Ep #9 | WTF is Venture Capital? Ft. Nikhil, Nithin, Rajan A., Prashanth P. & Karthik R.

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my aspiration for this particular session is anybody who's starting a company in the next few years if they were to watch this they will learn something an entrepreneur should go build a business solving a problem which he cares most about look the excitement in India is higher than it's ever been we were trying to establish how much VC money has come into India it's roughly around 60 60 billion are they really investing in you the fund manager are they investing in India I'm looking 10 years out I want to see what's a billion dollar opportunity 10 years from now and what are the typical days when you start

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off at a VC 60 70 lakh what are you saying really hi guys thank you everyone for coming here uh first thing I want to say is this is not me interviewing you or moderating a conversation this is more five friends trying to have a conversation I think uh all of you have a lot of experience in the Venture world and in the investing world a lot of people want to create businesses startup entrepreneurship in India and they will do so in the next decade so we want to cover all things startup what sector to focus on where it would it would be easiest to raise funding

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which sectors are growing fast what you guys think are sectors with Tailwinds which one have headwinds and we will also kind of talk about the problems of the Venture Capital World compare Venture Capital to PE and Angel talk about what happened in the last decade what went wrong and what can we fix to make sure the next decade is better not just for us here but every single guy who's looking to start a company tomorrow so maybe start off with introductions uh I'll come to Prashant last Mimi Nathan can start okay I'm Nathan his brother what is nitin doing here

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yeah so we were chatting with each other genuine authentic story and I was like you diss we see so much on Twitter like tell me like give me some questions to ask we chatted for 20 minutes and then I'm like why didn't you just come join yeah I'm I'm zero prepared you know I'm actually wearing his shirt right now so now from 2016 we started this thing called as rain matter um which is which started off as a fund incubator I don't know what you can call it but we said we can't solve for all capital Market problems and we need to associate partner Etc and when startups came so we had built a bunch of apis for

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startups to build on top of us so small quiz was the first startup that came out of the you know the of the rain matter initiative so the rain matter of intake kind of extended into rain matter Health which I am very passionate about and then rain matter climate uh you know which we are supporting through our foundation so we've now invested in 8085 startups I'm going to ask this question to everybody right in the 85 startups that we have invested in how many have survived how many have thrived and how many have shut down I think so for us I think to have shut up because we are very early writers and we

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are still like five four five years and so we're still quite early in the game probably they'll have better answers to this Karthik would you like to go next sure so um I went to the US in 99 after working here for about three years for my business school and then essay said I want to be on Wall Street Etc and when there it was the absolute peak of the.com Boom so so 99 you land up there and then everything shifted so I spent my winter break my summer break everything in Silicon Valley

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so got enamored with this idea of how technology can be applied to everything and so I try to break through desperately but everything came crashing by April 2000. that was the.com bust and so all jobs evaporated and if you had a Visa issue then there was nothing at all and so there was this urge like this pain to like try and get into these sectors when nothing happened so about five years I spent working there it was a little directionless so I moved back so 2006 I came back to Bombay actually interviewed with rajan's current firm despite its new name it's uh I think I met some of his colleagues back in was six or seven so

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I think most people don't as fresh off the boat don't know what the hell is going on in India why should I hire this guy and Venture was very new 2006 so I recounted the real Venture story from 06. there was a little bit before 06 but and so I reconsidered the fact that no one's going to give me a job and became a banker briefly and then somehow curiously went to the times of India group why Times of India I was a media at Telecom banker and like people thought like I knew a lot of stuff about the industry what is it it's not getting industry jobs what is a media Telecom Banker serving those sectors so TMT as it's called in the west it's called TMT

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Telecom media technology and so essentially you service the sectors because they're all interconnected and in the 90s all of these became intertwined and then the Lehman crisis happened and then whatever little sort of entrepreneurial hooks that the Jane Brothers at times were giving me they all got pulled back because they became very conservative on the capital and ironically I was actually their corporate rep on Mumbai angels and Indian Angel Network so I knew of like Prashant Etc remotely because we used to cut like on small file action check and axel would be a

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co-investor back then Rajan of course is doing his own thing but through Indian Angel Network so one thing led to another and I said if I'm doing I'm so passionate about this over weekends and they didn't give me any money so I ended up taking all my savings and putting 5-10 lakhs ran out of it in like six seven checks uh I would salaried employee and then I'd actually help sell a guy uh one guy's business so he's become like a brother to me so he trusted me blindly so I made him a few tens of crows he said you can take four five said I started using that as a balance

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sheet and uh investing for him so I said if I can do this on a weekend uh once a week once a month then what if I can do this full time so that yearning from 2000 came back in a big way and interestingly I don't know if prashan knows the story you have to tell it someday but shekhar kirani works there and me and Sanjay Swami and all of us were pieced together by the gentleman called Rajesh Jain who runs netcore and we became a think tank to think about what early stage investing should be like in India and it lasted about six months and momentum spluttered uh and I was one of the few guys who actually built a deck

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out of it and it was called project Factory and uh there were two models basically I think Sanjay Swami and Prime became he went to uid but after that he became more of a curated 10 companies and I became the Other Extreme made it 67 70 companies in our first fund right so we have total Silicon Valley Super Angel fund model we adopted that and we did our key work in the US and we saw that micro VC was erupting so we pick and chose this model and that's how Bloom started so it's been 12 years a little over 12 years how big is Bloom

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now and how many companies have you done in a fourth fund so um we've had like a little bit of a Quantum Leap in the last year and a half we were tiny 100 crores 60 million when the rupee was 66 or but 400 crores then 700 crores and now we're like 290 million dollars which is about 200 2 300 crores in one single fund this is 2023 21 late 21. so we're halfway into that one side and then we've been Hustlers so where we've had our best companies breakout we've not been willing to let go so I can never be a Perpetual fund as easily as you could be with your own capital I still have to meet our investors requirements of returning money every 10

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12 years but as a as a hack we basically raised what are called opportunity funds so we can keep playing into our best companies so while I have primary capital in these four funds of almost 475 million I have another 150 through what I call continuity Vehicles what is the return say somebody coming into bloom should ideally expect so International investors won't touch uh early stage India we see if they don't can't imagine a world where you can deliver 25 compounded you might fail miserably at it but if

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that's not that hope they won't touch you so it's a it's a tall ask see it's also currency adjusted for them right back to right so so basically if you are just currency for Indians it's taxes there's carry which we take a share of profit so we don't shoot for that much then why like I tell my colleagues as well why bother coming to work okay so that's it is we are taking long-term illiquid uh early stage risk it's crazy risk so if you draw the classic conventional Financial Risk return curve the highest end of the risk curve so you better shoot for the highest returns there's no there's no escaping that

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so in the little bit of research that we did we categorized you as IIT IIM what in bungee jumping snorkeling uh South Indian boy in Andhra Pradesh married to a girl who is in the creative industry a lot of research is that how you would paint Karthik so how would you represent who Karthik truly is also by all of what he characterized I'm not satisfied with lack of Adventure so therefore the double MBA it was desperate to get out of the country I think we're trying to make a case for people who are going to college yeah from somebody who has been to a college here and there both top of

