Nickhil Jakatdar is a U.S.-based serial entrepreneur. With his most recent venture, Vuclip, which streams video on mobile phones, Jakatdar is focusing on emerging markets like India where he sees huge potential. What makes Vuclip stand apart from similar services is technology that optimizes video in real time, Jakatdar says.
In a conversation with Knowledge at Wharton, Jakatdar traces his entrepreneurial journey and details the growth plans ahead for Vuclip. “I have never built anything to flip to a buyer,” he notes. “If you build a sustainable company, then good things happen.”
An edited transcript of the conversation follows.
Knowledge at Wharton: How did you get started on your entrepreneurial journey?
Nickhil Jakatdar: In Berkeley, I was working with Xinhui Niu, a graduate of the Tsinghua University in Beijing. We enjoyed working together and decided to start a company. [These were] the dot-com [boom] days, and [lots of] companies were coming out of the [woodwork]. We incorporated our company in September 1998, the same month as Google, and named it Timbre Technologies because that name was available.
“In emerging markets, both networks and phones have limitations, making buffering a big problem.”
When we started off, we did not really know what to do. We explored everything from sunglasses to pet food. Thankfully, we realized that we did not know anything about these industries. So we decided to run with our PhD thesis because that was the one thing we were experts at. We were working in the field of chip design and had come up with a new idea to transform chip manufacturing. [In those days] random sampling was used to check whether semiconductor chips met specifications. We came up with new software for measuring chips as they were manufactured.
Knowledge at Wharton: How did you create a business out of it?
Jakatdar: We went to our supervisor and he told us to get some experience. So, I did internships with AMD and National Semiconductors. I told National Semiconductors about Timbre’s new technology and asked them if they would buy it. They said “maybe” and, like a classic entrepreneur, I heard “absolutely.” We worked on our PhD during the day and spent nights developing the product. Finally, National asked us to turn up with the product and a price quote.
We had never delivered anything and did not know how to draft an invoice. I decided on$4,000 as the price of the product based on what we had spent so far, printed a quote and drove down from Berkeley to National’s office. While driving, I started talking to friends, all of whom gave different advice. But the one thing I took away was that software prices only go down with time. So I decided to change the price to $50,000. The whole idea of creating a company was to hit a home run and there was no point starting small. I changed the price on my laptop but still had to make the change in hard copy. When I arrived at National, I asked to use their printer, replaced the [original] quote with the new $50,000 price, and nervously waited to be laughed out of the room. Instead, National ordered two copies, a huge sum for the two of us who were living on $1,000 per month. Now, we were in business. Xinhui told me that I would be the business person while he would head technology.
Since I was the business guy, I decided to go to Berkeley’s Haas Business School and enrolled in an entrepreneurship class. This was in 1999, the year of the inaugural Berkeley Business Plan competition. We wrote the business plan, submitted it to the competition and I flew to India to attend a friend’s wedding. I landed in India at 4 a.m. and at midnight I got a call to fly back to the U.S. because we had made the finals. So I flew back and drove straight to Berkeley from the airport. I met my team, prepared for the next day, caught a few hours of sleep and then presented in front of venture capitalists. They were brutal and ripped apart our plan apart. At dinner that night, I was told that we did not make it to the top three, so I flew back to India that very night for another friend’s wedding. At a layover in Hong Kong, I called my wife and she told me that we had won the competition outright. Timbre was in business.
But soon we went through turmoil. We hired a CEO who had ulterior motives. We had to kick him out. Things got ugly as the dot-com bubble collapsed. We had been conservative and plowed on. In 2001, an acquisition offer came knocking and we came up with a $138 million figure. The suitor was Tokyo Electron who huffed and puffed at the price. But we stuck to our guns. We believed that our technology would take over the world and had faith in our revenue projections. Tokyo Electron paid the asked price and Xinhui and I spent the next three years with the company. Our technology is now industry standard and all high-performance chipmakers in the world are using it.
Knowledge at Wharton: What did you do after Tokyo Electron?
Jakatdar: We thought that we would retire. I spent the next six months playing golf. By the end of the year, I was sick of it and wanted to get my hands dirty again. I came on board Praesagus, a [design-for-manufacturing] company that was being run by seven PhDs from the Massachusetts Institute of Technology. I did not know anything about the space but I knew how to figure out how to figure it out. Together with the main founder, I got the company in shape and sold it to Cadence Design Systems.
For nearly two years, I was in charge of the new acquisitions that Cadence made. But I got bored and quit to start learning something new. I started playing poker. I won a tournament in Las Vegas and even took part in World Series Poker. Yet, I was missing the day-to-day challenge of running a company and it was time to get my hands dirty again. I became an angel investor and invested in CommandCAD, [an electronic design automation] start-up I had come across while judging the Berkeley Business Plan Competition. I helped sell CommandCAD, which made more money per founding team than Praesagus.
Knowledge at Wharton: How did you get started with Vuclip?
Jakatdar: In 2006, Xinhui introduced me to Zhigang Chen, an entrepreneur in the mobile video chat space and we invested in his start-up. In 2007, this venture ran out of cash but had a cool new technology. We restarted it as a mobile video destination portal for search, discovery and delivery…. I knew nothing about the space but spoke to a lot of people and came up with a 10-page presentation. We sent this presentation to VCs and got term sheets from all of them. I asked the VCs to find a CEO to run the company and they responded by saying that they were investing in me. So, I took over as CEO in January 2008 and continue to be in the role.
“I decided to deploy the technology where it was a ‘must-have’ rather than where it was a ‘nice-to-have.’”
