SAN FRANCISCO: Sam Altman, the president of Silicon Valley's most influential startup incubator Y Combinator, is doubling down on India at a time when many investors have gone slow.
YC, as it is popularly known, inducted as many as 18 Indian startups this year, its highest ever since it actively got involved with the country a few years ago.
Altman says YC - which has backed Airbnb, Dropbox, Stripe and boasts of a portfolio of companies valued at $85 billion -has no doubt that India will support a number of important and huge tech startups in the long term. He spoke to TOI about why he's bullish on India, the ever-increasing power of big tech companies, regulation around cryptocurrency and his involvement in bridging the gap between Silicon Valley and the rest of America. Edited excerpts:
YC's 2017 India intake numbers are the highest in any year. How's that happened?
We have been going to India for the last few years. We've been fortunate enough to be an investor in a few of the successful companies in India. These founders talk to the startup community there about us. We see this in all the markets across the world: Once we can get the first few wins in a new geography , that perpetuates in the local community and then people say , 'Oh, we've heard of them, founders said they were great'.
Will you look at setting up an India outpost?
Our goal is to take the 18 intakes in 2017 and keep increasing that number. We have no current plan to open an outpost, but I bet someday we would. That may be a few years off though.
Why are you bullish on the Indian startup ecosystem amid uncertainties?
I like to be bullish when everyone else is bearish.There are very few longterm investors, I think it is a big advantage for us that we are one. Most are chasing fashion or trying to make their LPs (limited partners) happy.
So what's wrong with the tech investing class?
It is not only about the way funds are structured but also about what they are expected to do that particular year. So if India is hot, they'd be in India. If India is cold, you don't want to be there. But we are excited and will happily make a lot of money in their absence.
When we met in 2015, a slug of money was coming into India. It's been tougher for startups to raise capital since then...
We try and not get caught up in what other investors do.The way I look at investing is that, on any given day , what the stock market or any other investor is doing is a random number generator. But over time it does converge to reality . We continue to believe that there is something real happening in India. Like any exciting new thing, there will be ups and downs, there will be bubbles and busts, but we try and take a very long-term view here and not get too distracted by the ups and downs.
You told me during the heady days that you were not as much worried about the eye-popping valuations as you were about the cash-burn across startups. Is it looking different now?
I don't know the current cash-burn situation at Indian startups. But in the US, in general it feels okay. There are plenty that are burning too much and will die.But on the whole, the burn is relative to the cash on hand, it's reasonable.
So, are we out of the bubble territory?
Bubblesare an interesting phenomenon -for bubbles to happen, there has to be something real for people to get too excited about. So, smart people get tricked by bubbles, very famously Isaac Newton fell for the South Sea bubble. Similarly , in India, there was something real going on, people got too excited and then they stopped. It's likely they will get excited again and then stop again. What's important here is that, in the next 20 years, is India a country that supports huge and important technology startups? And the answer is definitely `Yes'.So we will just ride the waves.
In India, e-commerce and some other consumer internet sectors are still cash-guzzling. Fighting Amazon needs capital...
Or, you don't have to fight them. There are plenty of other businesses to start where you don't have to burn $50 million per month. There are people who are experts in these businesses where you burn huge amounts of cash, and I'm not one of them. But there are many good companies that can be started that I understand, I just don't have instincts for e-commerce.
Which companies are you picking from India from the YC batches as the ones becoming big?
It takes 10 years to find that out, so I'll tell you after seven years.One of the things that has really surprised me about this business is that it takes really long to see results. We invested in Dropbox in 2007 -it is 2017 now and it's still a private company .
Away from startup investing, you've been very vocal about tech and politics. Tell us why?
One thing that's clear is how different the Bay Area and the rest of the country are -it's not a unique insight, but one that's extremely striking. So how do we make the tech industry benefit everyone? Poli tically, I think we need to get a bunch of new candidates. The approval ratings of the present government is really low and that of career politicians is even lower. My big effort is to find a lot of new candidates with new ideas and support these people because the world has changed so much with technology that we need
SoftBank. How's it impacting tech investing?
I expect it will change the dynamics of investing, but I don't know how yet!
What's your take on what happened over at Uber?
That is a mess of a situation and very complicated all around. I think, in general, this a government that can act very differently with a different set of laws.
You've also been supporting groups like Tech for Campaigns financially.Would you look to run for office or take up politics yourself?
I expect to fund candidates and organisations but do not want to take an active role. It's a side gig for me, not my main job. However, I did an interesting thought experiment. In the 1900s, Henry Ford created Model T and, say , a million jobs came as a result of it and these employees had enough money to buy a car. In 2005, Facebook created 10,000 jobs, each of these became millionaires here.
In 2010, WhatsApp created 36 jobs and was sold for $19 billion. I believe in 2017 there will be some startup that will create five jobs. You have this effect with technology -we are still building companies that are valuable, but it is concentrated into fewer and fewer jobs. This trend will keep going and our current politicians don't have any good ideas on how to remake the government structure. Tell us what you think of idea that there will be these very late-stage investors that will provide liquidity to earlier-stage investors is a good thing and it will happen.
You haven't been a fan of going public. Anything's changed?
I'm not a fan of going pub I'm not a fan of going public before you're ready as you have the pressure to do these short-term optimisations that are bad. I definitely think you should go public at some point, just not until your business model is mature.
When is a startup mature enough to go public? Is Airbnb good for an IPO?
They could go public. I don't know when they want to but they are at a stage that if they wanted to, they would.They know what they are doing, they have a solid revenue stream. Of course, they will keep innovating, but they have a nice competitive moat built up.
How do you see the impact of tech giants Amazon, Facebook and Google on young startups?
That is one of the new and interesting problems in the tech industry -you have these hyper caps that are so powerful. It won't last forever, the ecosystem would shift and new companies will emerge, but at the moment it is tough. That is something we think about at YC when we are inducting companies: Would this startup get crushed by Facebook? As a general rule, we like companies doing new things and not the ones with a derivative idea which Facebook can copy in one click. It's hard to build a business there. On the other hand, there are times when it's worked, like it did for Snapchat.
But Facebook's got it right with their acquisitions...
You could argue that Facebook has slipped up by letting WhatsApp, Instagram and Snapchat emerge. But on the other hand, you can say it's pretty impressive how right they have been about identifying the really big new social media platforms and buying them. At the time, everyone thought it was crazy .I remember when they were acquiring Instagram for $1 billion, everyone was shocked.But now it looks like the most brilliant move in the history of Facebook.
What are your views on these powerful tech majors being regulated by Washington?
I don't know exactly when Washington should regulate a company , it's a hard question. But at some point it has to and that's why there are antitrust laws, it's for a reason. So I wouldn't pretend to be an expert on that. It's the job of the company to be as big and successful as it can and it's the job of the government to say , 'Oh, that's too much'.
What about the issue of Russia meddling with the US elections and the heat on Google, Facebook and Twitter?
Who knows what happened, but in general there would be more of that. The internet is going to be the central battle ground for influencing hearts and minds, so we do regulation there.