Vijay Shekhar Sharma and the quest to build a $100b business

Vijay Shekhar Sharma at the Asia PE-VC Summit 2018 organised by DEALSTREETASIA

There is a certain defiance, something almost resembling bravado, to Paytm founder Vijay Shekhar Sharma. It is hard to fault him though – the company’s valuation has jumped to $12 billion and its enviable list of marquee investors includes Alibaba, SoftBank and more recently, Berkshire Hathaway.

One of the things Sharma has in common with his investor SoftBank Group CEO Masayoshi Son seems to be a penchant for grand numbers. More specifically, the magic figure of $100 billion. For that is how big Sharma believes Paytm can be – ultimately, a digital payments and financial services hectocorn.

Speaking at DEALSTREETASIA‘s Asia PE-VC Summit 2018 in Singapore, Sharma was quick to point out that the company’s grand ambitions and the investor confidence it has gained are reflective of the market potential.

“It’s the hyper validation of belief in opportunities available in India… It’s also an acknowledgement of the fact that we are moving towards the physical distribution of the internet. We have seen this model in China, and it will happen in India very quickly,” he said.

As it takes on global giants Google and Facebook on its home turf, Sharma is confident Paytm has the ammo to fend off competition. “They [the likes of Google and Facebook] will play hardball and what they have going for them is their global size and scale. But no Microsoft could stop Google, no Google could stop Facebook, no Facebook could stop WhatsApp and no one will be able to stop us,” he added.

In a wide-ranging conversation, he spoke about catching Berkshire’s attention, moving from payments and e-commerce to a wider financial services play, international expansion plans and being inspired by Jack Ma.

Edited Excerpts:

How did the Warren Buffet deal happen because Berkshire would normally not invest in internet and loss-making companies?

This is a question for Berkshire, and I’m not a Berkshire representative (laughs).

I met Todd Combs, an investment manager at Berkshire Hathaway. He asked if I would be interested in meeting Buffet. I said we would love to meet and that’s how it happened. Getting an investment from Buffet is, I would say, entirely [a matter of] good luck.

I think it is good to say that Berkshire should logically invest in companies with straightforward cash returns, and significantly mature companies. However, Paytm is fairly early. If you look at the Internal line items of various businesses, they are contribution positive and generating money.

I don’t know from their [Berkshire’s] lens as to what they specifically liked about us. What I know is that India as a market and as an opportunity of technology crossed with financial services is huge. It’s an early investment and I feel there is a lot that can be done. In their mathematics, it does look like that.

Were your mutual funds and insurance services of primary interest to Berkshire for the deal, considering you have big plans for these segments?

If you ask me what our ambition is, it is to build a $100-billion financial services company out of India, leveraging technology as a distribution method, smartphones as a way of doing things, and that’s an overarching statement that includes mutual funds, insurance, wealth [management] and lending. I don’t think their interest is restricted to mutual funds or insurance.

If you see the Ant Financial model, which is incredibly successful in China, the customer base has graduated from payments to different O2O elements to financial services. We are definitely learning a lot from there. It’s a business model, which has proven that it is not just profitable but generates significant amounts of cash.

You have Alibaba and SoftBank on board, and now Buffet. What has attracted all these marquee investors to Paytm? Is this the hyper validation of your company’s model?

It’s the hyper validation of belief in opportunities available in India. It’s an acknowledgement of India as a market. It’s also an acknowledgement of the fact that we are moving towards the physical distribution of the internet. We have seen this model in China, and it will happen in India very quickly.

With SoftBank and Buffet as part of your diversified investor base, does that add more credibility to your business? Are people, who earlier accused you of being a Chinese company, silenced now?

First of all, that question was odd and wrong in itself. They probably were people who wanted to do what we were doing and they probably were not able to appreciate the bigger picture. We are an Indian company with international shareholders and all shareholders contribute towards what we are trying to build in the country.

Berkshire brings a significant amount of influence from the Western perspective. There’s an extra vantage point from Asia to the western world now. Todd Combs, who has come on board and is on the board of JP Morgan and has done a lot of work in the financial services space, can bring a lot more insights. So we’re not bothered about people saying bad things about the company because we never did it for the naysayers, we always did it for the believers.

