You can't raise cash to blow it up: Ronnie Screwvala on layoffs at unicorns

In a Q&A, the upGrad chief said it is a 'lame excuse' for founders for tech unicorns to blame the situation on factors like the war in Europe and funding crunch

At a time a when a growing list of top tech unicorns are laying-off employees, especially in the edtech sector, serial entrepreneur and upGrad chairperson Ronnie Screwvala, said that it is a ‘lame excuse’ for founders to blame the situation on the macro environment like the war in Europe, funding crunch and on efforts like conserving cash. Screwvala, who pioneered cable television in India in the 1980s and then built a unicorn that was acquired by Walt Disney Co., is attending the World Economic Forum’s annual meeting in the Swiss ski resort of Davos. In an interview with Peerzada Abrar, Screwvala said that the companies which have done layoffs were not supposed to have raised cash, to blow it up, but to build rock-solid businesses. Edited excerpts:

How is the overall mood at the Davos summit?

There are a couple of broad themes here. Everyone's questioning the validity of globalization. I personally feel you're not going to be able to disrupt overall globalization. The world leaders may have a different point of view, because of current things going on in China, Russia, Ukraine and America’s approach to it. Everyone is definitely less optimistic about the future, but there are a lot of people who are extremely optimistic about the future. The good part is that the India story is shining out very strongly. Even in a time like this, we're going to be the fastest-growing economy not just this year, but everyone thinks for the next five years. Everyone is also talking about reskilling revolution.

India is witnessing a series of layoffs in the industry and valuations are under stress, especially in the edtech sector, where a growing list of unicorns, have fired employees recently? How do you view this situation?

For anyone to be surprised with this is a bit odd. When you're in permanent fundraising, valuation and hype mode, and are trying to please your investors, and when the investors want growth, the tune changes, and you're left high and dry. I think a certain sense of maturity needs to come in. upGrad stands out differently only because we just haven't gotten into this whole valuation process. The founders of the private listed private equity company, have a narrative with three or four different funds. Then you have a very different approach when you're a listed company. I urge people who are in private equity, to at least get 50 per cent of their directors independently. I'm not surprised that the people who decided that ‘it's growth at all costs ‘ and the only thing they were playing for was ‘how do I get my next level of valuation and they completely lost focus. It is extremely unfortunate that the toll of that is really on key members and the team.

Some companies are saying the move is an attempt to conserve cash, focus on profitability and is also consolidation and cost-cutting drive?

We have been hearing this rhetoric for at least 5 years. Everyone knows that there are four seasons in a year. We all know the Indian monsoon starts in June.  But every time we have a conversation, everyone keeps saying there's a summer and then there's a winter of funding. You're not supposed to have raised cash, to blow it up, but to build a rock-solid business and a long-lasting company. If you had clear accountability for return on capital employed, you wouldn't be having a conversation about conserving cash. Personally, for me, this is the best time to be in (the business) because all the hubris, hoopla and false adulation from an investor's and founder's point of view has completely died down. This is the time when good and large money will go for building long-term businesses.

Some companies see an external environment like the war in Europe, fears of a recession, and the interest rate hikes by the Fed, which have led to inflationary pressures globally as well as in India, are playing a role in falling valuations and slowing funding rounds?

They don't qualify for the macro environment. Today in a world where reskilling and the entire approach towards education is having disproportionate importance and opportunity, you can't say the war in Ukraine is affecting my business because it definitely is not. It is affecting a lot of other businesses, which are inflationary prone, but you are not. People always provide the highest priority to education and reskilling, unless the world is really crumbling, which it is not. So I think it's a lame excuse.

But SoftBank founder Masayoshi Son said that this year the firm may invest only half or a quarter of what it did last year after the firm made a record loss of over $26 billion at its Vision Fund unit, as the value of its portfolio reduced?

When you look at SoftBank, they are mavericks and I really like what they have done. For a maverick who's gone out and paid top dollar beyond anybody else, you can't judge them and use the macroeconomic (impact on mavericks.) as the reason. They don't represent the general consensus. They represent the outliers and the outliers pay a price for the excesses.

What has been your strategy at upGrad to prevent challenges such as funding crunch or layoffs?

I think tech companies are slowly realizing that you can't build a brand just by being in a cricket tournament. It doesn't work that way. The only thing I can look out and say is  ‘thank God' for this environment. It gives me incredible opportunities. This includes looking further at our cost model. Because there's no competitive push from people spending crazy money and where you needed to do a certain amount of tuning. I think the entire hiring market would have sanity. Otherwise, people were just looking at jobs (after every) six months in one year and moving just at the drop of a hat, (for more salary). That needs to stop. So this to me is the environment in which one can build a very long-lasting business.