This presentation was done in 2008 for a conference at Kellogg and I later updated it in 2012 for a prsentation somewhere.
Since then, image of India is taking a big hit under Modi. Its emergence as a great power is not sure anymore. Its successful integration of huge diversity is in danger now.
My company Excelan went public on Feb 28, 1987, exactly 33 years ago today. Stock was priced at $12/share and closed at about 15 at the close of day. It valued the company at about $150 million. You can easily multiply that by a factor of five to reach today’s dollars.
Company had done $22 million in revenue and $3 million in profit in 1986 and had grown 120% YoY.
Stock moved up to 18 before the market crash of October 1987. Stock market lost almost 70% in very rapid order. Our price was cut down to six. Market recovered nicely in 1988. 1987 was a good year for us we did $39 million and made $5 million in profit.
Excelan was a pioneer in computer networking. We were first to supply TCP/IP on Ethernet to connect disparate computers. They eventually became the backbone of Internet.
Excelan was eventually acquired by Novell in the summer of 1989.
We are coming back a full circle after this last cycle. Cash is a commodity was the mantra during dotcom cycle and we know where that got us. This cycle was all about the growth/land grab as plentyful cash was available very cheaply. Or so every body believed.
Cash is the mother’s milk for startup, cash is the lifeblood for startups. These were the common ditties in Silicon Valley when I was a young entrepreneur. Alan Shugart, founder of the Disk Drive industry (Shugart Associates and Seagate Techology) was an iconic Silicon Vlley entrepreneur. He was fond of saying that “cash is more important than your mother”. You can always apologize to your mother and expect to be forgiven but there is no forgiving when you run out of cash.
There has been an iron law of capitalism that can not be violated for very long. Capital seeks the investments where it gets the best returns on the risk adjusted basis. Unicorn phenomenon violated that law, so could not last long. It is surprizing that it did last as long as it did.
Only three companies survived the brushfire that burnt down the dotcom industry: ebay, Yahoo and Amazon. ebay and Yahoo were very profitable. Amazon had a great story to tell and was able to convince the hardnosed Wall Street to go along. We will see what happens this time around. I don’t expect any of the big investee companies of The Vision Fund to provide returns commensurate with the risk, that is if they survive at all.
I feel less disoriented now as I am back in the familiar territory.
Best time to do a start up is during the time of rapid change in the market. Novel Coronavirus is changing the world more rapidly than ever before. With lockdowns and social distancing, commercial activity is at stand still.
Also, recessions are the good time to do a startup. Recessions indicate an end of the era and a start of new. Old ways don’t work anymore, new innovations are needed. Resources also free up as things slow down. Opportunity costs drop as the jobs disappear. Fair weather entrepreneurs leave the market, uncluttering the environment. Market pressure to get out early abates, entrepreneurs have time to perfect their offerings. Customers have time to take meeting to help you sharpen your thinking. VC Funds, flush with cash, find valuations more attractive and are eager to invest.
This is once in a life time opportunity where sun and moon and stars have lined up. Time to Carpe Diem!