He is called the Warren Buffet of the internet world. He wrote a cheque for Google, when it was still a garage operation and he is also the founder of Sherpalo Ventures. Ram Shriram is a web evangelist and an entrepreneurial guru and could be sitting on the next Google! He is in India for the launch of The Indus Entrepreneurs, or TIEs, special interest group on the Internet.

Ram Sriram, Founder, Sherpalo Ventures, and Board Member of Google, said this is a great time to invest. "Recessions are when great companies are built. If you look way back at Microsoft in the 80s, Cisco in the 90s, and then Google in the 2000-10 period, these were companies that were essentially born at the depths of the downturn, because that is a great time to hire people and it is a time when valuations come back down to normal levels."

Excerpts from CNBC-TV18’s exclusive interview with Ram Sriram:

Q: We haven’t seen the bottom of the subprime woes. The dollar is continuing to depreciate and the yen has hit a 12-year high. We have got gold and oil at record highs. How worried are you at this point in time?

 

A: The good news is this time it isn’t about the Internet bubble. The meltdown this time is in the financial markets and has to do with lack of regulation in all these asset derivative products created over the last few years. So, this time the tech industry does not have to take any blame for this.

 

Q: How worried are you that it is going to have a spiraling impact and an impact on startups and the tech world?

 

A: It hasn’t had an impact yet on tech, in terms of startups and venture capital. But it will undoubtedly have an impact on tech spending. We will probably begin to see that if we haven’t already seen it. We hope it doesn’t last too long and it sort of recovers after a couple of quarters. That is the current expectation.

 

Q: How are you dealing with it? Are you in wait and watch mode at this point in time or is the investment happening?

 

A: This is a great time to invest. Recessions are when great companies are built. If you look back at Microsoft in the 80s, Cisco in the 90s and Google in the 2000-2010 period; these were companies that were essentially born at the depths of the downturn. That is a great time to hire people and it is a time when valuations come back to normal levels.

 

Q: You have got a little over half a dozen investments that you have already made in the Indian market at this point. How much more are we going to see you put, in terms of investments in India? Which are the sectors that are looking interesting and hot to you at this point?

 

A: We have so far mostly concentrated on web and web services and things like Cleartrip, Zoom, MapmyIndia, digital maps, Prana for animation and so forth. In the future, we will also focus on some clean energy projects, which is an exciting area for India. We would be doing good by the environment and good for ourselves, in terms of return on investments. So, that is an area we are hoping to concentrate on.

 

I am not looking to make any service investments although we do have one or two investments from an earlier time and things like 24/7 Customer.

 

Q: The mobile space continues to look exiting because we have seen phenomenal growth in the mobile market in India?

 

A: Absolutely. I do believe that we will be making many more mobile investments. We are very bullish on the mobile sector, as far as data applications on mobile are concerned.

 

Q: In terms of money, could you give us a ballpark figure on how much money are we going to see flow into India from you?

 

A: We have invested well over USD 50 million so far in between 9-10 ventures that we have announced and in some that we were in process of the investing in. We expect to probably double that over the next 2-3 year horizon.

 

Q: What are the challenges that you continue to see in India? A lot of people are talking about the supply crunch, as far as human recourses are concerned.

 

A: That is an excellent question. India should open up education to foreign investment, which hasn’t happened yet. I know it’s a controversial subject and it’s one where they care about the consistency and the delivery of good high quality education. But I think opening up education to foreign investment is a good thing because India cannot meet all of its investment needs for education on its own.

 

In two areas of public policy, 1) related to the internet infrastructure and 2) related to clean energy, there needs to be incentives. That’s another thing that would spur education. In some countries in Africa or even in South-East Asia, people look at Google as their new textbook. We should promote more internet use by allowing companies to build last mile access.

 

Q: You always said that its great to have a good idea, to have clarity of vision with regards to that idea and then work on the business model and put the business model into place. Are you seeing that happen with a lot of new companies that are being setup, especially from an Indian point of view at this point?

 

A: First of all, this is the age of entrepreneurship in India. In my days, when I was growing up in India 35 years ago, the heroes of our time were politicians.

 

Today, I come to India and see a very different India. Today, the heroes for the young people of India are the entrepreneurs that have been very successful. I do believe that vision and quality of team are important. But let us not trivialize the importance of execution. More companies fail because of poor execution then they fail because they didn’t have a good idea.                  

 

Q: Are you seeing the execution being done right at this point? Do you think that people are spending more time figuring that out?