You talked about building a $100-billion company out of India. We’ve seen companies that have hit this mark in China become platform builders and ecosystem builders. Do you see yourself doing the same and acquiring many smaller startups? 

Whether we acquire smaller entities or build ourselves, the idea is definitely to become a large ecosystem catering to the entire customer lifecycle. It’s not just payments but the commerce elements like cinema tickets, travel tickets and so on. Then, we are definitely talking about financial services. So investments, payments, growth, all kinds of needs and spends are all elements of the Paytm story.

The approach we have always taken is to do one thing well and then go to the other. We did gold, and we extended to mutual funds. We did take time and are a little short of 5 million users in the gold business in 18 months. The numbers are not at all bad for a company which was built from scratch. Once we are done with setting up mutual funds, we might get into trading. So, wealth, lending and insurance are what we would be mainly looking at.

Acquisitions are indeed on the radar and we intend to announce a few in due course. These acquisitions will be for extending our technology or extending the team, and $10-20 million ticket size is what we are looking at.

I don’t think we will be an ecosystem that will acquire a lot of companies. We are more of builders than buyers. We, today, are in many sectors where we are either the sector leader or very close to the leadership position such as travel, movie tickets, deals and O2O commerce. Our approach is that we have payments leading to customer acquisition, commerce building the profitability [in the business] and then financial services resulting in free cash.

You said payments is the moat. Most people in the industry say you can’t make money from payments. Of late, a lot of other payment companies have raised capital and a lot of startups have gotten into the space. What is the future of these startups? Do you feel they will have to build out other arms or diversify into e-commerce eventually to grow?

When you’re fighting as a young company, fundraising is like running on a treadmill with the power plugged in. You raise money and then you invest or burn it and those are the things that keep you going. But once you’ve grown ahead of that as a market, then comes your long-term moat. I believe it’s no longer about one e-commerce company fighting against the other, it’s about ecosystems that they are fighting over. So, I don’t think money becomes an independent moat as all big players are actually sitting on tons of money.

At Paytm, we have made a bet that payments should go towards a zero per cent margin, which means it remains a consumer or merchant acquisition business model for us, where we can then give other services to our users. So, if you are a standalone payments company, you will have to build on additional areas, or become part of a bigger play like PayPal became part of eBay. So payment is more or less a consumer or merchant acquisition story for most payment companies in the world.

Standalone payment companies like Ayden and Stripe make margins because they are distributed across many small companies that give them margins. Once these small companies start getting bigger, they might stop giving those margins. So, there is enough moat to remain there but you do see those companies moving to other financial services

Our payments business is not profitable at the moment, but we hope to break even before three years at the corporate level.

Which of your businesses is going to be the biggest growth drivers for Paytm?

As of now, all segments are profitable on an independent basis. We make money from acquiring new merchants and consumers. In terms of new use cases, we have 9 million merchants and we are targeting 15 million users. The payments space is huge right now. E-commerce for us has doubled in a year’s time. Paytm generates more users in a month than all other platforms combined. Paytm’s transacting customers base was 95 million users last month. And payments business is in customer acquisition mode. We are looking to invest Rs 1,500 crore every 2-3 years in the financial services space.

What is the advantage of being so diversified?

The common interest which everyone has is market dominance in the long term.

You talked about China’s internet ecosystem earlier. It is a different ball game there considering it’s a closed economy.

It’s more aggressive than the US market. It may be closed, but it’s hyper-competitive. Anybody who thinks that American companies could survive the onslaught of Chinese companies within China, they are grossly underestimating what happens in China.

How do you see India and Southeast Asia? Chinese unicorns and internet giants are very active in Southeast Asia and India as are Silicon Valley behemoths and the local unicorns. How do you see these two internet ecosystems?

I think all these countries, whether they are Southeast Asian countries or India, will inevitably build one or two local winners, who, in turn, will go global. Local entrepreneurs always have a little more of the local understanding, which brings a tremendous advantage. But if they don’t grow aggressively or move fast enough, a global company can always build out the same product. These are the races that are not going to be won based on whether one belongs to the eastern or the western world. The best in the market will win.