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the line I think your experience would be very yeah but like so as a double MBA though it's a it's not a Apple's travels comparison because I hacked my second one in the sense that I finished almost finished my finance major in the first year and started experimenting in the second year and I met my wife at UPenn so when people ask it it was written in the stars it had nothing to do with me getting to Wharton and so and then you you do a lot of experimental stuff and all of this experimenting in the west coast doing internships through your third semester almost finished by the third semester all of that hacks were

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possible because I've done one so mine was not the conventional conventional MBA but yes Apples to Apples I would say please work and go you can't relate to the MBA otherwise ideas to seek adventure and I think venture capital for me was always a tool of massive scalable impact and ventures in my it's a beautiful craft because you can actually get a shot at doing both right that's the motivation uh Rajan would you like to go next yeah so um some Sri Lankan born and raised in Colombo Sri Lankan Tamil I left the country because uh most Sri Lankan tamils left when was this 87 how

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old are you I'm over 50. um my story so I left in the late 80s went to school in the US University undergrad grad school I worked at McKinsey Chicago for a long time I worked at McKinsey because I couldn't get a job at photo General Motors I was a mechanical engineer manufacturing system so I really wanted to be before that college uh uscr MIT and Stanford engineering before that before that Sri Lanka so I grew up in Sri Lanka 100 one thing I really wanted to ask you before we move to the next phase of your life is you grew up in a country filled with conflict

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and I read stories like you saw people getting dragged out of their car and killed and you lost your father early in life two facets two directions one do you think there is a correlation between trauma insecurity in turmoil in childhood which kinda makes the odds of being successful later in life higher because you're over compensating for something or making up for feeling vulnerable at some point when you were really young questioning and B if you could throw some light on the Sri Lankan conflict because we've

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had like a bird's eyes view because we're next to them but I don't truly know where the conflict started and what is happening right now let's see when you go through a period like that right where I mean it was one day actually that tens of thousands of camels were killed so you know imagine driving back home from school and in front of you and behind you people are being pulled out of their cars and burnt okay and the only reason that my I have a younger brother who's five years younger than I am lives in the US the only reason we are alive today is

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because we speak singalese and Tamil wow so when you know when you go through a period like that and then of course lots of things happen after that but you know that day I had 30 classmates several of my classmates died several of my teachers died in my class so when you go through a period like that it was a very traumatic period obviously um but you know one of two things will happen to you either you become very hateful or you become very grateful there is only two states so uh

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fortunately I just became very grateful so now you know so you can imagine right so I ended up much later running large companies billions of dollars of Revenue so I used to have bad quarters at good quarters so you can imagine having a bad quarter is nothing compared to being dead you know so I just wake up every day really glad to be alive and so you know I share it with you I feel like heightened traumatic experiences in life speeding up Evolution significantly to me the most attractive people are the most card of people because I think in those moments is when

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you evolve yeah and you also like but but you can it can also go the other way by the way right you can become very hateful you could become um it can you know and I've seen that happen as well to people so Dad no so my dad was a lawyer Who Loved adventure sports he um you know for fun he would do Endurance Sports he was the first Sri Lankan to swim across the park Street between India and Sri Lanka he was the first Sri Lanka could swim both ways uh so anyway he died he was trying to swim the English Channel he died of hypothermia which

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means your brain freezes he broke his uh hip on a bike motorbike and he went to London to get surgery and then while he was there he got his hip operated on he's like hey I'm here I always wanted to swim the English Channel it was early August and you should not swim the English Channel in the early August especially if you're Sri Lankan because they're not used to the cold Waters so basically halfway through um basically what happens with hypothermia is your brain stops working

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but your body keeps going and so they knew that something was wrong so they basically airlifted him he was Dead on Arrival when he got to Dover so I lost my dad um so he didn't pass away in the conflict sorry if I got more personal than I should no no it's okay it's okay did you do so well in life because of these heightened experiences of your youth I don't think like folks I mean we're old but like if we think that you know we've been successful by now I mean that's games because your jobs are to gauge entrepreneurs essentially in bed or not bet on them

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I'm trying to arrive at if you were to map childhoods of 100 people you bet on oh certainly people you know people who um like I didn't have any options okay there was no plan B when I left I had a one-way ticket I had a couple of hundred dollars in my pocket fortunately I had financial aid from MIT and there was no going back so do you have a predisposition that you will not invest in companies where the where the person you're investing comes from an affluent family and hasn't had I don't have no I don't have a predisposition but but so for instance you know there are

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founders we have invested in right who come from very well to do families but it just so happens yeah but it but that is not India that is not the norm in India right if you look at uh look at India you look at I mean we just happened to you know if you look at the IIT grad so you look at you know they tend to be not from that that uh that model that that yeah that all that uh TG if I can call it that right extrapolated out of 100 companies you invest in how many I I don't know actually I shouldn't comment I don't know that I honestly don't know the percentage but it's not yeah it's it

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would be in the 10 20 that kind of percentage at most right because I think I think hunger you can't teach hunger I think that's the point um the drive the hunger the I think people who come from nothing who have a point to prove I think they generally tend to be the ones that can you extrapolate to say broken families produce more ambitious children I don't know whether it's broken families you think it's more a financial thing so you have to have parents who are very supportive right because if you don't get the right at least in our part of

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the world right without the right education I think it's very hard you can still do it lots of people do um it helps you get that edge I think you have to have parents who are supportive but it does it does help you if you come from if you're not very well to do yeah because you know that's why you know if you look at India right you look at all the Fortune 500 Indian origin CEOs you know like they come from middle class families and they have a but but they did got great education so I think that combination I find is the yeah so anyway so I spent 15 I spent a long time in

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McKinsey then I ended up working for Michael death I ended up in India because of that then moved to Microsoft ran Microsoft India for a couple years and then spent a long time at Google leading Google India and Southeast Asia for a long time I was a very active angel investor which is how I know Karthik from very early so when I moved I moved in 2005 I made my first Angel investment in India I was I made a you know I was the Angel Investing in the US but made my first Angel investment in 2006. uh join Indian Angel Network I think we saw one company once a quarter that was sort of the Rhythm that was what was

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India was right um and then I spent I joined Peak 15 which was then you know we rebranded we used to be called Sequoia Capital India southeast Asia almost four years ago so so what I do now is I uh I focus on very early stage companies so seed stage so if you're raising three to four million or less and we launched a program called surge where I spent most of my time which we've had the great pleasure great Fortune of having nithin come and talk to our Founders many times yeah so that's what I do uh how many companies size of the fund today so so Peak 15 uh has about 9 billion

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under management of that two and a half billion is dry powder what is dry powder dry powder is we haven't invested so essentially last year in June uh 2022 June B raised 2.8 billion so of that 300 million we've invested so we have 2.5 billion that tripod is a term in our industry where that's investable capital right that will invest over the next several years uh Peak 15 has 400 plus active companies okay yeah so Prashant I don't know should I preface your introduction please make it look a little more colorful good so Prashant and I are really close friends who we probably do two three

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dinners in a month travel once in three four months and this probably a dozen businesses we have invested in together a charity a charitable thing called yipp but we actively engage a lot and I think we speak on the phone very often and we figure out what to do next and stuff like that and he's always been a great source of advice and somebody I've reached out to for uh many many different things I think not just me but he's very close to nitin as well the one thing about Prashant that no one knows is outside of Axel and what he does professionally I have not seen a more relentless

