How Sandeep Murthy picks future Unicorns

Image: Mexy Xavier

Sandeep Murthy has led investments into Info Edge, InMobi and Shopclues, that are now billion-dollar firms

When Aileen Lee, venture capitalist and founder of Cowboy Ventures, coined the term ‘unicorn’ for billion-dollar startups, the implication was clear: Like the mythical creature, these companies, too, were rare. In 2013, when Lee wrote a post for the online publisher of technology industry news TechCrunch, there were just 39 unicorns globally.

Not any more. Unicorns have transcended geography and have sprouted across multiple locations, most notably in China and India. As of March 2016, says CB Insights, a database that tracks venture capital investments into private companies, there are 155 unicorn companies, and seven (excluding InMobi, which is incorporated in Singapore) among them are Indian. The latest home-grown entrant to this list is online marketplace ShopClues.

The rising number of unicorns may have democratised the billion-dollar benchmark for startups, but it’s still not easy to sniff the unicorn potential in young ventures and sift the wheat from the chaff. Unless you are Sandeep Murthy.

In June 2005, when Murthy arrived in India as the sole representative of Sherpalo Ventures (he was also representing the Silicon Valley-based VC firm Kleiner Perkins Caufield & Byers [KPCB]), his plan was to lead an investment into an online travel company called Cleartrip, which hadn’t yet gone live. What he was going to do beyond that wasn’t clear.

“I came here with a Blackberry and laptop thinking, ‘Let’s see where it goes’,” says Murthy, 39, seated in the Mumbai office of Lightbox Ventures, the early stage venture capital firm of which he is a founding partner. The company was set up when Sherpalo and KPCB exited India in 2014. Murthy started the firm along with partners Jeremy Wenokur, Prashant Mehta, Sid Talwar and Sunny Rao. They began with the acquisition of a portion of Sherpalo’s and KPCB’s India portfolio. The firm has gone on to invest in companies like the online food delivery platform Faasos and refurbished goods retailer GreenDust.

Murthy’s knack for businesses, though, predated his arrival in India. In 2000, when he was 24, Murthy and a friend started a tech company in Silicon Valley. “It was Spotify a few years too early,” recalls Murthy, an MBA from Wharton School and a former investment banker with Credit Suisse. The idea was to create a “digital living room” by letting people upload their music collection on the internet, so that it could be accessed from anywhere, he says.

The venture lasted all of 18 months. “We had 50 employees and signed 8-10 partnerships. But we couldn’t get content at rates that would work.” Murthy found himself out of work for the next six months. “I was 25, unemployed, overqualified and depressed.” So, when a company that did online auctions for the food industry offered him a job, he lapped it up.

Later, he joined online travel giant IAC, which owns Expedia and Hotels.com among other ventures, and tried to get it to invest in Cleartrip, but the deal didn’t materialise.

But Murthy was gung-ho on Cleartrip and when Ram Shriram, one of the first investors in Google, agreed to invest, Murthy quit IAC and moved on to Shriram’s Sherpalo. This paved the way for his arrival in India.

In a little over a decade since he arrived, Murthy has managed to lead investments in three companies—Info Edge, InMobi and ShopClues—that are now billion-dollar firms.

He made plenty of mistakes along the way as well, floundering with his investments in the Future Group’s online portal FutureBazaar, for instance. He admits his understanding of the Indian retail space at that point was flawed. But Murthy’s penchant to spot unicorns in the fickle world of business valuations sets him apart.

Is there a common thread running through these billion-dollar companies? “All their founders have double Es in their names,” he says with a guffaw. “And an intensity and drive that is focussed around something much larger than personal gain.” 

Sanjeev Bikhchandani, founder, Info Edge. Sandeep Murthy says the online classifieds company was built with “brute-force execution”

THE ART OF EXPERIMENTING
In 2005, when Murthy first met Sanjeev Bikhchandani, 52, the founder of Info Edge, the latter had already turned a small classifieds business into one of India’s largest internet companies: Naukri.com. “He had built a classifieds job listings business in a very different way. In the US, it was completely online, while Sanjeev, at that time, had about 800 sales people,” says Murthy. “I did not expect a tech company to have 800 sales people and still generate a 20 percent profit margin.” Those were still early days for Murthy, and in Info Edge he saw a business that had been built with “brute-force execution”. “The entire ethos of entrepreneurship is experiment, fail, learn, repeat. The question is how quickly can you do all of these and repeat. I think that Info Edge had done a great job at navigating that.”

Bikhchandani, for instance, would ensure that very little money was spent on marketing a new product in the initial stage. The company would launch the product and tweak it over the next couple of years till it finally got it right. “You’ve got to experiment; you’ve got to keep trying to see if something works, that’s when the big bucks come in,” says Bikhchandani.

Meanwhile, he was already preparing for an initial public offering (IPO). But what the company was looking for was access to technological expertise. “We were attracted by the fact that Sherpalo and KPCB would incorporate a new network to add value in a way that investors in India could not, be it through their network in the [Silicon] Valley or in the user interface space,” says Bikhchandani, who started Info Edge from his home.

