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Indian tech billionaire Nandan Nilekani, co-founder of IT bellwether Infosys, is also the founder of VC fund Fundamentum. Photo credit: World Economic Forum

Nandan Nilekani is no stranger to the trials and tribulations of an entrepreneur. He co-founded Infosys with a bunch of friends 36 years ago and helped it grow into India’s second-largest IT company in terms of revenue. One of the few tech billionaires of the country, his net worth is estimated to be US$1.93 billion.

Nilekani moved out of Infosys in 2009 to head the Indian government’s ambitious and controversial Aadhaar project to bring the country’s 1.3 billion people into the digital fold with unique IDs.

In 2015, he founded EkStep, an educational initiative for underprivileged children, along with wife Rohini. Around the same time, he began investing in startups and last July, he launched a US$100 million fund, Fundamentum, to help startups scale beyond the US$100 million revenue barrier.

He returned to the helm of affairs at Infosys in August 2017 after the ouster of Vishal Sikka, who had been brought in from SAP three years ago as CEO.

Tech in Asia caught up with Nilekani recently at Bangalore’s startup accelerator Axilor. Here’s an edited excerpt of the conversation with Nilekani:

If you were a young entrepreneur today, what would you be looking at?

As I’m trying to understand more of what’s happening, I think while the opportunities are immense, it needs a lot of original thinking about the kind of challenges we have and kind of products that we can build in India. In the last eight years, I’ve been involved in building national-level platforms. India’s unique ID Aadhaar has many layers on it like authentication, KYCs, digital lockers, e-signature, UPI (which is a payment system), and so on. These are all massive billion-people platforms and they will have a huge impact, both positive and negative.

Positive in the sense that they’re going to enable things that you could not do before. But if you’re doing some kind of a me-too thing, or some tech which is sort of replacing a part of an issue, that is not going to work because this massive platform will replace it.

So, I think entrepreneurs have to see what’s coming and take advantage of that.

What’s the toughest challenge you see facing entrepreneurs?

Of late, I have been concerned about how small companies scale up. I feel scaling up is a science. It’s about getting right the strategy, markets, distribution, products, leadership development, people skills, technology, architecture, and so on.

That I see as a big challenge.

An ambitious, voracious goal removes the clutter from the brain and people focus on getting the job done.

There’s also the talk about exits, where an exit seems to be to sell the company to somebody else. But the real exit is when the company has reached a size which enables it to go public.

I think the good news in India is that domestic capital is now coming to the financial markets. Recently, a friend, who runs one of the largest asset management companies in India, said the total amount of money invested in investment funds, mutual funds, and so on in 2017 is INR 130,000 crores (over US$20 billion). That’s serious money. The total investment made by foreign investors in India [in the same period] is only INR 53,000 crores (US$8 billion).

Suddenly we are seeing this influx of money into capital markets from small investors. They’re not like the big guys, so where do they invest this money? There are only so many companies that trade, so I think how do we get all these startups to reach a size big enough to take them out to the public markets?

Last year, I set up startup growth fund Fundamentum. We have raised about US$100 million and we’ll invest in just one or two companies a year. We will not just invest, but we’ll actually work with them and help them to scale up business.

Can you share examples from your own experiences about how to manage the transition from a small startup to a large company?

First of all, I think it needs a mindset change. You need to plan ahead and backwards. At Infosys, we would keep setting ambitious goals. US$1 billion revenue, US$10 billion revenue, and so on. I’ve applied the same philosophy in everything I’ve done so far.

When we did the Aadhaar project, we set a goal of getting 600 million people on Aadhaar within five years, which was a very ambitious goal. Frankly, this is a government system, not a private sector project. So it’s much more complicated. But because we had set such a goal, it sharpened everybody’s mind. Everybody got aligned to that one goal.

An ambitious, voracious goal removes the clutter from the brain and people focus on getting the job done.

That brings you to the importance of having the right people in the right places. Are the leaders ready to cope with that kind of scale growth? Is your architecture in place?

I see a lot of companies with technical debt. That makes it difficult to scale. So, I think getting the technical architecture right is very important. For example, we designed Aadhaar for a billion people, for 100 million authentications a day, and so on.