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man who has so much more energy than I do at my age who's doing a hundred different things every day like if you call him up at five in the evening he will be talking about garbage and sanitation in Bangalore if it's covered he'll be trying to import oxygen concentrators from somewhere uh this is him like perpetually this is the day to day in his life so with that maybe anyway I keep myself busy I think here everyone but Rajan is Bangalore and you went to Saint Joseph's right no no I'm the Chennai boy well you didn't go to school in Bangalore

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ecosystem you don't find a lot of Bangalore folks but anyway um went to uh engineering the same colleges nothing here in Bangalore and uh went to the US immediately after engineering so what did you do before engineering what did your parents do my dad was uh started as uh career in the public sector so he worked at HMT must have been clocks and I mean he works and he worked at The Foundry but he was my first exposure to entrepreneurship so he he quit his job in the public sector and in those days you had this whole public sector trying to create a smaller

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Supply chains for themselves so ITI created this program to have different entrepreneurs come and supply parts to them so he got one of those opportunities and started a small scale industry so I so when I was maybe in sixth or seventh grade I remember uh him trying to get his first 10 lakh rupees or five lakh I don't remember what it was to start the industry right and you know it was in those days there was no white shadow so it was like really a different thing to to be a startup entrepreneur but it was a very different India then right so

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entrepreneurs so I have some little bit of memories of what it is to be an entrepreneur in the India of that era very different when did you meet sabrito again which when did I meet subrata was 88 okay 88 and then uh then in 2004 so subrata exits right I exit Netcraft right both of us are in Bangalore if we try to figure out what to do next and that's where we start erasmic that was 2000 four would you call that a venture capital firm you know we were an incubator okay we were an incubator back then there was no Venture Capital there was no no there

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was one round of venture no I raised Venture for Netcraft started the Erasmus yeah okay rasmic and then in 2006 along with with Google started a fund that was a fund so the first one was the incubator and which is which which was for a very short period and which became a fun 10 million dollar Fund in 2006 2006 2006. so you basically been wealthy for a long time then yeah all right so no Wonderland so 2008 uh Excel had started London that China and they said okay I

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mean one of the early guys to I think zika was already was there in India so one of the early guys to look at uh Venture I mean globally highlights of the axle Journey Flipkart is one second we've been early in multiple categories and been able to kind of be part of category defining companies in those started with the commas SAS B2B hopefully a few others so that was the second best investments for Excel which one would they be Flipkart fresh works and I think just in terms of just character

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and type of company bookmyshow Okay so scale of Axel today and the returns somebody can expect from investing in action and how many 220 222.25 Investments I'm close to you alive how many have killed it in network I would say 70 of them are still alive it's usually two to three percent of a portfolio that will return 80 that will give you eighty percent of your returns I mean it has that been the same for everybody two percent of portfolio eighty percent return yeah maybe it's slightly higher but yeah I mean you know less than five percent

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yeah Power law is five might be a rule of thumb that basically irrespective of size of portfolio in a cycle so it's important to measure this in Cycles um he's it's disproportionate in their case because you'll have these free kits like Flipkart and freshbooks right but in a cycle if you invest in 20 30 40 50 it doesn't matter about five will return 85 to 90 percent five percent no just five companies oh yeah irrespective the size of portfolio and then you will have about 20 30 percent that'll in our business you know give you like a 5x uh which is not bad yeah you know uh that's so it's over a 10-year period 11 year period so it

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works out to a decent irr makes sense right and then you have uh about 15 20 who kind of just kind of give you back your money right so the point of today very much is in college you don't really learn much about the pragmatic nature of starting running a company picking a sector what you should do what you should not do so we leave all our individual egos aside and the personalities aside and focus and fixate upon somebody starting a company and everything we can say from our knowledge pool that can help them so this becomes my aspiration for this particular session is anybody who's starting a company in the next few years

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if they were to watch this they will learn something about something no I haven't actually two questions yeah okay so one Rajan with you you've invested in what 200 companies as an angel yeah several hundred yeah how do you I mean how do you keep a tab as in like how does it work so I think look when I was an angel uh I mean I was running you know at an operating job um so you know I was I was sort of I had the simple thing which was I was on call anytime any founder called me I would always heard that but how are you giving time no meaning no so only when they call me

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I would make time I mean look it's 24 7. are you leaving time to all the angel companies doing it most most companies don't call uh right so it's not like I'm calling to say hey what happened last quarter or what happened last year you never do that no no no I mean no because you you actively also exit these companies how do you make those decisions if you're not oh I learned uh you know I learned something so 2006 I joined in I think by I think around 2012 or 13. I learned this simple thing as an angel which is every time there's a round you ask yourself a simple question can it 5x

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from here or not yeah as an angel the good thing is you can exit good companies everybody wants to find all their PCS want to buy you out and I think it's also good to clarify that angels uh are a very different uh kind of class right than funds than funds institutions and the founders have don't have that expectation of you spending time with them right so they like if you like randomly give them like one or two good contacts I mean I think your like job as an angel is I mean there are a few engines that are more active and no no but the thing is still you know just keeping a tab of 200 companies and

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knowing as an angel look so the thing is you know I had a simple the three things firstly anytime there's a round you have to sign talks no you have to sign talks so you guys are Venture Capital funds which take money from large family offices Sovereign funds peas different kind of people generally outside of India bring the money into India what kind of a return are you forecasting for them when you take the money they all are in public markets through various other you know funds they have been investing in asset classes like real estate and some of these others again over the

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Vintage I think Venture is new for a lot of them so they have seen Venture in China they've seen Venture in the U.S I think India is still experimental or has been experimental now they are getting to the stage where they want to see returns from India they want to see uh you know India starting to deliver the kind of returns they expect from these other geographies but what is the rate of return that you're you're going to LP and pitching you're going to a limited partner in pitching your fund to take their funds what are you seeing will you make 15 a year is that the theme I think the first part

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of the question is that the same for all three of you the lp I mean because I mean I think all of them raised from the same set of limited partners endowments institutions Etc and it's very methodical in the way they allocate and how do you first find these limited partners I mean with all due respect to their efforts I think they are riding a little on their franchise relationships so they're American brands and Chinese Brands don't work for our fundraisers it's a fact that without a parent uh you know like overall thing like so we all got started we try to ride on their sort of Court tables they're talking to certain set of people

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so people are exposed to India right so they come asking they come and visit them right and they say hey tell us who else is emerging right so Prashant will be kind enough to make three introductions and say you should meet these blooms but I'm saying referrals play a huge partnership yeah it's about trust yeah and both of you know this better than anyone else you manage people's or you basically handle money is is more about I would actually Index Trust more than returns see because for a lot of them India is something that kind of starting like a 20 30 year journey I mean these that's how long

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these institutions think because of the events around leakages in compliance and governance in India recently yeah the trust that all of you worked so hard to build over the last 10 years 20 years I'm talking about that trust which went from 0 to 80 has come down to what number now look I don't I don't honestly I don't know whether trust has come down FTX okay is like 10 times you look at FTX you look at this doesn't happen only in India right I mean I know it's happened to us and obviously we should collectively do a lot more to make sure that we mature the ecosystem their ways to be but if you're a global investor FTX was 10 billion right