 

A: Yes and no. We are still in a learning phase. In India, there hasn’t been enough history of companies outside the services space. The closest analogue to success is somebody like Naukri and InfoEdge and they are building scale. But we need to see more of that.

 

Some of the weakness is in terms of the available engineering pool. We need more companies focused on teaching skills like Java Scripts, teaching Ajax and the front-end skills necessary and also middle management.

 

Q: Microsoft has made around USD 44.6 billion bid for Yahoo. Steve Ballmer has said that he will do whatever it takes to actually get Yahoo!. What are your thoughts on that?

 

A: I am not going to comment on something that is still in process.

 

Q: What is it going to mean for the tech world to see this sort of consolidation and hunger for the online advertising space?

 

A: The advertising market is quite large. There are a number of players in the online advertising market. So, competition is alive and thriving. You are seeing some consolidation in that space.

 

Q: Are we going to see more consolidation happening?

 

A: I don’t think you will see a lot more consolidation. Even as you are seeing consolidation, you are seeing new companies coming in the scene like Facebook and others. So, it is a young and growing market. It is not a mature market by any means.

 

The YoY growth numbers are still quite significant in the online component. The online component itself has broken into two pieces. There is the Search Advertising component, which is popularly known as performance-based advertising and there is the brand advertising piece, which is also known as Display Advertising. What you have in India today is more Display Advertising, with the exception of a smaller piece of the Search Advertising market. That is largely limited by the number of Internet users that exist today.

 

Q: People are calling Facebook the biggest success story since Google now. Where do you see this social networking phenomena?

 

A: Well, it’s a nice neat application. Social networking, the mobile applications space and search itself are three sorts of thriving markets within the online sector.

 

Just like Google, they are seeing competitors in the search space. I am sure there are going to be many competitors in the social networking space.

 

Q: Where are valuations and what do they seem like to you?     

 

A: I don’t want to give you a specific answer with respect to those two companies.

 

Q: Can you speak in general?

 

A: In general, valuations have been relatively high in the internet space.

 

Q: Are we likely to see a correction?

 

A: Not so much a correction. It depends on the sectors that actually grow rapidly, are then monetisable and actually have a clear way for those companies to monetise the traffic and actually make money on it. Those sectors will continue to see more capital inflows.

 

Other sectors, where there is a lot of hype and not enough real opportunity to grow the business may eventually peter out.            

 

Q: Where are we headed at this point in time?

 

A: We are headed to a world where everything is going to be in the cloud. All your information resources will be in the cloud. So, companies will have to find other creative ways to make money around their users. This is the future and that future is here today.

 

Q: How do companies actually manage to get through?

 

A: First of all, you have to build trust with the user. That means you have to respect their privacy, their right to personal information which is there and not that of the business that you run. Then, you have to make sure that you give them information that is of value to them; not necessarily just pumping them with more advertising information.

 

Q: Is that possibly one of the things in your book of mistakes?

 

A: You keep accumulating mistakes.

 

Q: How many pages does that book run into?

 

A: This is just one volume of it and I have thirty-five books like this over the last 15 years.

 

Q: This is coming from the man who is probably considered the most successful investor in the internet world.

 

A: You are only as successful as your last successful investment. So, if you keep thinking of your successes, you will make more mistakes. You have to ask what have you done lately and then you will listen better.

 

Q: What has been the biggest mistake lately?

 

A: I can talk about a mistake that just happened. We shut down Frontline at the end of January 2008. Frontline was a company in the open access space. We were bidding for the 700-megahertz frequency in the US to build an open wireless data network nationwide.

 

Unfortunately, the subprime crisis hit and the markets got jittery. We were not able to get the additional financing we needed. But we were able to open up access in the US to all comers. So, as a public policy initiative we succeeded and as a business we failed. So, that was a lesson we learnt.

 

Q: When do you actually decide that it is not doing as well as expected? Do you have a sort of timeline?

 

A: That is gut intuition. You can do all the analysis in the world, but you have to pull back and it is a combination of things. You look at all the metrics, read the tea-leaves and see how the management reacts.

 

Based on all of that, you can come to a conclusion about it and understand what is going on in the macro environment. So, you cannot just have horse blinders on and only look at your little business. You have to know what is going on in the broader space and then make your judgement on whether to write more cheques and put more money in.

 

Q: What is the advise to entrepreneurs who are starting off within the internet space, especially in emerging markets like India? What would your advise be to them given the competition? Capital has not been the issue. But what would be the single biggest lesson?

