K Ganesh wears many hats. He is a highly successful serial entrepreneur, an angel investor and runs an entrepreneurship platform – GrowthStory – along with his wife Meena. He is Chairman of Portea Medical, a home healthcare company and one of the ventures promoted by GrowthStory.
For GrowthStory, which Ganesh says follows a unique venture-builder model, his strategy is simple. It looks at sectors that are large and which solve everyday needs; and, looks at something that solves a pain point, basically something that is a “must have” rather than a “nice to have.” Ganesh explains his focus areas simply as the essentials – food, home, education, healthcare and, more recently, entertainment.
This approach explains the reason behind the ventures that GrowthStory has promoted – Portea Medical (home healthcare), FreshMenu (fresh meals), BigBasket (online grocery), Credr (marketplace for used vehicles), Homelane (interior design and manufacturing provider), Avagmah (online education technology provider), Bluestone (online jewellery store) and Acadgild (online technology education). GrowthStory has incubated another venture, MagicTiger, which is into chat commerce. He is working on a venture on digital entertainment delivered through mobile.
GrowthStory, according to Ganesh, first identifies an opportunity, collects the people together and makes the investment. “It starts with finding the business first and then the people. Rather than the other way around.” The aim is to create leaders in that particular space in a 5-10 year period and find the entrepreneurs who are passionate about the business. That is how each one of the businesses under GrowthStory have been built. A number of them, such as BigBasket and Portea, have been funded by venture capital firms.
Based in India’s start-up hub Bengaluru, Ganesh has his finger on the pulse of what is happening in the start-up scene in the country. Is there too much of hype around start-ups? “Too much of hype. When every neighbour’s son wants to put money in companies, then there is obviously too much of hype,” he says. What do you do to temper that, you ask him? His answer is simple: if you are an entrepreneur, go ride the wave. Will the crash not be harder? “That is the problem,” he admits.
Concept in the US Ganesh points out that in the US, there is this concept of an accredited investor. They will not allow everybody to put their money in start-ups. He even recalls having a conversation in Bengaluru with someone he knew. That person wanted to put a part of his retirement money into start-ups. Ganesh asked him why he would want to do something like that, especially when he was not aware of what the risks and rewards were. Ganesh patiently explained to him the pitfalls of investing in start-ups, and the rewards too, after which that person said he would not put his money in a start-up.
People, says Ganesh, see high-profile exits, like his own TutorVista or bus ticketing portal redBus. Then they think all ventures make money and want to put their money in start-ups. “That is not an informed investor. They don’t understand the risk of angel investing,” says Ganesh, adding that is the scary part of the hype surrounding entrepreneurs and start-ups.
Looking at it from an entrepreneur’s perspective, he is not too worried. After all, good entrepreneurs learn quickly and pivot their business model. A little bit of time is wasted, but they will bounce back, he says. But the money is gone forever. “I am more worried about that.”
Entrepreneurs, according to him, are a smart lot. When the hype is on, they will want high valuations. When they realise that it isn’t there, they will settle for a lower valuation or they will go and find a job. That is a normal cycle. “That is like an adventurer who goes out seeking gold. He doesn’t find gold, he will find something else,” says Ganesh. “I am more worried about the people who will burn their fingers because they are ill-informed about the asset class, the start-up risk.”
Real transactions Ganesh believes that the hype around valuations should settle down soon. However, he does not believe that there is a bubble waiting to burst. Unlike in the past – the 2000 dotcom era – now, real transactions are happening. People are buying on Flipkart, Amazon and other e-commerce sites and taking rides on Ola. Nobody is now talking of eyeballs and page views, which was the case earlier. But, should these companies – say, a Flipkart or an Ola – command such high valuations?
That, Ganesh says, is a function of demand and supply. Like public markets, corrections will take place in that too. Assume a company’s shares on the stock exchanges have shot up by, say, 5 per cent, in the morning. What would have happened between the previous evening, when the exchanges closed, and now when they have opened to warrant this jump. Pretty much nothing. It is just that there is more demand for that company’s shares than supply. Fundamentals have not changed, he explains.
So, why should a start-up be valued at, say, $5 billion, he asks. Simply because more people want to buy into that venture than the number of similar kind of companies that are available. If a venture is the clear-cut market leader and an investor wants to be part of that story, that particular investor will obviously pay whatever price it takes to get a stake because it is betting on the success and valuation of the venture 10 years hence.
Ganesh says price may be over-stated. It may get corrected. This will have nothing to do with the fundamentals of the business. It is only related to demand and supply. People confuse price and valuation.