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total value loss was 10 billion not not what the venture capital is lost right we are yet to see one and that's one of several that have happened so it's not a you know and because these LPS have a global view right they invest in U.S funds China funds India funds so what they're you know the questions are really look why is this happening what is you know what what is the ecosystem doing about it no that's the fair point and so so I think it's not a because we are in it of course it's something that we need to address there's no question about it you're saying it's not an India problem it's a global problems the data shows right I

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mean you have to keep in mind that you know because we're here in our ecosystem right we we see this huge correction but this is a global phenomenon public tech stocks outside of the Fang are down between 60 and 80 zooms down 90 it's one of the greatest companies maybe it's up now but it was down 90 right so similarly if you look at private Tech valuations in the US they have corrected much more than they have here right here I think it's a phasing issue so so what has happened over the last two or three years is not an Indian phenomenon it is a global phenomenon right so and and these institutional investors they invest globally they invest in the US

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which is where most of their capitals deployed they invest in China they invest in India so for them this is not a India phenomenon I mean so so I had like you know just to add on to the question so these LPS I mean the investors are sharp right as in they made money so so my question is are they really investing in you the fund manager are they investing in India I mean what are they investing in I mean they already are sold to the India opportunity and then they're selecting a fund manager yeah it's a it's a sequential decision I feel whenever I'm faced with it and I'm on the receiving end a lot is um you don't get to the

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second part unless they're sold on India right and within India if they've already allocated the big question is do I need to allocate more right or am I as Prashant said am I still experimenting with the market I have a check with Axel I have a check with another fund I'm okay for now why do I need to add Bloom got it right so for them it's about until and with I mean no pressure on Prashant but unless he delivers in Spades they don't need to necessarily add me right right and so the there's a sequencing and then within that also there is late stage early stage the guy might not like my strategy right and so it's not it's not about like investing

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in a manager but they have to actually relate to the strategy I know 50 million dollar check writers who say you guys play too early I don't like how early you play and then you guys do too much work for too too little yeah so they have to they have to believe in India first right yeah once you decide that then you decide okay who are the best fund managers that you want to invest in that and then they look at the Spectrum of early stage early stage growth how did The Benchmark you as in what do they Benchmark you against exactly around 16 17 years since this wave began right I think most people wrote off the pre-2005 wave right so

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essentially the resets happened in 0506. so almost all the top 10 15 funds that you see would have been born around then right and then another wave in 11 another wave in 15. now another wave in 1820. so managers are being built that way so the new manager will be judged on the back of are you doing as well as the old manager is there a tax Arbitrage there if your Global money coming into India do you pay lesser tax than Indian money investing in India yeah actually to your point um there isn't a tax Arbitrage everybody pays the same taxes um it's only certain Global Sovereign

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funds which have a double tax treaty equivalent so they don't have to pay the taxes but everybody else has to pay so for instance let's say we take you know as Peak 15 we've had 19 IPOs right right uh domestic Market IPOs the same whether it's in domestic aif whether it's us we pay tax there's no difference so the only reason they pool outside the countries because they don't want to pay the tax themselves in India so we deduct and send the money if you're an international investor so there's no tax filings for them in India but the tax treatment is the same but that's a good segue into

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the first topic when we are talking about venture capital I think we should distinguish what is Venture Capital what is PE what is the Angel fund I keep joking the only person you're responsible when you Angel Investing is your spouse right so there's no institutional responsibility it's your money when I was doing research around starting Bloom the US had 300 000 registered Angels so I feel like 95 of them are like um part-time past time so they have made money as entrepreneurs or whatever it may be or as

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professionals and they like to help out someone so it could be the colleagues friends children whoever and that's also Angel Investing um then they join networks they put a little bit about five percent of them become sort of professional engines they actually think they can make money off this what is the Quantum which you would say is Angel like if I'm investing 10 lakh Rupees in your company it's sadly in India now people are raising one lakh through various mechanisms I find it super dangerous so what is the upper limit of angel I've seen people would want to crows one to two crows yeah so let's say that is

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the peak that we would categorize as Angel Investing from zero to one to two crores that is a characteristic of the person putting the money is more important when we started Angel groups is to take five lakhs 10 lakhs now it's got so democratized that people are actually hunting tier three cities and getting one two lakhs in a Syndicate of two three crores it's good and bad you're diversifying somebody's Capital at that stage but I don't know what I don't think they know what the hell they're investing in so I have many friends who do a lot of Angel Investing like hundreds of companies

40:32-41:00

tiny check sizes would we all say that the odds of making a return net net is least in Angel Investing is that easiest least hardest I think 90 do pretty badly uh from what I remember the U.S stats back then ninety percent of Angel Investors lose money not lose baby but the returns will be pathetic but isn't it isn't that a factor of the deal flow as in you know absolutely but I don't think we can get specific here if you were to add all the angels and all the deals but I mean if you really don't know what they're getting into yeah and they're it's adverse selection

41:00-41:63

if they're really that good and pick up a million dollars that's your best entrepreneur why would you change the money or why would she change the money so I'm not talking about those one to exceptional Angels who have a distribution Network by virtue of Fame I'm talking about anybody investing One Clap one lakh up to one two crores I'm adding all the deals that are done together no that's what the thing is I think as an angel investor or the best odds is to invest some some in something where your value is not the money because if it's only money they'll go to VCS and raises but he's talking about a professional engine but you're talking

41:63-42:25

about you're right will be mediocre returns yeah five percent will do well of which I think five percent are legendary correct I mean I would even go further to say if your objective is to make returns yeah you should not be an angel investor yeah my perspective in all of this is to talk about making a return yeah it's not about learning about the ecosystem you know we all do that like sometimes we play a certain game and lose a little bit of money and then we say it's to learn about each other team building all of that right this is not one of those things yeah so I think if your objective is to make returns

42:25-43:01

being an angel investor unless you really know what you're doing and you're deeply networked and you you can add tremendous value is not a good idea but I'll qualify it right so because I don't want to make it look like Angel Investing in general see if you have a sectoral experience right let's say you are from the fmcg industry you understand retail very well you understand how Brands work very well you've been in uh hul for 15 20 years right I think you will yeah so so if I think it depends on who the angel is and where you have to add value I'm not saying I'm not saying that if I am Sachin Tendulkar and I know

43:01-43:58

I am Sachin I should be playing cricket and I would do very well I'm saying if the city has a hundred people in as the population of the city if all 100 play cricket what are the what are the odds of them doing well if you want to Angel invest right and you want to do it for returns as opposed to giving back or you just want to get to entrepreneurs then I think to prashant's point you should really figure out how will you add value right so in the in the in this in the case you mentioned yeah you know you you should be investing in consumer Brands where you can add a lot of value over time your reputation builds

43:58-44:26

the founder to the founder because he gets early early uh uh like uh like access and and a Kickstart which otherwise forum is I mean he doesn't want to go to a institution fund like as day one right like when we invest in in seed stage right we're always looking for a few Angels who can add value to our companies in fact last week we just invested in a consumer brand uh and we were looking for one or two angels who have experience in that sector who could you know were not conflicted who can add value so we will get two or three angels and so that is where you want to be right where you're those you know whatever 10 15.

