Meena and K. Ganesh are India's best-known entrepreneur couple. Over the past two decades, between them they have built and exited four successful ventures at a total valuation of US$300 million -- IT&T (hardware maintenance), Customer Asset (customer support), Marketics (analytics) and TutorVista (online education). In January 2011, they sold 80% in TutorVista to U.K-based Pearson, the world's largest education company. Last month, the sale was completed, and TutorVista was sold to Pearson at a total valuation of US$213 million.
The couple is currently strategic investors in five e-commerce start-ups. They plan to invest in 100 start-ups over the next 10 years. They are also contemplating a new venture in retail health care delivery. In an interview with India Knowledge@Wharton, the duo said they are "looking for the next disruptive model using technology and the Internet."
An edited transcript of the conversation follows.
India Knowledge@Wharton: TutorVista was a unique, pioneering idea and a very successful venture. Why did you decide to sell it?
K. Ganesh: As serial entrepreneurs with three ventures and exits in the past, the intent never was to grow TutorVista into a family business and pass it on our children. We felt it was a great outcome for all stakeholders -- employees, customers, promoters and investors -- for TutorVista to become part of Pearson, the world's largest education company. What Pearson brought was a ready customer base, instant distribution reach to over 63 countries, access to over a century of education DNA and huge capital for future growth. It was a perfect match. Also, in November 2010, we were in the process of raising series D funding totaling US$50 million. At that time, Pearson offered to acquire the company for US$213 million. If Pearson had not happened, we would have gone in for an IPO.
Meena Ganesh: Pearson is into many different aspects of education globally, but only in India does it have the complete school management system because of TutorVista's India business. Having been successful at this in India, Pearson has now taken our model global. That is very exciting for me. This may not have happened on our own steam.
India Knowledge@Wharton: You have built four very successful ventures. Each has been a pioneer in its space. Why have you not thought in terms of staying on and building institutions rather than exiting?
Ganesh: I am very happy that each of the four businesses we started still exist and are leaders in their field. All of them have original employees even after two decades. So I am satisfied that we were able, in all cases, to start long-lasting business institutions that have far outlived the founder involvement. We should not [confuse] long-lasting businesses and institutions with ownership. These were never meant to be family businesses. In two of our four ventures we raised venture capital money for massive scaling. So monetization, either [from a] trade sale or IPO, was pretty much the plan and way forward.
When I first started IT&T in 1990, it was not with the intention to sell it. At that time, it was all about starting a business. If we could pay [employees] salaries at the end of the month, we were more than happy. We were self-funded [and] cash flow was king. I sold IT&T to iGate in 2003 because it needed a strong balance sheet to access global clients. In other cases, we simply got a deal "too good to refuse."
But I am a serial entrepreneur at heart. I like to build, scale and monetize businesses. That is my DNA. I am passionate about building an institution, but not about owing it or passing it on to family.
Meena: I started Customer Asset [in 2000]. We raised multiple rounds of capital and scaled the business. But as the business matured, we felt it made more sense for a BPO business to be part of a large organization since the capital requirements were very high. For instance, when we started [Customer Asset], the IT services biggies like Infosys, Wipro and HCL were not in the BPO-call center space [at all] as it was considered lower-end and lower-margin work. So [at that time] BPO start-ups did not have any pressure. But after the downturn in 2002, the IT services firms were under huge pressure for revenue and growth and so they also entered the BPO business. To compete with them, we needed different resources, [a strong] balance sheet and capital. We got a good deal from ICICI and also the opportunity to specialize in the financial services space with the ICICI brand name and pedigree rather than be a commoditized BPO player. But even today there is a sense of bonding with that team.
India Knowledge@Wharton: What would you say have been the key success factors across your ventures?
Ganesh: Lots of luck and great teams who believed in our ideas. We chose to be in nascent areas with ideas that were new and disruptive. Being in a nascent area gives you a long rope to make mistakes and learn. Everyone is more forgiving -- investors, analysts and employees.
India Knowledge@Wharton: What are your plans going ahead? Do you plan to start another venture yourselves or play the role of investors?
