HTLS 2023: Peak XV Partners MD says ‘AI is fastest-changing landscape’, gives Indian startups a heads up
HTLS 2023: Shailendra Singh of Peak XV Partners said the current environment is a gift for founders as they are able to surround themselves with good talent.
Artificial intelligence or AI is perhaps the “fastest-changing landscape of any new arena” and some of the Indian startups working on it will need to learn, evolve and grow quickly, said Shailendra Singh, managing director of Peak XV Partners (formerly Sequoia Capital India) – a leading venture capital and growth investing firm investing across India and Southeast Asia. Speaking on Day 3 of the 21st edition of the Hindustan Times Leadership Summit, Singh told the editor-in-chief R Sukumar that “every company needs to have an AI strategy now”.
In the last 18 years, Singh and his team have partnered with over 400 companies in the technology, consumer, and financial space. He joined the firm in 2006 and spearheads all activities in India and the ASEAN region. Singh has advised on several successful investments including Carousell, CRED, Druva, Gojek, Pine Labs, Tokopedia and Unacademy.
He was included on the Forbes Midas List of top global VCs in 2018, 2019 and 2020. He has received an MBA with distinction from Harvard Business School and an undergraduate degree in chemical engineering from IIT Bombay.
Rebranding: From Sequoia to Peak XV
Shailendra Singh said Sequoia was looking forward to the next few decades investing in India and Southeast Asia, as the company was active in three major regions.
“At some point, it started to become clear that the need of the business in each region were different and so this, was a global decision to rebrand specifically for us,” Singh said.
“One thing that changed over the last few years is about five-six years ago, around 10% of our business was focused on cross-investing, which is, we think, of this as twin engines of innovation. India has twin engines of innovation. Obviously, one big part of innovation is focused on the local market which could be our fintech incredible, fintech ecosystem, or it could be consumer products and services for the market or business products and services for India or Southeast Asia market. And then, the other engine is the products and services built in India. And it's the second bucket that started to grow a lot for us. So about five-six years ago, this used to be 10% of what we invested in over the last two years; that became 50% of what we invested in. So, 50% of all investments we make are companies that are focused on global markets and when they shifted over the last five-six years because what started to happen is the kinds of opportunities we now see, the kinds of things we now invest in are in direct conflict with what our partners in the US are doing. So, if the US team lets in an investment in a company which is a competitive investment and they won it, then if in four weeks or six weeks or 10-12 weeks, we want to make a very similar investment in our region...,” he said.
“For us, the biggest benefit of this rebrand was that we now no longer have any kinds of things we cannot do because of this global conflict and so, really we were at a large scale where we were cannibalising ourselves in a way from a conflict perspective and so that's our biggest rational for the rebrand,” Singh added.
'Current environment is a gift for investors'
According to Singh, the current environment is a gift for founders because, in the current environment, all founders are focused on solving very first principles problems, they are focused on their customers. They are focused on building efficiently.
“These days, cycles are so frequent you are in one cycle or the other and then there are brief periods of transition between cycles. So, it's always the same – it's never as good as it seems it's never as bad as it seems right," Singh said.
Founders are focused on building efficiently. They are not distracted by raising unnecessary capital, Singh said.
"I see the current cycle, the current time as one where people are building focused shop propositions for their customers, they are building in a capital-efficient manner. They are not distracted by unnecessary fund-raise…too much capital is a seduction,” the Peak XV Partners MD said.
Difference between first-generation startups and emerging ones in India
Explaining the difference between first-generation startups and emerging ones in India, Singh said, “Three buckets of things have changed (over the years) – one, the opportunity set is far deeper and so what happens is when a company starts to succeed, they can address the market in a far more accelerated fashion than they could at any point in the past, which is both good and bad. It's good because your company can scale and grow at an unprecedented pace. It's bad because you know managing that type of rapid 5x 10x year on your growth is very chaotic. It's very challenging actually in the leadership team and so on, and so, that's where muscle memory comes in. But the one thing that has changed is the ecosystem is very deep.”
The second thing that has helped a lot is that there is now lots of high-calibre talent in the ecosystem. There are lots of leaders in various functional roles, he said. “We have nine full-time people who only focus on helping our companies strengthen leadership teams. So call it the human capital function, we have we have a project ongoing where we'll bring independent directors to boards of companies before they go public. The ecosystem now has enough maturity where the quality depth of talent of talent that has seen some scale exists,” Singh said.