44:26-44:92

when it comes to adding value I agree but blind capital I think that's that said they're very important for the ecosystem 100 they will take risk where institutions can't step in yet somebody has to support these friends and family money Runs Out for students friends family fools but basically that runs out and it's even smaller in Quantum so if you want crazy risks somebody has to take those risks and sometimes Angels step in so yeah how big is the Indian Angel Market or six thousand of them six thousand six thousand active Angel Investors I've heard even more now right

44:92-45:55

I've heard some shockingly large problems more like 25 000 25 000. and us you said is 300 000. 15 years ago 15 years ago 2008 yeah and and in the U.S do you have to be like an accredited investor to be to Angel University yeah you don't two lakh is the Angel fund route then you need to minimum inverse two lakhs but you can get even a guy with 10 000 rupees on the cap table I think right there is no such restrictions there's no restrictions okay next venture capital yeah so Angel Investors you're investing your own capital in a very very early stage company usually you're just starting up you pre-launch whatever right venture

45:55-46:19

capital is basically institutional Capital where these are organized fund managers in a firm so let's say Peak 15 or Excel or bloom where you raise capital from others above what number would you start considering yourself a venture capital firm so I would say a growth fund would invest maybe up to 50 million so from a few crores per investment up through 50 million so fund size you're saying 50 million no no I'm talking about per investment no I'm talking fund size no so fund sizes can vary from 20 million dollars to I mean our last set of funds or 2.85 billion 20 million is the bottom level for uh in India what is it so I think in India now

46:19-46:76

micro VCS are as small as five to ten okay but that's because the first time manager is Raising from individuals not from institutions so it's actually raising a mega Angel round and calling it a fund and is that through a cat one or two AIS that's correct cat one cat one year 200 crore like you have a lot of microphones that start at 100 before we go into this a little bit deeper what is the AI for this cat one cat to cat three who can take that like very quickly the government didn't know how to regulate all of this so in 96 they start something called domestic Venture Capital fund regulations everybody was classified under that

46:76-47:32

whether you're a private Equity Real Estate or venture capital and they realized that there was a crappy way to deal with the complexity of these many asset classes because now you're asking us to break it down the government hadn't figured that they needed to be broken down so 2012 they revised it and called these regulations aif regulations alternative investment fund regulations so basically now they can regulate us basis what kind of risk we take so cat one cannot invest in certain Securities like debt Etc public markets Cat 2 can and Cat 3 is only public markets so who is typically uh capitalist cat one and two private

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equities how do they decide between one and two basis what securities you can buy so if you if you're only doing Equity investing and you don't touch a private Equity listing and you do not touch uh the the public markets and debt Securities then you have you can be a cat one perfect back to venture capital yeah so venture capital is so think of it as this is institutional Capital so it's organized teams it's not an individual's Capital so it could be as low as five to ten million yeah small fund could be 100 crores uh you know large funds could be 25 000 crores 30 000 crores 50 000 crores uh in the US

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large funds are I mean you know the largest fund Ever Raised was a vision fund which is 100 billion dollars from softback right uh although that was probably a hybrid Venture plus group you know pseudo private Equity so the way simplest way to think about it is you know venture capital is organized institutional Capital that helps you get off the ground so it could be the for a now individual company could be the two to three crows that you need to get your company off the ground to funding your next round so there's different stages seed we can get back to that seed series a series basically see up through a company that gets to a

48:57-49:22

level of profitability and then either you know there's a mixed term will be interchanged between growth capital and private Equity we'll take on from there but private Equity really then is once you're a which established mature company so you're generating profits but venture capital in itself can you give us some examples of five most popular ones in India so I mean you know companies there are probably 10 15 very well established firms so Bloom uh companies that are sort of domestics yeah we're all we're all venture so Excel Peak 15 light speed Nexus elevation Bloom girate kalari

49:22-49:81

Matrix Matrix and would you like to say a little bit about the fee structure in venture capital and the life cycle of venture capital of a typical most Venture Capital firms are 10 years with a two-year extension seven or ten ten I mean seven I think there's no point going below 10. it's very hard because you know that's why right because you're funding companies before they launched cases they have a two three year extension option so think about it 10 plus you have an extension period where you can extend the fund the fees usually are two percent of the funds that you raise are used annually for management fees that's what you use

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to pay your teams and so on and so forth and there's a term called carry which is the percentage of the gains that the fund managers get to keep and that's 20 yes on closure or is that like that's on distribution so basically you have to exit a company right so the way you can exit a company in three ways you can exit you can take company public you can sell to a strategic right so let's say Google comes and buys one of your companies or a later stage fund can buy out your stake so those are the three ways you could exit uh a position and what we thought largely say that venture has returned a better return than angel in

50:41-51:02

the last decade I don't think we have data in India to show that but extrapolated when you said on distribution you get a carry what happens if you're you know you invested in 10 companies you're sitting online you don't know what the value is and on one you had like a multibagger now you're Distributing the profits of this can you take 20 of the profits it's classic what's called European waterfall American waterfall right so you don't get deal by deal it's very rare that happens in various exclusive funds which are doing large private Equity single

51:02-51:59

transaction deals where you can actually take carry by the deal here you are not entitled to anything until you've returned not just the capital that you invested in totality but also the fees you consume during that 10-year period you return that too so basically you take 100 bucks you only get to invest about 80. the other 20 is going in all sorts of expenses good so you first return the 100 and then there's usually a threshold irr rate which is compounding from day one that for a fund like us emerging manager we have asked to give eight to ten percent as a threshold right we can catch up after that what me what it

51:59-52:22

means is I'm not denied my share of those profits but I have to first pay back that much to the investors so 10 years down I've returned 180 bucks I have not seen a rupee of carry uh interesting right so to get 180 bucks off that 100 even if my top three companies get there it's probably taking 10 years and even after that I'll probably be left with two three stars and I still haven't seen a single group of carry it takes that long so the incentives are aligned to kick your backside yeah really hard to work really hard to get to that point before you can actually see any money got it now the second question you know you had said

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Dry powder earlier right as in the term was just a term that's used now there's this whole debate running right how much of this dried powder do you have access to I mean how much is the money that's lying with you and how much is that you can call for so if Sequoia I mean a peak 15 you have two billion dollars of dry powder is that two billion dollars sitting with with Peak 15 no it's coming it's committed and you call for it you don't wanna you don't want to call it all and then invest over many years because it impacts your irr the IRA counter starts the minute the money

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oh so you okay okay so you'll never touch that money right that's just better stays there right but what if the person the institutional investors once they commit their own reputationally they have to protect them another interesting question how What proportion of your limited partners where venture capital is getting their money from our institutions and what portion of family offices and stuff like that see in our case it's like uh 90 is institutions mostly ours is 100 we don't have any family office you don't have any hnis we don't have any questions I would say 50 50. why is that different because you're

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raising money from India and they're bringing from outside we're still not considered good enough for all those so let's see width scale Venture becomes more of an Institutional yeah because you can't raise that kind of capital from small investors that said I remember having a chat with tiger as late as 2014-15 and they would still reserve a little for people who backed them in 1991. no they all have a small small Consciousness they say you're all a loyal investor I'll give you the right to keep investment makes sense the fund cyclist 10 to 12 years but but most term