Ganesh: We are looking at doing both. [Up to now], we have incubated five [e-commerce] ventures. [These are] Bluestone (jewelry), BookAdda (academic books), BigBasket (grocery), Must See India (travel information) and Delyver (neighborhood services delivery). We are not running these ventures but are very hands-on strategic investors. In three of these -- BookAdda, BigBasket and BlueStone -- the idea is also ours and we are the promoters. In the other two, we got involved in the very early stage itself, including refining the idea. In all the five, we have put in our own money as well as raised funds from other investors. This is one model that we will continue with.
We are currently also exploring setting up our own venture in retail health care services. We are looking for the next disruptive model where we can use technology and the Internet.
India Knowledge@Wharton: Can you share some details about this new venture that you are planning?
Ganesh: It will not be a hospital or a hospital chain. It will be more in line with the BigBasket model of home delivery -- except it will be in health care. It will be [focused on] last-mile delivery including doctor visits and post-operative care. [It will be] about using technology, the Internet, remote monitoring, etc. to change the paradigm in health care delivery. We are looking at it very seriously, but as of now it has not reached a "go" [or] "no-go" stage. We will make a call in the next three months. If we decide to go ahead with it, we will look to raise US$10 million.
India Knowledge@Wharton: Why did you think about getting into the health care sector?
Meena: There are multiple drivers. One, more and more people are willing to invest in their health. Two, as people grow older there is an increasing difficulty and reluctance to keep going to hospitals for tests and treatment. There is a growing expectation that like other things, health care, too, should be made easily available at your doorstep if you are willing to pay for it. Also, it is truly a social problem.... Nobody has thought of taking [health care to the] home at an affordable cost and at scale.
India Knowledge@Wharton: You had spoken earlier about plans to invest in 100 start-ups....
Ganesh: Yes. We want to promote entrepreneurship. There is a lot that needs to be done around this in India and in the next 10 years, we want to support 100 start-ups. For this, we will follow the model of the five companies that we have incubated.
India Knowledge@Wharton: You have a website called Growth Story. Is this the name of your fund? Is it a company that you have floated?
Meena: It's not a fund or a company. It's a family office, a platform. We have funded and are mentoring the five start-ups through this platform and we will support other start-ups also through this.
India Knowledge@Wharton: What is the typical size, focus areas and time period for your investments?
Ganesh: We are not a fund so there is no fixed period of investment that we look at. But we expect monetization in a five-to-10 year time frame. In terms of space, we are looking at blue-ocean spaces where we can create disruptive business models without having to compete with existing players. We don't believe that we can execute better than others who are already in the field, so we don't look at business models that are only incrementally better than existing ones. And we want to solve big problems. The bigger the problem, the more value you can create. From a pure valuation perspective, while investing we see if we can create a category leader, do we have the right ingredients and is the space good enough.
There is no particular ticket size. We have ourselves invested anywhere from Rs. 25 lakh (US$45,000 at the exchange rate of Rs. 54.50 to a dollar) to Rs. 2 crore (US$367,000). And we have also raised series A investments. In BigBasket we have raised US$10 million; in BlueStone and BookAdda we have raised US$5 million each.
India Knowledge@Wharton: You are serial entrepreneurs yourselves, but when you fund start-ups, how comfortable are you with the thought that the promoters may be looking to exit four or five years down the line and that they have no long-term interest in their ventures?
Ganesh: We believe that genuine, long-lasting value cannot be built if you confuse ownership and management. While I am very impressed and amazed with the story of Wipro and Infosys and Dell and Microsoft, these are exceptions. It is important for people to create long-lasting institutions without confusing with ownership. And also to create demonstrable, recognizable, value. This comes out of an IPO or actual monetization. TutorVista was valued at US$213 million in a period of five years. This is not paper value. This was the value at which the transaction took place. So this particular mindset is very important for us.
India Knowledge@Wharton: Meena, you are an entrepreneur and have also worked with big multinationals. [Meena was CEO of Tesco's operations in India and was also with Microsoft India for five years.] What have you learned from these two very different roles?
Meena: One of the things I have learned by working with large, well-managed companies is how to scale. What happens as an entrepreneur is that you are very good with the idea and you are very fast, but may not necessarily know how to take it from there to a level of organization building -- What kind of value systems to put in place, what kind of processes, what kind of teams you should have, how to develop people. These are all skills I have picked up along my corporate journey.
India Knowledge@Wharton: What about the other way around? What learnings as an entrepreneur have you taken into the corporate world?
