‘Raising capital is the means to building a successful business and not the end in itself’
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 longterm business. Edited excerpts:
We are seeing a record amount of VC funds being raised especially to fund technology startups. The maxim, “It’s a great time to be an entrepreneur” is back again. What are you making 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 is 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 repeatedly play out especially in the Indian startup 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.
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.
You took a long while before you could see a successful exit. We often find entrepreneurs who are looking at an exit much quickly and make a quick buck. Is that the correct approach?
MUMBAI:
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.
You also had an interesting event in your life that your company 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 shareholdersIPO or strategic sale.