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sheets are typically five to seven years isn't it I mean seven years from an exit requirement yeah but nobody you don't really exercise that but you you will have some Powers right yeah there is a there is an opportunity to excise right but but we don't it's not because keep in mind you know this business is a power law business but that means you know it's that few companies that really return and we all know that you know it takes no some companies will like growth stage investors right so if you're let's say investing 50 million so at Peak 15 we have three teams we have a seed team search team Venture team and a growth team so the growth team can so you

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invest 30 40 million in a late Stage Company two three years later the company goes public So within five years you could you could you could I think the two elements I think this entrepreneurs misunderstand VCS intent is we'll never make money if you don't make money okay so incentives are aligned it's not like I can make the money run out with the money and you've stuck there right broadly there is incentives to be aligned with you so nobody will kill a Golden Goose on a basis of a term that's written there however you don't want to misalign incentives and say oh you have 10 years

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number one because invariably entrepreneurship is such a tough Journey that if I say you have 10 you'll take 15. right that's point one point two is you're underestimating the fact that my checks are written all the way from Day Zero to year five so I'm writing follow-on checks I'm writing fresh checks on the last day of year three right and my term life is fixed so I have to apply the same principle everywhere so the last check just because it's the last check in the fund I can't say screw you I'm going to give you seven years but it's because you were the day one guy I'll give you 10.

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so you would establish a set of standards that work broadly amongst all of us and so Axel doesn't have a separate set of terms and I do and vice versa and it doesn't matter whether I'm the first year of the final of the third year and that clock sometimes get reset on the base of a new round neurons so it's really and these are typically close-ended right Venture Capital funds almost always okay uh P would you like a ticket none of us are P here but uh you know just to take off from where Rajan was talking about I think what late stage venture and and P I think there are a lot of similarities between these two but PE

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funds are exclusively raised as PE funds right so and uh stand for private equity and by the way from a classification perspective sometimes it's confusing because this entire class is called PE Ace for skill is there a differentiation in scale between VC and P I think it's it's less about scale I think it's about time to exit they like to come in closer to when there is visibility to an IPO event to three years or an exit even two three years I think their Horizons and their Windows of how long they want to hold is very different their expectation on the maturity of the model and this product Market fit that

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he was talking about is much more yeah yeah so so they really expect so you're seeing peas are more conservative historically than disease correct because they also deploy more invest more Capital so we had this number that VC AUM in India is 60 70 billion of which 90 percent is foreign and 10 is domestic the p number is about 200 billion in which 85 is foreign and 15 is domestic if you had to extrapolate and give a rate of return that P achieved versus VEC achieved who has done better in the last decade I think the P industry has been around

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for slightly longer I think is that another way of saying they did better uh I think they because they've also been in multiple sectors which are not tech only there might be some outstanding funds out there which have done probably better in terms of cash returns net net cash returns yeah they're ahead of us they're ahead yeah no it's it's also I mean from a vintage perspective yeah they have just been in the ecosystem longer they've had ups and downs almost 2008 they were a terrible asset class uh and then in the last decade where we have been growing but not returning cash because the exits haven't come a lot of

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people say that PA has done most consistent they've been more consistent okay source of capital you said for VCS it is 90 institution generally 90 or higher you're different because you're more domestic in nature uh where is peas Source sources about the same I mean about the same institutions yeah some domestic peas are over indexed on Indian family offices Etc yeah but yeah but it's a little like the Venture space but if you go to a person who raises predominantly overseas it'll be entirely institutional because the check size are even bigger popular piece five which Indians have heard of uh they would be uh I would say okay

59:13-59:90

forget the overseas ones even in India I think we have Capital Chris have done exceptionally well and then there are a lot of global names like them KKR Warburg I think we got a clear understanding of the difference between Angel VC and P Next Step establishing Market size a lot has been said about people having overestimated the size of different sectors in India should we pick a sector each and try to establish what the actual sizes would you like to go first you have a sector yeah so no I will ask you no because I've said so much about this his favorite pet peeve okay can I ask you

59:90-60:69

guys a question when he keeps VC bashing online I don't VC bash dude what do you say what do you guys think do you think we see best no no I like his thinking no I I think he's I mean I can he's overtly kind of being very myopic about a particular industry that he's involved with then and uh you know if you look at broadly other sectors right the same thing does not apply in many areas but explain like you guys should have argument about this I mean no no so for example I mean I I think I mean let's let's take a a consumer company if you look at uh you know the opportunity to build a and and tune to me a 2000 to 2500 crore kind of

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Revenue in a consumer business with a a bit of somewhere in the two 300 crore kind of range ten percent yeah that's some somewhere in that range the consumer company gave us two three examples I mean it could be something like uh a company like Bluestone right which is in the jewelry business card Mama right Mama any of these right how do these companies get scale in India they are mass market right the consumers there and those I mean these companies have figured out in some way that their customers are not the one percent in urban India that were capable of you know doing these purchases right so they they are I would

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say top hundred cities right and I and this I keep talking about everybody very few countries globally can give you 100 cities with a million plus in population all of them with the reasons by the way China and India but I'm saying how big is that consumer Market I think we arrived at the number so 65 percent is consumption so 65 of our GDP correct is the consumption market right so it's about 1.7 yeah and and in that retail is about 700 800 billion to summarize all of that 65 of GDP is consumption but in that consumption part of it you're producing the goods and part of it you're

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retailing the goods right so you can almost equally break up between what goes into retailing it and what goes into the supply chain of producing it so that's roughly about uh 800 800 crores 800 billion the second level Nuance there is I feel uh if I may add to what Prashant said in India um discretionary versus um sort of necessity based consumption I would index on necessary that's what he meant by mass and it's interesting that he actually broke that up into the manufacturing side and the thing which is where I think someone like a lenskart by the way they've approached the business very unconventional nobody's

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done it before them actually doubled its Market opportunity because I actually feel that's the right way to tackle India and you're saying for something like that the market is not the top two three four five percent it's much much and that aspirational class in India I think is only going to if we go from a three trillion to 5 trillion why that Trend seems to be holding true for everything like we were talking to the blue stone guy remember like when they were online their sales were X but when they realize they're doing a combination of online everything changed Trust access

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so all of that gets built by offline but that pattern is not necessarily true in America but it is in India why is that it is now businesses were built I mean just just online itself in that market if your Market was big enough that you can just build build a large business like I said correct I mean I came up with this 2000 crore thing right but whatever the equivalent like two to three two three hundred million dollar Revenue in the US you can build purely online so what in India it's it looks like you have to go also I think what we're saying to our audience who's trying to start a business if the odds of you reaching scale are

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significantly higher if you combine online and offline component no there's there's variance too so what I'm trying to say is purple is one of us so they started as a Marketplace eventually realize that if they don't build margin by launching their own Brands it's not a great business does purple have offline like Nike does not yet but getting there so so what I'm saying is three people leave us same thing so you have to manufacture your own stuff so okay so for somebody building in consumption having an online with the offline can have I mean you can start online but you know basically if you go back three four

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years ago you could get to a 300 let's just talk about consumer product Brands okay because that's like the specific segment right you could get to about 300 crores online and then you went offline so mama from launch to a thousand crows took five years and in seven years is 2000 crores and profitable okay so basically that's just in personal care and Beauty And Then There are probably now over 10 examples of multi thousand Pro brands that have been built between five and seven years right that was not possible now three years ago you could get 300 crores offline online and then you went offline today that number is more like 50 to 100 crores for two