In early 2000, when he was trying to raise money from an investor, he was asked what’s so special about his company. “I told him that we were profitable. He replied: ‘If you’re making profits you have a vision problem’,” he recalls. The vision didn’t change. The company went public soon after the investment by KPCB and Sherpalo. And the rest, as they say, is history.

MENTOR NOT ENTREPRENEUR
When it comes to unicorns, popular wisdom seems to suggest that they should act less like startups and more like the large corporations that they have become. The co-founder of the second billion-dollar firm that Murthy led an investment into disagrees.

“Being a startup to me has never been about years in the industry, revenue, reach or scale. To me, startup is a state of being where, in spite of your growth, you do not let your values vanish. It is a place where policies do not hamper creativity,” says Naveen Tewari, 38, co-founder of mobile advertising and discovery platform InMobi.

The mobile advertising behemoth had its beginnings as mKhoj, an SMS-based hyperlocal search network. Although they had met Murthy for mKhoj in 2006, he had then redirected them to Bikhchandani since they were foraying into a field that he had expertise in. Nothing materialised.

In 2008, they met again. This time their pitch was different. They were going to create a mobile ad platform. “It [the pitch] wasn’t great,” says Murthy. “But what was interesting was that they had identified how they wanted to build it and they were very clear that tech was going to be an important aspect of how they would differentiate their business.”

It was understood that since they found the market interesting, at some point in time, so would Google. Murthy led a $6-million funding round into the company. “After about a year, 95 percent of the company was product and technology,” he says. The gamble to focus almost all resources on product development has helped InMobi face competition from the likes of Google. The company today has 1.4 billion users across 140 countries.

The beginning wasn’t easy. “Being the first in mobile space, we had no predecessors to look up to, especially in India. Meanwhile, Sandeep [Murthy] helped us a lot by being a great sounding board,” says Tewari. “He became a part of the team,” he adds.

It’s an approach that Murthy has thought long and hard about. He flatly refutes the hypothesis that investors can act as mentors. “If an investor can run a company, then he should be doing it instead of the entrepreneur,” he says. However, there is place for a different type of relationship. “If you’re an entrepreneur, it’s a lonely existence. So what you want is someone whom you believe shares your vision and will be in that process with you.”

To emphasise the importance of this approach, he cites the example of InMobi’s initial decision to expand to South Africa. The company’s expansion followed a realisation that monetisation in the Indian market was slower than other regions in the world. “I distinctly remember us having this discussion. And Abhay [Singhal, co-founder, InMobi] got on a plane and went there. He had never been there before. But he knew he could get in touch with some advertisers in South Africa. We decided that we were going to be an ad network for the rest of the world.” It was their understanding and engagement that, Murthy believes, enabled this kind of decision-making without being marred by mistrust.

“The InMobi experience further reaffirmed the idea that your initial ideas can change; you have some amazing people, you have to work closely with them so that you can move with them,” he says.

STRATEGIC THINKING
InMobi and Info Edge are companies that began at very different stages in the evolution of India’s online ecosystem. “What we took out of Info Edge was that in India, execution had to be done a little bit differently,” says Murthy. In InMobi’s case, though, what stood out for Murthy was simply the intensity with which the company was created and operated.

A similar intensity was on display when Murthy met Sandeep Aggarwal, 42, a former internet analyst at Collins Stewart, in June 2011. Aggarwal was then in talks to raise an angel round of funding for the company that is now ShopClues. Over the phone, Murthy invited him for a meeting in Mumbai. “On the phone we quipped that we should meet for a beer,” recalls Murthy. Aggarwal flew in from California and showed up at the offices with a computer and a case of beer. “He and Sanjay [Sethi, CEO and co-founder, ShopClues] came with every possible spreadsheet, covering every aspect of the business. And we had the beer as well.”

Although KPCB and Sherpalo did not invest in the company, Murthy, along with his soon-to-be partners at Lightbox Ventures, decided to invest in the angel round of funding.

ShopClues, says Aggarwal, was the first pure-play online marketplace in India, while the other companies were based on an inventory model and later shifted to becoming a marketplace. “Most investors didn’t understand the difference, although they act smart now.” This was before Flipkart and Snapdeal had moved to a marketplace model, Murthy points out. “No one else saw the opportunity then,” he says.

Murthy and his partners evidently did. He was also characteristically supportive with his advice and perspective. “I think it’s beautiful that someone gives you money and also thinks for you. I found him to be a great strategic thinker and I connected with him at a personal level as well,” says Aggarwal. He left his position as CEO of ShopClues after his arrest in the US in July 2013 on insider trading charges in an unrelated case. He pleaded guilty and entered a plea bargain with US prosecutors in November that year. Putting this setback behind him, he has since launched another startup called Droom, an online marketplace for automobiles.

In 2015, Droom raised $16 million in a series-A funding round led by Lightbox Ventures. “If you ask Aggarwal, he’ll tell you Droom will be a $10-billion company,” says Murthy. “It’s a manifestation of the same drive that led to the creation of ShopClues.” Because, for Murthy, it all starts with passion.