got much better valuation in the US. I do not believe they would have got a much better stable of investors in the US. So I do not know.

There are two things I found fascinating about Zomato listing. One, they gave allocation to 118 investors and the night it was uploaded on the stock exchange, it was 13 pages long. Do you see that trend continuing with the IPOs that they would want to give to all the institutional investors that have applied?
It is a relationship thing where you want to give to as many people as possible because you do not want to turn off anybody. It is not a polite thing to do, like somebody wants to buy your shares and you say I would not give it to you. It is a tough job for the banks, for the management who say no to. It should for anybody because if somebody says he wants to invest in your company or they are expressing confidence in, from a founder’s perspective that person is showing trust and therefore it is our responsibility to do our best.

Zomato did favour long only investors over pure hedge funds because they wanted people who would stay rather than slip, who believe in the long term story. So it is not as if they gave it to everybody but they gave everybody who had a certain path.

The other thing that one must point out is the pricing. Zomato got with the power of retrospectivity the pricing that could command the kind of listing premium that it did. iT left value for investors on the table though there may have been naysayers and critics as well. That should be the other lesson I would imagine for the upcoming IPOs?
It is a good idea to have a successful IPO. A successful IPO is an IPO where there is a bit of pop, where people who actually invest in the IPO believe they have won getting in a higher price. If it trades lower, you are not left with a good feeling and a successful IPO in the stock markets is not just about numbers, it is also about sentiment that I feel good having invested in the Zomato IPO.

The Zomato IPO went well. Now 10 other start-ups can list and hopefully their IPOs will go well. If Zomato had not done well, if it traded below IPO price, there would have been a problem in sentiment reinforce the theory of Indians trying to list in the US. Zomato being a pioneer had a huge responsibility but I think they have done well.

The new trend that we are seeing of founders also launching private equity funds, How will Info Edge India stand out?
No, we do not, we just do our work. We do not try to stand out. We focus on our customers, we focus on building our business and we keep at it day after day, month after month, quarter after quarter, year after year. And that is what we have done for the last 24 years, ever since we began and we intend to continue doing that, just focus on the work.

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