At EkStep, our goal is to reach 200 million kids in five years. Once you set that kind of a crazy goal, you’re forced to think about everything – technology, scale, people, mission alignment, and so on.

So, I think thinking ahead and having a big goal in mind helps companies to scale.

What about the need to keep experimenting, make mistakes, iterate, and so on?

Yes, tactically you have to be very quick, very agile; you should be able to pivot; you should be able to launch early; and test, debug, and throw it out if needed, and all that. That’s the way you do things. That should be built into your DNA. But that should be within a strategic envelope. That means you need to have a larger point of view of where you’re going.

The trick is to operate on a short-term, agile, tactical horizon, yet within a mental construct of a larger game.

Two-and-a-half years ago, in a talk about India’s financial sector, I had pointed out that several changes – mobile phone usage, new tech, and so on – are going to drive a situation where payment transaction fees will have to disappear. India’s Unified Payments Interface (UPI) was still being designed back then, but the direction was clear. A lot of companies had business models where they thought they’ll make money from fees and then one fine day, they find the fees are going to zero.

So, you need to read the trend of where things are going. If you’re only tactical, then you miss the big picture. But if you only have the big picture, then you don’t know the stuff needed to get there. The trick is to operate on a short-term, agile, tactical horizon, yet within a mental construct of a larger game.

Getting your balance right is the heart of success, I think.

What are some of the big opportunities for startups in India?

We have over a billion people whose per capita income is going to go from US$2,000 to US$5,000 in 10 years. As income goes up, you find that the percentage of disposable income goes up. So the whole consumer story is very, very true, I think. Not just for tech or startups, but for everybody.

India has got multiple layers of technology. One is basic internet, cheap smartphones, and on on. That’s true globally. But we have two additional things: Aadhaar with 1.19 billion people on the platform and a massive push by the government and the private sector to get everyone to have a payment instrument like a bank account.

So, on the consumer side, once you reach a point where everybody has a smartphone, an Aadhaar number, and a bank account, you can do almost everything transactional on the phone. You can buy things, sell things, sign documents, apply for loans, and so on. That trend is huge and that’s going to open up lots of opportunities.

The other thing which I’ve been saying a lot is we should not just try to mimic what happened in the West. For instance, if you look at the smartphone revolution, it’s just 10 years old. So Apple came in June, 2007 with an iPhone and the center of gravity of technology moved from enterprise PC to smartphone consumer. The companies that emerged out of that shift were ones that learned how to leverage data about consumers. The per capita income in the US was already over US$40,000 in 2007.

But India is not at that stage. Maybe the top 50 million people in India economically are like consumers in the US but we’ve got a billion more people. The per capita income of this billion people is much lower, but they are not going to be digitally anonymous anymore. There will be a lot of data about them. How do you enable those men and women to use their data to improve their lives – to get better healthcare, credit, education, and so on? That’s the business model that makes sense here.

So that’s a mega trend – 10 years of massive expansion.

What’s a business model that caught your eye recently?

Let me give you two or three examples. India is an underserved market for credit. Our credit-to-GDP ratio is about 40 percent and few people get credit. There are many people trying to solve this but there’s going to be a massive market because more and more consumers have digital footprints.

I think you need to constantly detach yourself, look at yourself in the mirror, and see whether you need to be different in the coming phase.

Similarly, there’s the nation-wide goods and services tax (GST) system. Businesses are going to have invoice-level details in the GST system which they can trade upon, and share with a lender to get credit. So, both consumer credit and business credit are going to grow.

What that means is on a structural level, India is going to go from a prepaid economy to a postpaid economy in about 10 years because people – both individuals and businesses – who didn’t have credit will get credit. The consumer gets money to buy on credit and the seller gets money to have inventory on credit. So, both sides are getting fueled by this. That’s called the consumption boom.

Now, how to play in that game is a different thing. There are big players with winner-take-all models that are dominating here. But there are definite opportunities here.

Then there’s healthcare. It’s a little slow to absorb new technologies, so how to make money with tech products here is not clear to me yet. Skills education is going to be another multi-billion-dollar spending industry. Again, how to make money in it is a different question.

Then there’s the new model of outsourcing – SaaS tech from India, which holds a big opportunity, I think.

This post Tech billionaire on new opportunities – and threats – for startups in India appeared first on Tech in Asia.

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