 

A: The single biggest lesson is to come up with an idea that is sound, durable and has value to the user. You have to make sure that you build a great team around it.

 

Q: Have you actually said that you would like to see what the mothers are before you actually hire somebody because that gives a sense of where they come from?

           

A: Absolutely. If they showed up to school on time, did not skip classes to go see the latest movies and were diligent, that tells you something about commitment.

 

Q: How important is it for you to have an Aha moment every time you put your money into something?

 

A: It is important to realize not every investment will be a Google.

 

Q: It would be great if it turned out to be that way.

 

A: Yes. So, every ten years or so, you will see a Google size company emerge. But in general, it takes committed entrepreneurs, great teams that they build around themselves and then great execution with good monetisation or business model around it. But the business model can come last.

 

So, the first part of building that virtuous cycle is having happy users. From happy users come happy advertisers and from happy advertisers come revenue streams. Then, if you have good execution, there comes profit.

 

Q: And a happy investor?

 

A: Yes, that is Nirvana.

 

Q: You said that every ten years you see something like Google. Do you see enough sparks in anything at this point in time?

 

A: I am focused on one such company right now. But I am not ready to talk about it.

 

Q: When do you think you will be ready to talk about it?

 

A: In about a year.

 

Q: What sort of space is it operating in?

 

A: I will keep you in a state of expectation for at least till the next time I come to India.

 

Q: Is it an Indian company?

 

A: No, it’s not an Indian company. Eventually the successors will come out of India and China, perhaps in the mobile space. The market size is limited. That is why I go back to infrastructure and the need to open that up, for more education, more focus around things like creating better training for the internet tools of today’s generation as opposed to working on more enterprise class software tools, which is what much of the outsourcing industry is focused on.

 

That shift needs to happen rapidly. India can own the next big success that happens from the internet.   

 

Q: There is so much happening at this point in time. What would be the biggest trend that we are going to see within the tech space and web space in 2008?

 

A: It could come out of mobile and could easily come out of a combination of animation and film. That is why I am excited about that sector. There is so much creativity in India around the whole film industry.

 

Q: You have already made an investment in Prana, which is an animation studio. Is the media side of the business looking exciting to you? Is that a sector you would like to get into?

 

A: Media in India is very exciting. We are sitting here and talking to you and you are a media star. So, I am quite interested in media.      

 

Q: You don’t like being called an angel investor. You preferred to be called mentor and guide. Why is that?

 

A: Because I am not in it anxiously trying to return capital to a bunch of people that are from the investment industry or a bunch of limited companies looking for a huge rate of return.

 

So, I am not anxious in that sense and am patient. In some sense, it’s social entrepreneurship because I am not looking for a return after a year.  If I do make a return, I am happy to reinvest in India.

 

Q: For people who continue to be investors and haven’t moved to social entrepreneurship, what would realistic returns be?

 

A: Its too early. There is not enough history in terms of Internet investing in India to really judge returns in that sense. The returns are going to be limited by the size in the market for some time.

 

Q: You are known as the Warren Buffett of the Internet world. What would you like to be known as?

 

A: I definitely would want to be known as that. I have a long way to go before I reach the class of Warren Buffett.

 

I would like to be known as someone that means well by the entrepreneur, that is committed to helping them attempt to succeed and perhaps affecting the outcome positively for them by being involved with them. We have proven it in ten or so deals that we were involved with.

 

There are some companies that I have invested in way back in 2000. So, it’s taking a long-term view, staying committed through thick and thin and making sure that you are there for the entrepreneur to trust you and believe in you as someone who can give them good advise.

 

Q: Are we going to see you publish the Ram’s Book of Mistakes anytime soon?

 

A: That is a secret. I share it individually with the companies that are chosen by us to work with. So, we will get the benefit of it. As far as sharing it broadly, I will be sharing some of that on this trip and am going to give a talk on something called, ‘the things they don’t teach you in business school’.

 

Q: Give us a quick snapshot of that.

 

A: No meeting should be longer than one hour. All meetings should start and end on time. You should have a clear, crisp agenda of what will be covered in that meeting. The outcome of every meeting ought to be decisions and not deferment of decisions. Even if you make a decision to defer a decision, it should have a new date on it. So, it’s important to do that because frequently as companies gets larger (by even 200-300 people), they some times ruminate and procrastinate, reflect and don’t actually act.  It’s important to act with as much of information but act expeditiously.