By this time, video was taking off. The key players in the video space — YouTube, Hulu, Vimeo, Metacafe and Daily Motion — all began in 2005-2006. The mobile world by contrast was and continues to be very fragmented. There are different networks — 2G, 3G and 4G — and there are phones of many types. Data plans are limited even in developed countries. In emerging markets, both networks and phones have limitations, making buffering a big problem. With nearly 100 hours of video uploaded on YouTube every minute and with hundreds of sites like YouTube mushrooming all over the world, the combination of fragmentation and volume made mobile video a daunting problem.
Of course, video can be optimized but this causes time lag and a storage problem, forcing an uncomfortable tradeoff. Vuclip’s “secret sauce” comes from its technology that optimizes video in real time.
Knowledge at Wharton: What are some of the the key decisions you have made as CEO?
Jakatdar: I decided to deploy the technology where it was a “must-have” rather than where it was a “nice-to-have.” In the U.S., there are many ways to access video. In India, Indonesia, Africa or Latin America the only way the masses can access video is via mobile. So we focused our energies and resources on emerging markets. I also decided to make a direct-to-consumer play instead of going down the enterprise route. In practical terms, it meant that we did not go to Disney or ESPN to build their mobile solution. We decided to build our own brand.
In the short run, there would have been more money in the enterprise route because [a company like] Disney or ESPN would pay. However, building a brand and owning the customer is one of the most valuable assets one can build. But it takes time. We decided to do the hard slog and build a brand. Others always catch up with technology and a price war lowers profitability. We bet on a browser-based approach instead of an application-based approach. This go-to-market strategy was based on simplicity. Explaining to consumers in emerging markets about applications is simply too tedious. In retrospect, this sounds like a good idea. However, all the 18 or 19 companies that were funded in the space took the enterprise and application route. None of them exist today.
Knowledge at Wharton: How did you reach your users? What was your go-to-market strategy?
Jakatdar: Like Google, Vuclip started indexing videos on the web. Consumers found Vuclip and started forwarding its videos via SMS messages to their friends. About 5,000 early adopters started watching and sharing videos, leading to viral dissemination. Carriers like Vodafone and Airtel started finding Vuclip on their logs and started promoting it because it led to greater data consumption. Handset manufacturers started preloading the Vuclip launcher on their devices to make themselves more attractive to consumers. In early 2008, Vuclip had 8,000 to 9,000 users. In December 2013, we reached 100 million active users. This is much more powerful than downloads of any application because it means 100 million consumers have used Vuclip at least once in a month.
Knowledge at Wharton: After you gained users, what was your next challenge?
Jakatdar: With the traffic growing dramatically, the next challenge was making money. So, we adopted the freemium model starting 2011. Vuclip gives enough free content that consumers keep coming to its website. Then it “upsells” consumers some premium content such as content from movie studios, music labels and sports channels. We began with regional content providers [in India] like Sony India and MBC TV. Rajshri Productions and UTV were among the big players who signed on as the first content providers.
Now, we are monetizing a pool of 20 million consumers and around two million of them bring in revenues of $10 million per year. Both the carrier and content providers get a share of the pie, aligning incentives of all parties in the ecosystem. About 80% of the Indian market has not used data so revenue potential is huge. We have partnered with Airtel to create a Re 1 (approximately 1.6 U.S. cents) video store, which offers consumers a way to access video on their mobile phones without worrying about what a data plan means. There are special offers such as Rs. 5 for 10 videos and Rs. 10 for 40 videos to increase the size of wallet that Vuclip can get. Over a four-month period, nine million people have paid for this product. Applications are also now part of the mix as the consumers are getting more sophisticated.
“VCs did not understand emerging markets, and some would ask inane questions such as what was Vuclip’s iPhone strategy in India. They were oblivious to the fact that hardly anyone uses iPhones in India.”
Our goal is to reach revenues of $20 million to $25 million in 2014 and become completely self-sustaining. The template that we have perfected in India is now being replicated in Malaysia, Indonesia and the United Arab Emirates with many other countries in Southeast Asia and the Middle East and Africa coming up in the 2014. I have always set out to build independently sustainable companies. I have never built anything to flip to a buyer. If you build a sustainable company, then good things happen.
Knowledge at Wharton: Tell us about some of your mistakes, challenges and setbacks.
Jakatdar: I have made plenty of mistakes. One of them has been struggling to find the right balance between getting people excited and letting them go. Sometimes I have kept the wrong people on for too long. If people do not fit into the team in the first six months then they are unlikely to fit in and it is better to let them go.
My biggest challenge was finding Series B funding for Vuclip. The company came within a month of running out of cash. While the 2008 financing took a week, the 2009 financing was painful and took over eight months. VCs did not understand emerging markets, and some would ask inane questions such as what was Vuclip’s iPhone strategy in India. They were oblivious to the fact that hardly anyone uses iPhones in India and it is the cheap smartphones such as Samsung’s low-cost Android phones and Nokia’s Asha series hold sway here. There was this blind belief that the U.S. model would be replicated elsewhere. Ironically, it turns out that by limiting data consumption, the U.S. is following the rest of the world.
Just when it seemed that time was running out for Vuclip, Nick Sturiale, a co-founder at Timbre and now a VC with Jafco Ventures, invested $3 million. NEA [New Enterprise Associates] put in another $3 million. After that, there was no turning back. Funding has not been a problem and we have raised $40 million so far.
Even now, challenges continue. The big digital companies remain a worry as the mobile video space gets hot. If they throw time and money, then they have a chance to figure out how to replicate Vuclip’s technology, content and monetization formula and Vuclip would have one or more 800-pound gorillas to deal with. Thankfully, most of the bigger companies focus on high-end users while we are focused on getting everyone on board.