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reasons one online is got more expensive as a more and more brands have come up online so cost of acquisition is higher and second though offline much like Amazon Flipkart and Nika Nikon Beauty democratized distribution online for e-commerce for brands we are now seeing the same kind of democratization of offline right like offline retail distribution was the purview of hul and Marico in food and PNG and so on and so forth right but thanks to some of the B2B platforms that are being built for a new brand to get access to offline retail is not as hard as it used to be right so now what we're saying is

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companies will get to 50 to 100 crores online only they will launch their own website they'll go on Amazon Flipkart depending if it's the beauty brand or Nike Etc and then once once in that 50 to 100 crores they'll go offline and what they're seeing offline is almost always it's more profitable because it is harder to do because you could also you know you have to deal with inventory and so on and so forth but that's the new model that we're seeing so you launch a brand you go online first get to 50 to 100 crores somewhere in that zone maybe 150 crores you go offline and then you scale both online and offline and you get to a thousand

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two thousand so digital first is still something I'd like to emphasize right because you know I don't think people I mean starting up new should lose that your ability to trial with customers your ability to give them new behaviors that kind of help them change their consumers consumption habits in a way are you saying you discover the brand always online right that's right the execution and distribution could be a combination typically it's online first followed by offline and when they come together it scales exponentially so I think the most important thing though is more than omnichannel which is online offline is called Omni Channel

67:33-68:03

you have to have a unique insight about what customers want like you got you know both of you had this insight about trading because you were Traders yourselves right so I think the most important thing if you're going to start up is you have to have a unique insight about what customers want could be consumers could be businesses no but there is a small like extension so that we just complete this whole since we picked up I think Karthik started alluding to that right so I think where you can also kind of take this the margin profile and your ability to make profits further is if you can get into your own manufacturing so you're

68:03-68:73

saying Marketplace building a platform or a Marketplace is not not anymore there's not anymore I do think vertical marketplaces there's still potential but they're also Rajan I think in these vertical marketplaces today you've got to be a lot more focused on the value add yeah there was a time when yeah no not really I think it is just triggered by now this realization that just gmv does not work but wouldn't ondc reduce the cost of getting distribution like if I were a me show and I went to every Mom and Pop Shop got them on board my platform by spending that money

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meeting them and doing it if ondc allows for that Mom and Pop Shop to be discovered by you who is also a platform doesn't the USP in that go away organically see ondc as a platform I think when you when you look at the sectors that have not been served whether it's your like end kiranhas where where today there is no legitimate way in which akirana can be discovered can be right on DC and these paytm all these guys are discovering them very fast no no that's what I'm saying so I'm coming there so I'm saying if if you've already on a swiggy or a zomato kind of platform as a restaurant

69:48-70:14

you know I think that there will be a little bit of a time in my mind for somebody to find Value in but even when they do yeah for the platform having discovered them will get devalued because of ondc if not today at some point in the future I mean I do think over the next maybe not in the near term but over the medium term ondc will have a significant impact but it's going to start with Mobility I think the most interesting example is namayatri which is now just crossed 80 000 rides a day which is quite remarkable actually right so I do think Mobility is going to get disrupted first right for different reasons I mean uh

70:14-70:76

you know three wheelers for different reasons for two wheelers and so on I think after that might be food and and I think it's actually happening so using that app magic pin they charge that's what I'm saying what will happen in food uh I think prashanth is the commissions but these guys magic pin which is the ondc app is also aggregating delivery agents so that's what I'm saying the the effort put in by svigi and zomato to find a restaurant get them Tech enabled adopt them on their platform they've done all that but tomorrow realizes that they can sell through another means yeah a fraction of the cost

70:76-71:65

my question was is that why also you're saying the platform plays not the play in the near future they can only be like two three winners in that space at most I think that it's a duopoly play the way I see it usually and even in the early days of marketplaces we saw that devolve very quickly into duopoly becomes a deep pocketed game and all of us just show our cards eventually and surrender to one the biggest player as investors if you could put money today in flip cards Wiggies zomato me show would you like for example four or five thousand crores Top Line five percent margin slightly flatish to negative bottom line trading it

71:65-72:38

35 40 000 crore market cap the question is not fixated upon naika but the question is more you as Savvy investors who are sounding increasingly critical about Marketplace platform businesses hey no no no no no no no I don't think we are critical about Marketplace you're saying the uniqueness has to be built in and a platform by itself exactly I think the the value add on the platform that's right the bar for that has significantly increased but if you had to pick between a very binary myopic choice if you had to pick between a company which is building a platform or a Marketplace

72:38-73:01

versus a company with backward integration where you're building their own Brands yeah yeah so so I think managed full stack marketplaces I think are but that covers everything see I'm looking for somebody who's watching this to figure out where they should spend time effort and money building so then you don't have to have a Marketplace in many cases that number 65 consumption 63 yes Does it include export no that does not that's domestic that's domestic consumption but in this new world order right where Supply chains are for resilience for whatever other reasons are getting

73:01-73:69

Diversified I think the next huge opportunity for Indian entrepreneurs is to take the export Market from 700 or 800 billion that it is today to one one and a half trillion right another question here let's assume most countries which have done well in manufacturing not just now but historically have done it by virtue of closing their Market off for a short period of time from outside competition in letting homegrown staff improve in quality scale to a certain point like there's a lot of precedent for this right like Industrial Revolution which

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happened in Birmingham many many years ago the environment was for that was created by the UK shutting down and not allowing foreign Goods in one can also agree that China did the same and they didn't allow Western Goods in shut the economy off to foreign produce and then the domestic economy thrived do you think India should go down that direction where to get better at solar cells for example we should stop importing cells or impose significantly higher duty to make Indian product more artificially more competitive is that the way to increase manufacturing profits we've already we've already started doing that right

74:38-74:87

so if you went down that path like for instance let's take electronics manufacturing okay less than five percent of electronics sold in India were assembled here okay so we should you know you start with assembly then you have to make components and so on and so forth right that number is now I don't know what the latest number is but it's well north of 70 of electronics consumer electronics okay is being captured none of the value in that cycle is being captured but that's a matter of time now first you have to start assembly then you start components and so on and so forth right so but do you think the broader question is is India

74:87-75:51

we've all established we need more manufacturing profits we need to capture more of the value in IP in India yes is India doing the right thing by imposing Duty is npli and all of that which I think it is in strategic sectors for limited periods of time it is it is working it's not is it the right thing or not it's beginning to work we should continue down this path and you will see you know like it's very interesting I was talking to the boat team you know they make the you know it's four five four thousand plus crows now of Revenue so they used to not they should design here and then get everything made in China now I think

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it's like 30 40 I can't remember the latest number but 30 40 in in 18 months yeah is is now actually they are now the large second largest um headset uh accessories company in the world I think one of the really uh cool definitions for patriotism in my mind like I don't think we have exercised this in the manner that many Western like the US for example has made they sell it so much I feel like for everybody watching right like if you have product a product B product B is India made product a is China made even if product B is five percent inferior

76:26-76:82

I think the biggest Act of patriotism in a modern capitalistic world today is picking product pure productive I think that's a really bad strategy because you want to win on the best product bought is number one in their category and we're also saying Duties are good and pli is good no no so basically look the duties are like if you don't see the duties to get companies to manufacture here right the pli if you look at who can benefit from pli anybody who wants to come out manufacturing here can benefit from pli right now of course some countries in the world are possibly not included in that list but by and large you know you can right so but I

