"VCs will follow mavericks with crazy and disruptive ideas": Abhay Pandey, MD, Sequoia Capital

At the Indian Advertising Association India Chapter's Silver Jubilee Summit in Kochi, Sequoia Capital's MD, Abhay Pandey, talked about what kind of companies will attract future investments.

Brilliant ideas are turned into reality with the help of venture capitalists; they play a crucial role in building new companies. At the International Advertising Association (IAA) India Chapter's Silver Jubilee Summit in Kochi, managing director of Sequoia Capital, Abhay Pandey, talked about which direction future investments will go.

Kick-starting the session, Pandey declared that only 'smart ideas', which have the potential to change lives, tend to attract investments. He noted that while in the 30s and 40s, the most popular ideas were in the field of chemicals, the 50s and 60s were dominated by electronics, 70s and 80s were about life sciences and post that, most of the popular ideas have been around computers and communication.

"Our world has been dominated by intranet, internet, voice over internet protocols (VOIP) and messaging; what's going to come up next is still a question mark, but the pace of change is accelerating," he said.

Pandey highlighted that after the invention of personal computers in 1975, every ten years there has been a 'black swan event' (life-changing events). Three such events were the inventions of router (1985), internet (1995) and iPhone (2005).

In his opinion, there are two sets of people who will define the future - mavericks who think of crazy ideas and turn them into reality, and smart ones who come up with disruptive ideas. "VCs like us will simply follow these set of people in helping them create the tomorrow," he asserted.

Pandey cited Google's example: the search giant recently reorganised and created a separate entity Alphabet. According to him, the prime driver of this restructuring is to ensure that the company's shareholders understand the difference between the operating part of the business (YouTube, Google) and the investment part.

"The company is investing in businesses that are not profitable today, but are serious investments of the future. Some of these businesses include Calico (anti-aging research), Nest (homes connected to the internet) and Fiber (rapid access to the internet). There are Google Capital and Google Ventures which are investing in both internal and external projects. Google X is a smart lab which works on futuristic projects (Google Glass, self driving car, drones for delivery, contact lenses for tracking diabetes, nano-particles for early detection of cancer). Each of these projects will define where investments are likely to go and what the future will look like," he explained.

Pandey believes that innovation is one of the biggest factors that companies must focus on in order to remain relevant. Big banks, he warned, should be worried because the phone is beginning to take over some of their branches. "The world is changing very rapidly and if we are not changing with it, we will cease to exist. It is not just for companies, but also the people," he cautioned.

The rate of change is represented in the Fortune 1000 data - from 1973 to 1983, there were 35 per cent new companies and the percentage kept increasing each decade.

Pandey noted that a big company must treat a small disruptive company as a potential competitor. Usually, a smaller company, with its agility and innovation, moves the fulcrum and, thereby, gets more leverage.

"When Google bought 18-month-old YouTube for $1.8 billion, people thought it was a crazy decision. Similarly, the $1 billion valuation of Instagram by Facebook came as a surprise to many. Both these companies' current valuations justify the decisions made by big giants," he said.

The only advice he has for companies is to focus on innovation and change. "Change," he believes, "needs to be ingrained in individuals as well as across organisations."