Mumbai: Jyoti Bansal sold his application intelligence venture AppDynamics to Cisco Systems for $3.7 billion, just a couple of days before the company was to go for an initial public offering (IPO).
In an interview, the Indian-American entrepreneur said that beyond funding, entrepreneurs must focus on building a successful long-term business. Bansal, who will speak at the TIE Global Summit in Mumbai on 21-22 February, also shared his views on India’s tech ecosystem. Edited excerpts:
We see a record amount of VC funds being raised especially to fund technology start-ups. What do you make of this?
Anytime when people think that the end goal of entrepreneurship is to raise capital, I think they are completely mistaken.
Sometimes when people are not involved in the start-up ecosystem and then they see that this company has raised this much capital from the VC (venture capital) firms; they feel, that’s the success. The raising of capital is the means to building a successful business/start-up that will create thousands of jobs and also create value for shareholders, and not the end.
Sometimes, just the fundraising event becomes newsworthy which I believe shouldn’t be. Newsworthiness should be the business outcome which these companies would achieve. Fundamentals of building businesses do not change. In some way, having access to VCs helps people to try out innovative and disruptive things. I don’t see the availability of funds as a problem, but the main thing people have to keep in mind is that raising funds are the means to an end and not an end in itself. As long as the end is to build a successful business, to that extent, it is great for me to see such a vibrant VC ecosystem.
But often, funding in itself can decide winners as it provides a huge competitive advantage. We have seen this play out in the Indian start-up ecosystem…
Yes, funding does make difference and gives you a competitive advantage, but is one of many components.
In the end, how much funding you have, will not decide what you would end up being as a company. There are many elements that go into building a successful company such as right market, right funding and recruiting right people compared to your competitors.
I strongly believe that no one should build a company with the end goal of raising funds. When analysing resumes, I don’t consider raising funds from VCs as an achievement, but how successfully the funds were utilized to create value, as an achievement.
But you also went from an idea to $3.7 billion, with your first round of funding being the most important milestone. Could you share your experience?
My experience is more in Silicon Valley in the US, but it has many similarities with the Indian VC ecosystem. When I started looking for funds in 2008, I was a young engineer in my twenties, single-handedly pitching for funds to VCs, which is a hard thing. I got rejected by 20-odd VCs before I got my first offer. But what I did learn was that you have to make the right choice, and convince the VCs why you could build a successful company. The first round is more about your potential as an entrepreneur and also the potential of the company to catch the momentum and intensity in the market. Then the second and further rounds are about how the company is performing. The earlier or the first round is more an art while the other further rounds are science.
When you get your first VC, are you also ready for other VCs?
When you get an offer from one VC, there’s a very high chance that you will get an offer from another 4-5 VCs at the same time.
Most often, by the time when you are ready with the story to convince one VC, your story is appealing to a lot of other VCs at the same time. That’s what happened to me as well, I struggled to get my first offer but when I had the first offer, then within a week, I had five more offers. I had to pick among these offers. This is a common scenario with a lot of entrepreneurs.
You took a long while before you could see a successful exit. We often find entrepreneurs looking at an exit much more quickly. Is it a correct approach?
I often tell people that to build a start-up of value takes somewhere between 7-10 years at least. Sometimes, it might be sooner than that and many times, it could take more than that, but that’s the normal kind of time frame.
A lot of time it is believed that entrepreneurs push it to a quick win, but if you ask me, entrepreneurship is hard. Very few companies succeed and the companies that succeed are those whose entrepreneurs have the mindset to commit in the long run.
AppDynamics was just about to go public, but you sold off to Cisco just two days prior to the IPO. These are life changing decisions, what was going on in your mind?
At any point in time, you have to take the decision based on what’s the best thing for the shareholders involved.
We were on the path of becoming public; we wanted to be an independent company by going public. But just two days before the IPO (initial public offering), we got the offer which we could not refuse as it was the best thing to do for the shareholders. Those things are never easy. It depends on what is creating more value for shareholders- IPO or strategic sale.
Many of our employees were wearing a suit for the first time unless it was a wedding. It was a big event. Then, we had an offer from Cisco. We actually said no to the first offer and then subsequently they came with the second offer, which was also rejected by us. Then they came with the third offer, which was a hard time for us to decide what to do. But we had to do what was right for everyone involved.
Any decision would not have changed meaningfully my life in one way or the other but for me, it was a lot more for the rest of our employees. For a lot of the employees, what decision we made would bring a significant impact in their life. We had about 400 employees who made more than a million dollar in AppDynamics.
You are also an active angel investor and have invested in Indian start-ups also. We see a lot of traction going to consumer internet. We see fintech and e-commerce becoming a big buzzword, but B2B (business to business) has not really arrived in the India start-up ecosystem in a big way. Do you feel VCs are missing on meaningful B2B start-ups in India?
There are many interesting things happening in the Indian start-up ecosystem. Things happen in a cycle.
The first wave of successful start-ups were software companies such as Infosys and Wipro, back in the 1990s. They were selling IT services across the world.
The second wave of start-ups in India is the consumer internet start-ups such as Flipkart and Ola.livemint