Want to build a high-growth enterprise that will create a lot of value?
Arvin Babu
Partner,
Greylock Advisors India
Greylock Advisors India
Good margins and good growth create great value. Sectors growing faster than GDP and attracting capital include traditional sectors such as infrastructure, real estate, manufacturing, and those that result from increased expectations and desires for higher quality services: think healthcare, financial services, education and public services.
Technology plays a crucial role in delivering services from these sectors in a cost effective manner to the majority of the population. For the past 44 years, Greylock has in turn served as a catalyst for businesses to deliver this crucial technology. Most of Greylock’s colleagues are former entrepreneurs or senior executives in leading technology companies who can relate first-hand to an entrepreneur’s journey.
What do VC’s look for in an opportunity?
Venture capitalists look for a business’s ability to scale non-linearly with cost: that is, revenue has the potential to grow much faster than expenses. Of course, the challenge is to know and recognize attributes that contribute to non-linear growth. As a result, Greylock focuses on evaluating a company’s barriers to entry—technology, market position, etc.—that would provide enough runway for scaling the business before competitors can materialize.
What is an example of an opportunity that has built-in barriers to entry?
One area that poses barriers for global players is found in local markets. Pure-play global technology companies such as Microsoft, Google, Cisco, and Yahoo! dominate their respective categories in India precisely because there are few barriers to entry. India’s largest indigenous internet portal, Rediff, has annualized revenue of ~$30 million—a drop in the bucket.
However, other areas pose considerable challenges for global players. For example, although India’s Airtel has average revenues per user (ARPU) of roughly $6.00 compared to AT&T’s ARPU of $60.00, Airtel’s margins are better. In this case, AT&T cannot match Airtel’s cost structure and obsessive focus on maintaining the lowest cost per transaction. This combination of healthy margins, location-induced cost advantage, and phenomenal growth is creating tremendous value.
Likewise, services relating to financial inclusion, delivery of quality, affordable healthcare to the majority of the population, extension of education to the nooks and crannies of the country all stand to create market barriers and, consequently, great value.
Technology plays a crucial role in delivering services from these sectors in a cost effective manner to the majority of the population. For the past 44 years, Greylock has in turn served as a catalyst for businesses to deliver this crucial technology. Most of Greylock’s colleagues are former entrepreneurs or senior executives in leading technology companies who can relate first-hand to an entrepreneur’s journey.
What do VC’s look for in an opportunity?
Venture capitalists look for a business’s ability to scale non-linearly with cost: that is, revenue has the potential to grow much faster than expenses. Of course, the challenge is to know and recognize attributes that contribute to non-linear growth. As a result, Greylock focuses on evaluating a company’s barriers to entry—technology, market position, etc.—that would provide enough runway for scaling the business before competitors can materialize.
What is an example of an opportunity that has built-in barriers to entry?
One area that poses barriers for global players is found in local markets. Pure-play global technology companies such as Microsoft, Google, Cisco, and Yahoo! dominate their respective categories in India precisely because there are few barriers to entry. India’s largest indigenous internet portal, Rediff, has annualized revenue of ~$30 million—a drop in the bucket.
However, other areas pose considerable challenges for global players. For example, although India’s Airtel has average revenues per user (ARPU) of roughly $6.00 compared to AT&T’s ARPU of $60.00, Airtel’s margins are better. In this case, AT&T cannot match Airtel’s cost structure and obsessive focus on maintaining the lowest cost per transaction. This combination of healthy margins, location-induced cost advantage, and phenomenal growth is creating tremendous value.
Likewise, services relating to financial inclusion, delivery of quality, affordable healthcare to the majority of the population, extension of education to the nooks and crannies of the country all stand to create market barriers and, consequently, great value.
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