)
Sanjeev Bikhchandani, founder and vice-chairman of Info Edge, which runs the country's largest job portal, Naukri.com, has devised a test to spot a winner. Before he takes a decision on investing in an Internet start-up, he asks its founder one simple question: "What would you like to pay yourself?"
The IIM Ahmedabad alumnus who started from scratch selling salary surveys before hitting on his big Internet idea says: "The answer tells us a whole lot about the entrepreneur. Is he willing to tighten his belt? Does he want to get financially comfortable on the investor's money? Is he willing to personally share the pain of the company when it is making losses?"
Bikhchandani would, of course, know. His company, Info Edge, has invested Rs 285 crore in nine Internet companies that were picked up from among 300 potential suitors. What he looks for are Internet businesses which have the potential to become big like Naukri. So, a few days ago, he acquired software semantic search company MakeSense Technologies for around Rs 8 crore.
MakeSense was acquired to fine tune the search abilities of Info Edge's cash cow, Naukri, and to help it better match potential candidates with the job profile. A few weeks before that, Info Edge had invested Rs 85 crore to gain majority stakes in two start-up ventures Zomato.com, a restaurant rating site, and Meritnation.com, an online educational site.
His investments are geared towards one goal: to replicate the success of Naukri. Sure, he wants to grow Naukri even further by offering more services. But he also wants some of the other Internet businesses to scale up to a similar size. With revenues of Rs 300 crore, Naukri currently controls over 60 per cent of the online classified jobs business. Its success has seen the classified business shift dramatically from print to online (of the total job classified business of Rs 800 crore, Rs 500 crore is online). It also constitutes a staggering 81 per cent of Info Edge's revenues, a dependence which Bikhchandani would surely want to reduce.
The new growth engines
So, where will the next Rs 300 crore-plus Internet business come from? Insiders say the target is to achieve scale in at least four to five other Internet businesses to enable them to become as big as Naukri. Bikhchandhani says it can come by directly running businesses in which Info Edge has management bandwidth, like the online classified business or other businesses like online matrimony (jeevansathi.com), online listing of educational institutions (shiksha.com) and online real estate (99acres.com).
At the same time, the company, which went public in 2006, does not want to lose out on new opportunities which have the potential to scale up. "Our bandwidth is limited, so we cannot do everything internally. However, that does not mean we will let go of other opportunities because we have the cash. So, we will make strategic investments in other companies," says Bikhchandani.
Long-term play
However, Bikhchandani insists he is not another angel investor looking to make investments in potentially promising companies, or in competition with other private equity funds. His goals, he says, are different. Unlike private equity firms, he is not looking to exit his investments in three to five years, a strategy intended to bring more stability to the promoters.
Also, he is willing to put in substantial amounts upfront. For instance, it invested Rs 20 crore in policybazaar.com in the first round itself. Similarly, in Mertination, the company put in Rs 6.5 crore even before the product concept was ready, something that private equity firms may hesitate to do.
Bikhchandani is also being a mentor of sorts by giving the new entrepreneurs access to Info Edge so that they can learn from the systems at Naukri and replicate them in their own start-ups.
Unlike a private equity firm, Bikhchandani would like tighter equity control over these companies. His average holding in the companies is over 40 per cent. Also, all the companies that he has invested in, except one, are in or around Delhi, which is close to Info Edge's headquarters in Noida, which helps in closer supervision.
In two of the big investments, Zomato and Meritnation, he is already a majority shareholder. Bikhchandani is also chary of getting in a second investor as it might have completely different goals. However, he is ready to let go of this condition if the funding requirement is too large.
There are, of course, serious challenges to this strategy. With such high stakes in each company, he could also lose a lot of money if the business fails. For instance, a few weeks ago, Info Edge had to write off Rs 29 crore in 99labels, an e-commerce site offering fashion merchandise. It has also written off around Rs 4.4 crore in Studyplace, which used to provide information on certificates and degree programmes. Many critics say most of the successful sites which require cash will become majority-held by Info Edge and function like its subsidiary if the promoters lack the ability to make a matching financial contribution to the company.
"Bikhchandani grew Naukri by taking private equity money and then going public; he did not lose his majority control. But he has followed a completely different route for his investments where the end result can be only one, eventual control. That would kill entrepreneurship," says a senior executive of a private equity fund.
Info Edge, of course, defends its strategic investments. Bikhchandani says the new entrepreneurs know him well to feel comfortable in case Info Edge decides to acquire a majority stake. Info Edge believes that some of the businesses it runs will become big. It sees more potential even in Naukri, provided it expands the definition of the jobs market.
Hitesh Oberoi, chief executive officer and managing director of the company, says that the entire jobs business, which includes consultancy, research, campus recruitment, assessment of potential candidates, is over Rs 4,000 crore. Of this, classifieds (print and online) is around Rs 800 crore. "Naukri has the scope to expand its business to get a larger share of the pie," he says.
One way to do so is to provide newer and better services to clients. So apart from MakeSense, it has also bought TooStep Consultancy, which provides a platform to companies to sell jobs on social networking sites and search engines.
Challenges in the way
Bikhchandani's challenge will be to increase revenues from non-job sites. He has taken the prudent step of spinning them into separate business units with their own sales teams and division heads. He realised that while all of them were in the classified business, they required different expertise.
However, his non-job businesses have a long way to go to reach the business size of Naukri. For instance, jeevansathi is third in the pecking order much behind its rivals bharatmatrimony.com, with 13 per cent share of the Rs 300 crore online market. And while 99acres is the top player in the online property listings business with 35 to 40 per cent share of the Rs 150 crore online business, it's still nowhere close to Naukri in terms of size. Print rules the roost in property listing, generating over Rs 1,750 crore in revenues from this single category. The scope for growth is, obviously, huge and the challenge now will be to repeat the success of Naukri.
