'I stay out of the VC ecosystem because I fundamentally don’t believe in it:’ Zoho’s Sridhar Vembu

Sridhar Vembu.

Zoho Corp, one of India’s oldest software-as-a-service (SaaS) companies, has never raised any venture capital (VC) funding to date as Sridhar Vembu, the company’s co-founder and chief executive, said that he doesn’t ‘fundamentally’ believe in the VC ecosystem.

“I stay out of the VC ecosystem because I fundamentally don’t believe in it. The thing I see (with VC-funded companies) is that it’s all too exit-focussed. There are too many VCs floating around, which are too much exit driven, that’s an incorrect strategy for operations (for a startup),” Vembu said, speaking at an event in Bengaluru, arranged by the Karnataka government on corporate governance.

“Maintaining companies that stay the course (is the correct strategy). We don’t need companies that are sell-out and exit-focused. And yet a lot of the venture capital is driven around exits, which is the reason I stay out of it,” Vembu added.

Vembu’s comments come at a time when startups in India across sectors are cutting costs aggressively in a bid to survive in the near term with VC and private equity (PE) funding slowing down amid a correction in global financial markets. According to data by data analytics firm Venture Intelligence, PE-VC investments in the second quarter of 2022 (April-June) fell to $11.31 billion from $15.16 billion a year ago. PE-VC investments fell sequentially, too, as startups had raised $16.05 billion in the January-March quarter of 2022.

Amid the slowdown in funding, many VC firms including some of the world’s largest such as Sequoia Capital, Y Combinator, Beenext, and Orios Venture Partners among others have also asked their portfolio startups to cut expenses, freeze hiring and prioritise profitability over growth.

Earlier this week, SoftBank-backed edtech unicorn Unacademy took aggressive steps like paycuts for founders and top management, stopped complimentary meals at their offices, and curbed travel spends to focus more on profitability. 

The company has also laid off over 750 employees in 2022 so far. To be sure, Unacademy is not the only one. Startups and unicorns in India have laid off over 13,000 employees since the start of this year to cut costs, amid a downturn in funding.

Vembu, in fact, said that during times of crisis like this, companies and founders should stand tall behind employees to build conviction for the ‘core purpose’ of the company.

“Employees and founders should believe in a mission. If they (employees) see any hint of selfishness, that (the founder saying ) I will do this so that I am going to personally benefit from it, then nobody will believe,” said Vembu.

“So for good leadership and governance, it’s extremely important that they (the employees) believe that we (employees and founders) are in this together (to work for the mission). Our leader is with us, he will go down with us if the ship goes down and that is very important,” Vembu added.