Why Zomato backer Sanjeev Bikhchandani is a bottom-up, not top-down, investor

Sanjeev Bikhchandani stands tall among the new-age venture capitalists in the country. Info Edge (India) Ltd, the parent company of jobs platform Naukri.com that he founded about three decades ago, currently has a market capitalisation of about ₹1.03 trillion. Bikhchandani now spends most of his time investing in and mentoring startups.

Insurance marketplace Policybazaar (owned by PB Fintech Ltd) and food and quick delivery platform Zomato Ltd—early bets that have fetched windfall gains for his venture fund, Info Edge Ventures—are emblematic of Bikhchandani’s investment philosophy: wise investors do not hunt for sectors; they hunt for category-defining companies.

On a Saturday afternoon, Bikhchandani, 61, spent a generous amount of time with Mint, working out of a basement in Delhi’s upscale Panchsheel area, talking about Zomato’s valuations, the quick commerce boom, and what he thinks will help the Info Edge brand outlive him. Edited excerpts:

What new opportunities or sunrise sectors are excited about?

We don’t look at it sector-wise. We look at internet companies. We meet about 1,000 companies a quarter. And the good ones we invest in. We don’t have any preconceived notion about whether a sector is good or bad.

For example, in 2008, if had you told me to look at the insurance-comparison sector, there was no sector. We just met a company and we were interested in it. Likewise, in 2010, if had you told me to look at the restaurant-listing sector, there was no sector. But we met the FoodieBay (Zomato, before it was renamed) team, and we liked them. We liked what they were doing and went in. That’s how we like to do it—bottom-up, not top-down.

If what they’re doing looks interesting, the people seem good, it might be worthwhile backing them. Because when you are investing in category-creating companies, you don’t look at sectors… There are no categories in many cases, just good teams.

What’s your take on artificial intelligence?

There is just one unmistakable trend, and that is AI will go everywhere.

For your core business at Naukri.com, is AI likely to be a challenge?

It seems to be an opportunity right now, but we obviously wait and watch. In fact, we see AI more as an opportunity. There are at least 22 projects we have done using AI, GenAI (generative AI) within Naukri to make the site work better. There many more in the pipeline. We have a team of 100 people. We are doing projects on data science, analytics, machine-learning. AI is clearly an opportunity.

How has early-stage investing changed in recent times? Is increased competition driving up valuations?

Not really. In the last couple of years, we are going in with 15-20% smaller checks for a higher shareholding than earlier. So rounds are smaller and valuations are more modest. As for competition, it is actually a lot lower than it was in 2021. Investors are more discerning. We are not in a hurry to do deals.

Is it because there have been several corporate governance blowups in the ecosystem?

Governance is an important matter. But for every one blowout, there are 20 other companies doing things right. What makes news is the blowout, the corporate governance issues. Today, there is enough awareness among investors and founders.

But the important question here is when a corporate governance lapse is caught, what is the action that is taken.

By definition, a VC-backed company should have its governance in place. People expect compliance and other processes to be set if it has investors on board.

No investor, no independent director, no non-executive director, is in a company 24/7. So, a determined management that wants to do fraud will find a way to do it. We’ve seen that in even listed companies.

So the real issue is a constant conversation between management and investors and the board, enough checks and balances, enough scrutiny. Corporate governance essentially begins and ends in the founder’s head. So you have to, as an investor, assess the person, and sometimes an assessment can go wrong.

Much has been written on Zomato’s valuations. Recently, global valuations expert Ashwath Damodaran said that with new data emerging, he had changed his view on Zomato’s valuations. At the time of Zomato’s IPO, he had been against the valuation the company sought. What are your thoughts?

Valuation is what the market gives you. You may have a model that says the correct price for the shares is ₹40, and then it lists and goes up to ₹140 a share, the market gave the valuation. When the balance sheet contracted, when the Fed raised interest rates, money went away from stock markets and valuations went down, and that is a new valuation. So, every valuation that a company gets in the open market is a fair value for that point of time.

How do you see Zomato shaping up five years from now?

Zomato is in four businesses. One is, of course, food delivery, the other is quick commerce. Third is ticketing, and fourth is Hyperpure (for supplies to restaurants). I see all businesses growing, but obviously Blinkit (quick commerce) right now is the one that is grabbing most attention because it’s a large new vertical and they seem to be succeeding. Next five years, I see more of these four going up.

What is your view on quick commerce?

If people are sensible about it, they can actually grow profitably, as Zomato has demonstrated. But Zomato does have an advantage—a lower cost of customer acquisition because of the food delivery business. They also have experience in delivering logistics because of the food delivery business, and therefore they leverage that.

On the overall quick commerce market, people will have to find a way to reach profit or keep on raising money.

There is a lot of froth in public markets right now. Almost all companies get to list on exchanges. What are your thoughts?

I would not say private markets are unfairly priced right now. In 2021 maybe they were. In 2021 there was a lot of froth. Again, then, not-so-good companies were also getting funded. The same is happening in public markets now. The public market is due for a correction, which probably happened.

How much of your current portfolio is a challenge?

By and large we are good. Most of our companies are okay. There could be one or two which may have a challenge, but mostly okay now, because we have been nudging them towards better economics, profitability, and better margins.

Zomato and Policybazaar were outliers, right? And frankly, in 2019, even though Zomato was doing very well we didn’t know it would reach where it has today. There are several (portfolio companies) which are showing promise. At least 10 or 15 of them. How many end up delivering that kind of promise, we need to see.

What are the three things you look for in a founder before investing?

We first look at what they are trying to do. Will the customer want it? Evidence that the customer wants it. (Then, the) team. How good are they? Are they likely to win in the space. Will they stay committed? Do they look like they are good on governance? Will they be fair to minority shareholders?

Do you think of the legacy you will be leaving behind?

We obviously want to create a brand. An institution that is durable, that lasts long, that continues to adapt, evolve, innovate, and hopefully there are enough bright people in the company who will ensure that that happens.

Some of your investments in companies such as Policybazaar and Zomato have been stellar. How involved are you today with these portfolio firms?

I am a member on the boards. We talk every now and then. I turn up for board meetings. And whenever they want to consult me, they consult me. But I’m not deeply involved in the operations.

How do you divide your time between the operating company and Info Edge Ventures?

The operating businesses report to Hitesh (Oberoi). He’s the CEO of the company. I don’t spend too much time there for the operating businesses. But in the operating company, whether board-level matters, governance, it could be some media interaction, some government interaction, some industry association type stuff, I do some of that. I spend a lot of my time on the investing piece, which is balance sheet investments.

What is your take on the operating company discount that investors offer to Info Edge?

We do not obsess about share price, market cap, and discounts. As long as the underlying business is growing and profitable, we are happy.