“The third is hard problems are now beginning to be solved in our ecosystem. In the first generation of companies, people were doing simple things – they were building apps, they were building consumer internet propositions. Now, they are building to solve science problems, they are beginning to apply technology in more difficult ways, build infrastructure business and so on. And these types of businesses inherently have higher modes with intellectual property and technology. I think these are the three big changes I think from my standpoint in the ecosystem,” he added.
Artificial intelligence in India
“First, AI (artificial intelligence) is not new. The premise of AI is that you can use data and algorithms to build self-learning capabilities and then make more intelligent applications or more intelligent decisions. Software can make more intelligent decisions than software without AI. That's the core premise… What has changed recently is that now, there are very high-quality open-source models available where AI algorithms are measured by how many parameters you might train the algorithms on or how many data points. In five to 15 billion parameters, AI is beginning to show very high-quality results and these models are open source like llama and others,” Singh said.
“And so, there is a little bit of a why now moment in AI where there is a tipping point, where AI applications are likely to become very mainstream. In fact, there will be no non-AI applications. All applications will try to use some form of AI or will try to be a more intelligent version of themselves quite likely. Now, I think every company needs to have an AI strategy. Every software company needs to have an AI strategy and it's actually an evolution of the same thing we have been seeing for the past 10-15 years where we have been saying ‘data is the new oil leveraging data’. You can make better decisions now. We are saying leveraging data, you can have autonomous decisions and intelligent decisions made by software even faster and even better than before,” Singh said.
How sophisticated is the Indian AI startup ecosystem compared to Silicon Valley?
“First, I do think it's early… AI landscape is evolving super fast. So, I think you know if you want to compare it to consumer-internet-era, that took 20 years for it to sort of play itself out. Similarly, if you were to look at the cloud-computing era that has taken a couple of decades. We will see AI play itself out over the next, probably, two decades… We are super early, in the Indian ecosystem, there are lots of interesting starts, and I think some of those companies will have to learn and evolve and grow quickly. This is a very fast-changing landscape - probably the fastest-changing landscape of any new area we have encountered in our 18 years. This is not a static landscape where you can say the winners are picked or like that the way, AI will evolve is already certain,” Singh explained.
'India will see a very healthy crop of IPOs'
Singh believes India will see a “very healthy crop of IPOs” in the next one to two years.
“We have been able to do 19 IPOs already in the portfolio and we have one more in the pipeline. We are thrilled to have been in business with Mamaearth and being an early shareholder, they are hoping to be public in November and looking forward to that... I can give you a stat which we always talk about internally and we look at this number every six months. Every portfolio review -- how many companies have $50 million in revenues, how many companies have $100 million in revenues. That's a future pipeline to exits and IPOs. In 2017, we used to have five such companies at the end of 2017, and it kept growing and when the pandemic started, we had 17 companies over $100 million in revenues. Now, we have 43 companies in the portfolio with over $100 million in revenues. So, actually, the pipeline is building and I think we will have scale companies from India,” Singh said.
Praises for Indian regulators
Singh noted that Indian regulators are very high quality – when it comes to the Reserve Bank of India or SEBI, or other regulators – “these are world-class regulators”.
“What they have surprised me over the last 18 years is they don't even let bubbles form, or they don't even let mistakes happen many of times. They are very proactive, preemptive almost, in being able to watch out for markets to sort of misbehave or for actors to misbehave. On the flip side, a company needs to have more substance. When you file for an IPO, you have to demonstrate how you are going to use proceeds so there's a greater burden of proof there's a greater burden of quality when companies go public in India than in some other markets, and that makes for a healthy ecosystem in the post IPO market,” he said.
On founders over the years
Singh thinks founders are “extraordinarily ambitious today”. They, he said, know that success can be extraordinary.
“I think founders are definitely more ambitious in the last 20 years. I also think founders are on a faster learning trajectory than before because of the talent they can surround themselves with so you know eight or 10 years ago would you be able to easily go and get enough other founders to mentor you who had built big businesses or could you get the executives to work for you who had built big businesses. I think founders are able to surround themselves with good talent and that's a big strength for founders building today. But they are still susceptible to the same human flaws as any other person which is that you know their strength can be their weakness, their success can get to their heads and this is a normal thing,” the Peak XV Partners boss said.