Sridhar Vembu – Founder & CEO of Zoho, is an odd fish among technopreneurs. A maverick, who shies away from industry trends, explains his take on VC funding.
1. You’ve always maintained that startups and entrepreneurs should avoid venture capital funding. What are the reasons behind this?
It is useful to remember that money always, always, comes with strings attached. Once you take outside investment, your degree of freedom necessarily narrows.
There are many circumstances where external funding is unavoidable. Some business plans do need a lot of money to succeed. Zoho has avoided such business plans, but we recognize it is not always possible; our advice would be to use external funding very judiciously.
2. In what ways could VC funding hamper the growth of a company?
VC funding generally boosts the growth, because a lot of the money tends to go into sales and marketing. The more you spend on marketing, the more sales you typically achieve. The key question is: "Is the growth going to be profitable?" and too many companies, particularly in the recent times, have not gotten this one right.
When they build a culture of spending more than they make, it is hard to stop. So, excessive funding could end up harming a company in the long term by altering its culture to just spend, spend, and spend.
3. What are the other alternatives for a company if it decides to decline VC funding?
It is often possible to reconfigure your business plan. For example, you could build a piece of core technology and then seek outside partners, such as a larger, established player who has a need for that technology and will be willing to license it. That could yield payment upfront that becomes a way to finance the growth of the company.
Of course, the growth would be slower at first, but doing business this way teaches you lessons that are hard to come by any other way. Too much money, too soon has probably destroyed as many companies, as too little money!
4. In your experience, what are the challenges faced by a tech start-up in India, and how can companies overcome them?
The main challenge is one of mindset: we can do it. Zoho is proving that we can build very complex state-of-the-art products from India. All too often, we talk ourselves into believing things like: “We don't have the design expertise" or "We don't know marketing well", and so on. That is the main challenge to overcome, and it is purely in the mind.
There are challenges with respect to infrastructure and so on, but those are not all that important for a tech start-up.
5. What is your advice to tech entrepreneurs in our country?
Focus on the long term. Be optimistic. India rewards the patient!
India's GDP could grow 10 times in the next 20-25 years. It represents a massive opportunity in every conceivable way.
6. Zoho has witnessed phenomenal success in the last few years. What has made the company click?
We focus on the long term. We are conservative financially, and adventurous technologically. This combination has helped us invest in the long term, without worrying about short-term fluctuations.