There is always a space and scope for local winners. Grab is an example in Southeast Asia. E-commerce is another play in Southeast Asia and India, where there are a lot of local companies. Walmart acquired Flipkart and going by the rumours, Amazon, too, had offered to buy it. This makes it evident that local entrepreneurs can build an internet moat, which is sizeable.

You mentioned Flipkart. That’s another game changer that we are seeing in terms of ESOPs providing exits. Walmart also bought Flipkart’s ESOPs worth $800 million. How is this trend going to change the ecosystem?

I started the company in 2001. I received angel investment in 2004 and Series A in 2007. My angel investment cost me 40 per cent of equity for Rs 8 lakh, or $16,000 at that time. That was my “angel” investment. In a market where there’s a capital scarcity or fewer players who can put in capital, there’s always a rough deal for entrepreneurs. But now there is this $800 million and there are many other similar exits. A lot of people at Paytm have been able to make a handsome amount of cash and they are going to be new investors.

So, India will see a pool of new angel investors or a new set of LPs. If you look at Sachin (Bansal, co-founder of Flipkart), he has made more than $1 billion and he should be investing that. I’m very hopeful that India’s startup ecosystem will get a boost with newer investors, newer capital and new vigour. Something similar happened in China. The IPOs of large giants created a lot of investments and a lot of success stories. The country then saw the entry of foreign investors and local investors.

You talked about Grab trying to build an ecosystem in this region and Go-Jek in Indonesia as both are getting into payments. These two companies have also hired a lot of people from Paytm. Are there any talks of collaborating with any of these companies? 

Paytm is the story of India. Paytm’s success is built around India’s $500-million internet users by 2022. We’ve gone to a few markets like Canada and Japan with Masa [Son] and SoftBank, but our primary bet remains India. Our payday will come 99.9 per cent from the success we have built in India.

While there are many talks in different markets, not only in Southeast Asia but the Middle East and other markets as well, we continue to say no, because I think India is a market and an economy that is at the right inflexion point. That’s why we are raising money, to put it into India.

What was the thought behind going to countries like Canada and Japan? 

As an Indian technology entrepreneur, I did not want to go to the frontier markets. I wanted to go from emerging to developed markets so that I can say that our technology is worth its salt. We didn’t go to the US but went to Canda because we have a development centre in Canada. It was an organic play.

Japan happened because I have this incredible investor, Masayoshi Son. He asked if we can do payments in the country and I said maybe we could be of help there. We are more like a technology help. We are not putting our dollars there. These countries serve as templates to expand in other markets. One market gives us the template to grow in the North American market and the other gives us the template in a non-English speaking market.

I hope that these become our future building blocks. In the short to mid-term, India is the only market we will be focusing on.

That said, the truest ambition of my life is to go to the US and prove that you can build a product out of India and defeat those guys there. That is the day my mission will be accomplished, not on the $100-billion day. The journey can go through Japan or Canada or Mexico but one day it will land there for sure.

Your first major investor was Jack Ma. He recently announced plans to step down. You have known him for several years now. What have been your key learnings from this association?

Jack Ma is an institutional builder. He is a people’s person. He has this extraordinary ability to inspire people in multicultural, diverse geographies. I still remember when we first met him as a team in March 2015, he said that Vijay, you should not just build a commercially successful company, you should build a company that is worth a Nobel prize, that brings these small merchants and small sellers in India the power of technology that you create. On the day when people think that you have changed the face of the country by taking technology to the grassroots, that day is your success day, not the day you make a billion dollar or something else.

You meet him and you always get inspired and you always think how small I’m thinking when I’m thinking only about money. From him, I take the lesson of not just being bigger in terms of dollars but also bigger in terms of purpose and impact.

Things were not easy for you before Alibaba’s investment. You had two tough years before Paytm took off. You were struggling to pay salaries and the future looked uncertain. What kept you going in those days? 

I want to go back to 2001 when I started the company. It was in 2003 and 2004 when I didn’t even have money to buy a cup of tea. It was Delhi winters and having two cups of tea was a perk for me. I walked tens of kilometres because I didn’t have money to take even a bus, forget about an autorickshaw. So, hardship is a part of what builds your character. When you don’t have anything, that time defines your personality and character. I have this favourite quote, “High tide decides how low would you go and low tide decides how high would you go”. These are the times when what you do defines you as a person and as a team.

