Dinesh Agarwal, founder and CEO of Indiamart InterMESH Ltd, one of the country’s largest homegrown listing platforms connecting buyers with suppliers, has turned into a big-time investor in recent years, putting in money in a number of startups. His portfolio includes companies such as medical app Curofy, crowdfunding platform Wishberry, marketing platform SilverPush, foodtech startup InnerChef, developer startup AppVirality and others. At the same time, his entrepreneurial zeal has not reduced. In 2014, Agarwal entered the e-commerce space with Tolexo. In this interview with VCCircle, Agarwal speaks about what he looks for in a startup, why he no longer bets on execution based businesses and his plans for Indiamart and Tolexo. Edited excerpts:
What is your investment strategy?
We invest in companies suitable from Indiamart's perspective, such as Ozonetel. Currently we are looking at Instaproc.
I don't look at marketplace companies anymore. I look at only technology companies now. One of my companies got acquired by Facebook. Another is seeing investment from Saavn and Flipkart. I primarily look at mobile technology companies now.
I am interested in purely technology solutions which can have some kind of B2B interest, and that is what is working for me. Out of my 30-40 investments, I see investments working out where there are small teams and which can pivot their product orientation faster, such as mobile SaaS products. Although I have interests in marketplaces, I no longer invest in them, because the success ratio for these companies is very low. These businesses are easy to comprehend but difficult to scale.
Business like Indiamart and Naukri are very easy to understand, but difficult to execute.
What is your view on a lot of funded startups shutting down?
Most of the businesses shutting down require a lot of momentum, so they hire a lot of people. It then depends on the ability to steer them properly, ability to raise money, to be able to control expenses, so these businesses are most vulnerable. In those businesses which require 10-20 people, expenses are lower and there is less scope of making a mistake. You make mistakes with people in the execution and not the product. You make customer services oriented errors, salary oriented errors, where you underestimate and overestimate. But if it is a technology related issue, those you are able to correct easily.
Raising money does not ensure survival; it is an important condition to scale up faster, but not a sufficient condition
I've lost most money in execution businesses. I continue to be interested in the technology side of the medical business. Medical apps are still gaining popularity. So I'm looking at something like a Zomato for doctors, although it is also an execution business, as you have to go to doctors and make them sign up. Even in the case of cab aggregator business, technology is there and demand is there but getting drivers to sign up is a problem.
A lot of ideas are good, but execution is what drives it. So I am less interested in them as an angel investor but want to be involved as a mentor and advisor.
When should startups raise money?
You need to realise what kind of money you want to raise and at what point in your business. If you are a technology based business such as Curofy or Zapr, you need a few lakhs or a crore of rupees to sustain for a year. But for the Grofers kind of business, where you need a big salesforce, you need to quickly raise money. However, I doubt if businesses with more money ever succeed. The most money was raised by Sify and Rediff and they are nowhere to be seen. Raising money does not ensure survival; it is an important condition to scale up faster, but not a sufficient condition. MakeMyTrip had only raised $29 million when they had their IPO, Naukri had maybe $8 million. So startups who raise less are the ones who survive.
Which sectors do you see gaining traction in the coming year?
Sectors where unit economics are good will gain traction. There is huge opportunity in hyperlocal but unit economics is bad. We all consume groceries on a daily basis, but at what volume will it become successful, that will continue to be a challenge.
I'm fond of SaaS companies, like Ola and Practo. Ola has so much data about people travelling with them and about the drivers also, which they can use. Some of the most valuable businesses are SaaS companies. RedBus was a SaaS company, today it's a marketplace. CommonFloor was also a SaaS, unfortunately it could not scale. A SaaS company becoming a marketplace is the best thing that could happen. Freshdesk, which is just five years old, has done a great job. Even though you make the app for free, at least you retain people on such businesses.
Another area which is risky but lucrative is the entertainment business. But people have not yet cracked the monetisation part. For example, apps such as NewsHunt or Inshorts remain heavily used. Something as convenient as the conventional radio or television for entertainment is yet to come. YouTube has a lot of entertainment but it's not easy and convenient.
In the technology space, I am very excited about solar, especially in India. It is a space India can use to its advantage in interesting ways, although it is a high investment area. If we ever sell Indiamart to do something, we'll do it in solar.
Will Indiamart look at an IPO?
Yes, we will. We are still working towards it. As Indiamart, we are ready. We have expanded on Tolexo. It is a new and volatile business, and is very cash consuming. So we need to see if as a combined entity, Indiamart and Tolexo, we are ready for an IPO or not. We are waiting for Tolexo to reach some maturity. We have used almost all of the Rs 100 crore for Tolexo. Tolexo will remain a private business for us, and we don't see any need to dilute stake in it to raise money externally, although I am not ruling it out five years down the line. Tolexo is a business driven by need and not by rushing into e-commerce. What you get on Tolexo is not available elsewhere, and Indiamart's customers and sellers are there on Tolexo. So I will wait for an IPO based on how Tolexo performs.
Will Indiamart go international?
Indimart will remain B2B, we understand businesses better than consumers. But perhaps we'll go international. I've been evaluating some of the European markets where there is a need for something like Indiamart. So it may happen next year, but not immediately.
Will you be looking at acquiring players similar to Tolexo?
We did talk to Industrybuying during their early days, but they had a different ambition. It is good that small players are mushrooming and raising money, because a market is made when there are multiple players. I am open to acquiring a player in a specific vertical, but not horizontal players. So we can align with a good player in SME financing area. But I don't think acquisitions have been working very nicely in India. So I am not looking at acquiring in a hurry.