Meena: The fact that I am very impatient and want to make things happen is something that is beneficial for the [corporate] organization. At Tesco, for instance, to build something of this nature [Tesco Hindustan Service Center], they could have transferred someone from their U.K. office and placed them here. In fact I did have parts of my team from the U.K., but it made more sense for me to let them go back and find similar kinds of people here who worked with me to build the organization. This was probably more beneficial for Tesco because if you are too immersed in an organization's culture it is difficult to see what is really doable and what can be done at scale.
At the end of the day, if Tesco had not grown to the [around] 4,000 people that it did in the five years I was there, they would not have gotten the benefit of the huge amount of money and management bandwidth that went in. A lot of other companies who have set up similar back offices in India have moved very slowly....
India Knowledge@Wharton: Are you open to going back to a corporate role?
Meena: No, not really. I have these very exciting start-ups that we are mentoring and we have ideas of our own.
India Knowledge@Wharton: What have been the cross learnings from being both an entrepreneur and an investor?
Meena: I can look two steps ahead and see where my investees are likely to go wrong because as an entrepreneur I have been there and also because I have been part of running big companies.
India Knowledge@Wharton: Can you share some of the mistakes that you have made in your entrepreneurial journey?
Ganesh: There are too many of them. If I were to hazard a guess, then for every right decision I have probably made five wrong ones. As long as they are not fatal, I am happy. For instance, in IT&T, which we started in 1990, we kept on working on computer maintenance, hardware maintenance and hardware services. By then, IT services and software exports had started. If we had spent even part of our time and effort on software exports, we would have been [worth] at least 100 times more in terms of valuation. It's not that we did not have the capability or worked any less, but just that we were so focused on hardware that we missed the macro trends. Others like Wipro and HCL did see the trend and made the change, but we were completely oblivious to it.
In TutorVista, we wasted a lot of time in the beginning using existing technology platforms for a business model that was very new. We should have developed our own platform at least a year earlier than we did. Another mistake in TutorVista was that we hired extremely successful people with BPO and call-center expertise. That did not work well at all because in TutorVista, being a new business model, the thinking had to be different. Later we hired MBAs from top schools with one or two years of experience. We made them vice-presidents. Everyone was shocked. But we said it's a new business, a new industry and 10 or 20 years of experience means nothing. That worked very well.
India Knowledge@Wharton: What are your thoughts on the entrepreneurial ecosystem in India?
Ganesh: There are a number of problems but the biggest issue I lose sleep over is the angel investment tax that was introduced in the 2012 [Union] Budget [which requires entrepreneurs to pay 30% tax on the funds they receive from angel investors if the money received against issue of shares is more than their face value.] The message it sends is extremely negative. On the other hand, countries like Singapore give a tax break on investments. The only way for India to reap its demographic dividend is to create jobs and jobs are created more by new companies because existing companies are largely automated.
Another big challenge for start-ups is lack of funding from banks. We have had enough success in India to show that entrepreneurship creates jobs. The government needs to create a new category for entrepreneurs, like priority sector lending, with different rules for lending to start-ups. While the amount of money itself may be small, the message it will send out will be very strong. Today, a company valued at Rs. 1,000 crore (US$183 million) can't raise bank funding of Rs. 1 crore (US$183,000).
The other big issue regarding investments is ... retrospective taxation. As an investor, I don't like the term "retrospective". As a country, we need to define what our rules are and operate within those. Of course, rules may change but it can't be done with retrospective effect. Also, policies need to be long term.
India Knowledge@Wharton: What have been some of the challenges of working together as a husband-wife team?
Meena: The fact that we have complementary skillsets helps in avoiding stepping on each other's toes. Ganesh is more of an ideas person. He is also more externally focused, involved with investor relationships and so on. I am more the organization builder, involved with the execution part. It's not that we don't have each other's skills; just that this is what comes more naturally to us. And we are not constantly looking over each other's shoulders.
Of course [working together] also means that 24 hours a day you are thinking about work -- which is good as well as bad. During the ideation stage and when things are going well, it's great. But when there are difficulties, there is no reprieve. And every business does go through ups and downs. But it's fine. I am very comfortable doing this.
In a way we also grew up together. We got married very early so I guess we have rubbed off each other's edges a bit.
Ganesh: The real challenge [of working together] is that there is no safety net or safety valve. After a stressful day in office you can't come home to a totally different world, a different environment, and vice-versa. It spills over. But then there is the great satisfaction and joy of creating something together.