I am privileged to have a team that has been with me for almost ten years now and I can say that we can together face any challenge in the world. I remember the time when there was no money left in our bank accounts and some of the people on the board said, “You are making this company bankrupt.” I told them that we are putting everything we have on this single bet called Paytm. In our conference room, we had this poster to answer this question that said ‘Go big or go home’.

I remember a time when we had sort of an agreement with SAIF Partners, one of our investors, but the agreement signing, as usual, was taking time. Ravi [Adusumalli of SAIF] wrote me a $10-million cheque. As luck would have it, the agreement wasn’t signed during that month. We didn’t know whom to ask for money. I pledged all my shares with a bank and got a $10-million loan on all of my shares. That’s how we did it. I think this is the bet you make on what you want to be as a team and as a company and you put everything you have [on the line].

The other big poster you have in your office is of [Super] Mario. What’s the relation? 

I like Mario’s continuous zeal of running. He will fall down, get back up and keep running. So the idea of keep walking or keep doing is what is referenced in the poster. I have another poster of Jim Morrison in my office, which says ‘I want the world and I want it now’. Why do I have it? Because I want the world and I want it now.

Moving to a different track, let’s talk about data localisation. The Western and Silicon Valley giants have a very different take on it. Do you think data from all the internet companies in India should be held in India, or can it be held outside? The Indian government seems to prefer something like the Chinese model. What’s your stand on the whole issue?

I don’t think the Indian government prefers the Chinese model. The Indian government’s model is based on the idea that my country’s data is mine and you better not take it outside the country. I believe India is at the cusp of, or big enough, where data sovereignty is an obligation for the country. We must not let our country’s data be misused or abused. If there are companies doing millions of investments in the name of Wi-Fi (a likely jibe at Google), why don’t they invest in a data centre and bring the system inside the country? I heard about another company investing $1 billion in Singapore (referring to Facebook) when India is their largest market. Just put that in India. Is there a trick here that I am missing?

Why did the payments market not grow in India? It was because it was a market no large company wanted to put their money in. Paytm took a bet and put tens of millions of dollars and grew it [the market] into billions of dollars. That’s the market that got created.

India needs foreign companies’ capital and their presence so that the country can have technology built locally. This is not the Chinese model, and we are not saying don’t come here. We are asking them to come here, bring their friends and family, live here and set up your data centre here.

You are trying to be one of the largest e-commerce players in India. Do you see yourself doing a lot of stuff together with Alibaba to take on Walmart and Amazon in India? How do you see the e-commerce roadmap for the country and for Paytm?

First, the e-commerce roadmap for the country. We are in very early days. The total number of buying consumers is about 50 million and if you add other services such as tickets, the overall market is not more than 100-110 million customers, which is a very small market for a billion-people country. I think logically India is potentially a market of about 500-600 million people. So there is still a lot of room for it to grow.

At Paytm, we want to capitalise on the tail-end of the payments business. Last month, we publicly announced that we have 95 million users and a billion sessions on the Paytm app. Can we bring these merchants and banks to sell something to our customers? So unlike other companies which are a proxy retailer, we are a pure marketplace where the banks and the sellers come and they sell.

As a company, we doubled our share in a market where all this aggressive capital is coming in. We are long on this. This is a 5-10 year race. That race of 5-10 months is done with now.

Looking at Walmart, their business model and our model require different strategies. Their business model is that I buy and I retail it. Ours is to provide a technology platform to the brands and retailers. So Croma sells on Paytm as do LG and Samsung. Neither Paytm nor its affiliates sell to consumers. Ours is an asset-light model.

You have done a lot of angel investments in multiple startups in a personal capacity. How do you keep track of all investments, and how do you decide on where to invest?

I don’t do angel investments; I give money to my friends or acquaintances. I don’t see it as an asset class, wealth management or investment obligation. In fact, I tell people not to even send me plans because it may have a conflict with my company. There is only one company that’s worth investing in and that’s Paytm (laughs).

