• Young Turks

Shereen Bhan (SB): There have been a flurry of IPOs, this pipeline is looking very hot and valuations are skyrocketing.
Ram Shriram (RS): Yes, it’s back to the old times again.

SB: Is that necessarily a good thing?
RS: It’s different this time. I don’t think it’s the classic bubble that we saw back in the ’99-2000 timeframe. This time a lot of the companies are real businesses with real revenues and real profits. One could still argue that the valuations are rich, which indeed they are, given the PE ratios on some of these companies that are either public or about to go public. Despite that, this time the companies are real businesses.

SB: While the companies are real businesses, what’s driving the valuations?
RS: The public markets have not seen very many tech IPOs for some years now since the Google IPO in 2004. And Google was all by itself in that timeframe. So, if you go back to the end of the bubble in March 2000, the only real big IPO in tech has been Google in 2004. The new crop of businesses are sort of Web2.0 and social media businesses that are just coming out.
These are the new breed of companies in tech that you’re seeing. So there’s a pent-up demand and a lot of money sitting on the sidelines, waiting to be invested in growing companies.
And there haven’t been very many growth stories, that’s what is causing this sort of ‘new-found euphoria’. Some of this, I would say, is irrational, at least in terms of valuations.

SB: Bordering on irrational exuberance?
RS: Well, in fact, the prices are irrational but on the other hand the businesses are real and over a period of time, perhaps over the next 12 months, this will all come down to a level that is comparable with the four horsemen of technology, which are Apple, Google, Facebook and Amazon.

SB: We’ve seen the big I Cloud unveiling. What are your thoughts on that?
RS: Well, clearly Apple has led with music on iTunes, so essentially they’re allowing their users to take their music and put it in the cloud. It’s evolutionary, not revolutionary.

SB: Enough to take on the competition?
RS: The competition has mostly been in the cloud. If you think about Google, most of its products are designed and conceived of as being in the cloud from day one. This is certainly a new one for Apple but one that would be great for users and one that I welcome.

SB: Many young companies have seen unprecedented growth in their short history, like Twitter. What are the challenges in dealing with this unanticipated growth?
RS: There is a huge shortage of talent at the moment here in Silicon Valley. And it is driven by the fact that there is a shortage of engineers, middle management and a strong lack of experienced people to run companies.

SB: And the government is clamping down on visas…
RS: I’m not sure that visas would help this issue; it may help on other fronts. Certainly in terms of web talent, unfortunately not much is coming from India. It’s either homegrown on which there is a big shortage because there are not enough computer science graduates coming out of the U.S. There are some who have been imported from Europe and some who have come in from Asia, including India. There are probably 3 lakh engineers that these web companies can absorb and most of them are getting a lot of bids from other companies that want to hire them, mostly startups. But the rate of startup formation is as high as it’s ever been. Since 2000, there are a billion and a half users who have come on to the internet. A large number of those users have come from the emerging markets.

SB: How are you reading the 3G story?
RS: That’s a very good question. India needs to do more. I think the 3G story is good but frankly all 400 million or 500 million of the phone sets that exist should be smartphones today and not a combination of the old types of dumb phones plus smartphones. Smartphones are cheap enough for all of India to be using these. What’s preventing that is a lack of bandwidth. And I have two answers for that: One, more spectrum needs to be freed up and be available to the telecom companies, specially to run data applications. There is a shortage of network capacity for data applications in India and even if they were licensed as for data only use, it would benefit India and Indians as a whole. It could have a multiplier effect on GDP growth.

SB: The government is looking at a sort of spectrum allocation. Are you going to hold back investment in this area for India?
RS: Holding back is a strong term, but certainly moderating would be the right answer. Unfortunately, the opportunity potential exists in India but so far it’s been held back by an uneven growth of the internet in India. And that’s largely infrastructure related so I would have to squarely put the blame for that on the government. In addition to spectrum, the one area the government needs to do more on is to come up with a law similar to the U.S. DMCA, the Digital Millennium Copyright Act, which essentially allows for content hosters to not constantly have to look behind their backs as they host content from third parties which would be users, individuals, blogs, news content. I hope that they would look at the best of the DMCA and the best of what some of the European countries have done and pick from among these choices and come up with a good law that actually is pro-business.

SB: One of the areas that you were optimistic about was the online travel market. And we’ve seen a listing take place in a very good one, MakeMyTrip.com. You’re excited about this space and have invested in Cleartrip?
RS: We are very excited about Cleartrip because it is a pure play on the Internet. Since we don’t have any sort of public market to worry about in the short term, we are growing unfettered.

SB: But is there a timeline for going public?
RS: No, it’s probably great for us to be private as the number two player in the business. But we will consider in the future a public offering.

SB: What about cleantech? That’s another space you have been excited about.
RS: In cleantech, we’ve invested in Kotak Urja out of Bengaluru. They are largely dealing in photovoltaic solar and solar thermal. Plus we’re trying to do grid type projects. The challenge in the grid type projects has been trying to get financing. In India, project financing isn’t yet available because for gain it depends on clarity on government public policy. And to some degree the PPS haven’t been very clear as these volume purchase agreements get done between the utilities and the PPA agreements with power producers. It would be easier for us to be able to get financing to do some of the larger projects.

SB: What’s the outlook in terms of the kind of investments we can expect over the next 12 months?
RS: We are looking at a couple of areas, like e-commerce and the whole area of intersection between e-commerce and payments. We are also looking at clean energies some more.

SB: Let me talk to you about the book of mistakes, how many chapters added on?
RS: A couple. One is that it’s important to stay stubborn on the big idea but you must be willing to make course corrections and be flexible about the tactics. So, yes, businesses need to pivot and make changes along the way. The other is beginning to think about ideas that can affect a billion people. Because the risk is the same whether you build a small company or a large company, so why not try to aim for a large idea and take a bigger risk?

SB: Your advice to our readers?
RS: The opportunity on the internet is very real. It’s likely to be larger in India over the next couple of years. You have to be patient because of the infrastructure issues, not because of your ability to build a business. If you take a long-term view in India, in time it will definitely catch up with China.

Shereen Bhan is the Executive Editor, CNBC-TV18.

©Entrepreneur September 2011

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3G, amazon, Apple, companies, Facebook, Google, IPO, makemytrip, Ram Shriram, Shereen Bhan, spectrum, Twitter, visa