Updated Again: Sanjeev sent me this reply on facebook post reading this article. After reading his reply I have to say Point Taken Sanjeev Read his reply below:
Sanjeev Bikhchandani’s response: “The way to measure value creation is what happens to the merged entity after 3 to 5 years and not the fact that acquisitions have happened recently.
Would the two entities have been worth more separately if they had continued independently.
It is important that you acquire a complementary business – something that gives you an asset or a future that you do not have by yourself – some technology, customers, markets, products, brands or a quality management team.
I am not saying don’t acquire – think and then acquire.
For most of the acquisitions that you have mentioned it remains to be seen whether value will be created in the medium to long term. It is too soon to pass a judgement.
Life begins with a deal and does not end with it.“
Updated: Naukri.com invested into another education company Applect Learning Systems, a Delhi-based education content developer. It has proposed to invest Rs 6.5 crore or $1.54 million for a 40 per cent equity stake. It has already disbursed Rs 1 crore as part of the first tranche of the investment.
Original Post: We caught up with Sanjeev Bikhchandani and asked him about his thoughts on Build Vs Invest/Acquire – Which model works for Web Portals? He had the following things to say to our questions:
1) What are the reasons for investing/acquiring outside companies/startups vs building them inhouse?
Reasons could be many – acquiring a brand, an asset, a team, momentum, speed to market, market share, traction, technology, a strategic fit to your current business, acquiring a complementary geography, a complementary set of customers, acquiring stickiness.
2) Internationally Google and Yahoo are known to acquire rather than build. Why has the same not taken off in India in a big way? Is it because its too early?
They both build as well as acquire. Valuation expectations of slightly mature internet companies are too high. They may correct in some time. There is a lot of VC money sloshing around in India currently chasing too few mature internet companies. In early stage companies it is better to invest rather than acquire. That is the model we propose to follow for the immediate future . As and when valuations correct we will evaluate acquiring.
3) What strategy does Infoedge believe in and for what kind of products will Infoedge build vs invest or acquire? why?
One, the opportunity must be large, and therefore the business potential is scalable. Two, we wish to enter the business early. Three, we should be able to create IP. Four, the market structure should be such that the market power resides with us. Five, we should have the capability and strength to go after the business. Six, we like B2C businesses, because we are good at creating consumer brands, and we like to run a business-to-business salesforce. Seven, the business should have a high operating leverage; in Naukri, for example, close to 90 per cent of the incremental revenue goes to the bottomline. And eight, our primary focus is India; and overseas markets where there is a large Indian population, such as the Middle East.
4) Is it difficult to build products inhouse and scale them for an Indian Web company? If so why? What are the key things required to build and scale products internally?
Start with the market and the customer. Not with the technology. Address large markets. Solve the customers problem. Use technology to do this. Charge an economic price that recovers your cost and gives you a profit. Execute well. Build barriers to entry. Create defensible IP. Your chances of success increase manifold. However this is stating the obvious. It is easier said than done.
5) Is cost/time a consideration while taking the build vs acquire decision?
Yes it definitely is. Remember 90% of acquisitions destroy value. The integration process can be very challenging.
SO think before you acquire.
WATBlog Analysis:For all those who don’t know Naukri.com had invested in Study Places and subsequently built shiksha.com inhouse which they have launched recently. Other big players like Ibibo Web Pvt Ltd had acquired bixee and its other partner sites same for Web18 which acquired cricketnext and compareindia and included them in its bouquet of portals. Also recently there was news of hungama acquiring nautanki.tv. So Sanjeev’s caution on think before you acquire might also be due to the fact that infoedge (naukri’s parent company) has hardly acquired any company yet. Though they do have an internal fund for investing in interesting startups.
I feel as more and more startups mushroom invest/acquisitions might be something big players might seriously consider given the lack of innovation and slow decision making that a large company suffers from.