As an investor, I am a long buyer. I am a buyer and that’s how I get other buyers. I must put this on the record – there is no wealth manager, no stock ownership or real estate ownership except the one I had to do for tax reasons.

What is your advice to other founders? You’ve seen it all, and you’ve been there for close to two decades now. You started very early when it wasn’t easy to raise capital. That’s one. And second, you don’t have a co-founder, but who do you consider as your mentor?

As far as India is concerned, the startup ecosystem for all new entrepreneurs will become cumulatively better every year. There will be more capital, more opportunities and more local businesses that will be built. We should never get scared of bullies, big companies that enter the market, because that’s the maximum that they can do. They can’t do your business because you are supposed to be independent, you have to have the speed that will differentiate your product in the market. There is no better time than today in the history, and next year again, there will be no better time than that moment.

I have a theory about co-founders. There are three kinds of co-founders: Either they are senior to you, a peer, or a junior. If you have a co-founder who is a peer of yours, you are in a wrong boat and you better get out of this or the other guy would because no peer can comfortably go one over another. There is no clarity on who takes the decision. If you have a senior, they may see a problem in giving in to someone who is their junior. So unless that is sorted out, it still is a distant relationship. Juniors are the better and the superior co-founders, if you will. I was not lucky in all three by the way.

I had a super senior as a co-founder in the early days of One97 and that gentleman left for greener pastures. For me, the One97 journey became the Paytm journey 2011 onwards. That happened because one of my board members and investors became very close to me — SAIF Partners’ Ravi Adusumalli. He is super intelligent and sharp and that is something that I’m not. I’m an aggressive guy, he’s a balanced guy, and we make a good team.

Do you have plans for an IPO? 

We don’t have a plan to go public in the short to mid-term, not the next 3-4 years. I think we are better off as a private company.

Looking at Southeast Asia, there are a lot of e-wallets now available. From Paytm’s experience, how does one achieve roll-out and adoption at a mass level? 

So, a number of e-wallets and players can exist. We were the 32nd e-wallet licensee in India. We were literally the last one because the central bank said no more licenses because this is a product that is not going to work because no one has made any significant dent.

The difference between one e-wallet player over another will come from the number of use cases and users. So, does it become a habit? Does it have use cases that customers want? Do they prefer it over cash or other methods? Only then do you have a use case that’s valid. So payments is less about “I need to build a payment instrument” and more about “why the customer would use this payment instrument and why it’s superior over others”. Once you have that cracked, have scale and people are using you without any incentives, then your product has made it.

You are competing with the likes of Google and Facebook in India with their access to unlimited cash. What are your insights into competing with these unlimited cash giants?

Unlimited cash giants have a problem that the cash gets burnt and does not generate free cash. They will always have a challenge of deciding between deploying $1 billion in Germany where it can generate free cash of $2 billion or deploying it in India where they can potentially get $2 billion in 2-3 years, if not 4-5 [years]. So, they have to think from that angle.

There is no doubt that India is a big market and if it was not for Sundar [Pichai, CEO, Google] and others, India would not have received the attention it is getting either. It is a global statement that all markets require disproportionately large amounts of attention than anybody would have. It is going to be true for us when we are trying in Japan, by the way. They [the likes of Google and Facebook] will play hardball and what they have going for them is their global size and scale. But no Microsoft could stop Google, no Google could stop Facebook, no Facebook could stop WhatsApp and no one will be able to stop us.

You have three visionaries on your board now: Masa Son, Buffet and Jack Ma. Do you draw lessons from them regarding succession planning? Who are the other key people in your organisation?

I may be the spokesperson for the company but the reason why we have been able to get into so many businesses is that I have a huge team behind me putting in all the hard work. I have not much clue about the travel business, but my team is handling it all. It couldn’t have been possible without them.

Talking about Alibaba, the best thing I like about the company is that it is a conglomerate of incredible people who are doing things independently, with Ma’s role being a champion in the centre. My role is similar at Paytm. All my teammates build their teams.

So, you are positioning yourself as the Jack Ma of India?

I am more like the Vijay Shekhar Sharma of India (laughs).

Disclosure: Paytm founder and CEO Vijay Shekhar Sharma is an investor in DEALSTREETASIA.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.