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mean America is doing it why is it not about no but I think my American products don't buy look at the toy industry 100 billion dollars worth of Chinese toys American consumers this notion is very very well sold in America like you know bring jobs back buy American Products American consumers walking into Walmart you think they're really looking for American made in America tags now they're buying the most affordable products I don't think so I think consumers around the world want to buy the best products that are the best I'll tell you my example like when there used to be Flipkart in Amazon I'm not talking in the Walmart era Flipkart

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I would subconsciously pick Flipkart over Amazon every time I don't know if many other people did but no you know they could but I think what what we have shown now like if you look at a company like boat right boat went up against all the Chinese uh accessories companies and one in India not because of patriotism not because of price because they had better product and I think that's really important right but there is something to be said about Indian slightly favoring indian-owned Indian funded Indian made products because that tiny

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differentiation I think will take our manufacturing and our products A Long Way Forward what is happening nikhil is Indian entrepreneurs have a much better pulse of what Indian consumers want so I think what we are seeing which is very very interesting is the Indian brands that are winning in India truly have better product and I think that is that is what you want right because first we'll build better products so let's take let's take a company like I totally agree with you but I think there is also something to be said about it is hard to build a better

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product and compete in an Open Marketplace if say for example I'm just using China I have nothing against them if they've been building solar cells for 30 years in our manufacturing 50 million quantity practically it is quite hard for a factory in India manufacturing therefore that's right because if that I said that is and all these countries do that all the time so I think we are we so when I'm saying Indian consumer favors Indian product by virtue of patriotism that might be my euphemism for something else why is that wrong no no it can be wrong it's I don't think

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that is so the question is if you take a look at Indian Brands right Indian brands that are winning and you ask the question why are they winning they're not winning because Indian consumers are picking an Indian brand I mean I've seen this time and again right Indian consumers will pick the best product at the right price value prop range right so and and I think what our entrepreneurs are getting better and better every single month every single year is innovating for India I know there's a school of thought that you should build for the top 10 million or the top 20 million I think that is not as an entrepreneur you should not aim

79:96-80:61

for that you know think about it right we have the most advanced mobile internet ecosystem in the world that consumes three times as much data as China does China is a billion internet users why because one company called Reliance fundamentally disrupted the cost of 4G access 3G access and now 4G access right the game I think in India is to build for India price point yeah exactly right I think I think as an ecosystem we've been very focused on the top 10 million or the top 30 or 40 million yeah yeah sure yes there is another dream statistic is

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about 516 million people in India have access to a TV set yeah 400 million Indians now pay with UPI and that TV set is soon becoming a medium like a mobile device because TVs are getting smarter like the next 25 of YouTube consumption in India is now on television yeah because it's two-way TV and uh you know two other examples maybe slightly I'm just switching back to B2B most Indian Supply chains are are starting to really work more efficiently and we're able to compete because of two reasons one a lot of digital infrastructure got built within the country right whether it is uh and and formalization of the economy through GST

81:40-82:14

and you know the ability to build more efficient warehousing all of that would mean that if you are supplying product now from India right because everybody in the digital chain is mobile right your level of efficiency in your supply chain in India is on par or better than any other country globally so I think that's a unique opportunity which we have been waiting for the longest time right see if you look at manufacturing as a sector 35 to 40 years nothing really has happened in this country but now with the digitization of the supply chain the ability to grow for

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Global demand to digitally access Indian product and Indian pricing on Indian product and the sensibilities in the Indian entrepreneur to build for Quality it's no longer about what the Indian consumer wants I'm saying the game has changed and has to change to the next level in India we are not going to become a 10 trillion dollar economy by supplying better products to Indians that has its place right we will have to and this is where I agree with Raja in terms of the quality benchmarking that we need to be able to build best product globally and to be able to build best product globally I think Partnerships are also

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very important I think we cannot get also closed if you're not getting that technology from China we need to figure another place to get the technology from right so we have to build world-class product from India that that whole China plus one diversification take advantage of that in the next two to three years and a lot of Entrepreneurship I think has to be built there I just by I think in competition one unique thing that is happening in India right now I think the fact that we have stable governance and stable policy making for as long as we have had it I feel like that in itself has made India so unique

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to take advantage of the China plus one opportunity because you look at everything around us let's add these two the digitized supply chain and the compute power real-time compute power across the supply chain with every individual right and corporate taxes which are globally benchmarkable all of them done by the Modi government in the last year I think one of the reasons why Indians are putting Global world-class products is the money all the VCS are brought into the country right I mean it's just crazy because I remember in 2010 when we first started sarova you know went around finding

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website designers and and just that you know I'm just saying just that one small bit right the quality that has gone up is just immense and I don't think that would have happened if not for all the money you guys have put in the country you know so and and you know I think it's a combination of you know it's a good point you know it's a combination of capital but it's also you know like one very interesting thing we should talk about the smartest Indians are not leaving India in droves and they're coming back and they're coming back they're coming back

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in a certain way because 90 of the money coming in is external you're like marketing agents for India you're going out in the U.S you're pitching to people to put money into India and you're bringing money back no and we're pitching both right we're pitching the India opportunity which is the macro and all of that the the stable carbon but more I think the the the capability of the Indian entrepreneur I think is so recognized globally I think that is bringing off the money I think the Sundar picture is and yeah I think there I think yeah they're big they're also like 30 or

85:51-86:16

whatever 25 30 of Silicon Valley Founders are basically first generation Indians so to close the market size no but Market we should talk about the export we only talked about the message yeah you've said 63 is consumption focused yeah that does not include as export that 63 is about 1.7 1.8 trillion dollars yes uh outside of consumption which we spoke so much about what is the balance 37 percent exports is a huge thing so actually if you look at uh so if you're an entrepreneur looking to start up right again start with something you know something about

86:16-86:79

you have unique insights but building for the world now is a is a very real thing right so if you look at new seed funded startups in India in 2022 calendar last year and this is seed funding we've defined as between five crores and 40 crores raised per company right so companies that have raised between five crores uh and 40 crores so between half a million so four crores half a million dollars to five million you just call that seed large seed round uh somewhat average seat round 40 percent of all's Indian startups that raise seed funding last year in that

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definition we're building for the world from Day Zero most of those were building software products vertical SAS application SAS modern data stack cyber security infrastructure companies increase now that we know we're seeing a new crop of AI companies right so I think that is the first so in many ways right if you look at export from a technology enabled standpoint the first big wave was I.T Services that's now 250 billion dollar industry software products is the next big wave and now we are going to see coming after that would

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be the manufacturing wave consumer Brands right so you're seeing toy brands uh this is company we're not investors in it it's called ayurveda experience in Delhi they make ayurved the products that sell them in the US they don't even sell in Marketplace just cost 50 million Revenue can I digress and ask one question so trends of VC money this year have been slowing down of investment in gaming consumer tech ed Tech e-commerce lesser money is coming in crypto SAS and fintech are flat the highest Investments or the rate of growth is coming in retail consumption

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energy and EVS why that Trend and if that is the trend what is the opportunity for somebody building a business today so I have a controversial view on this yeah I honestly I think as an entrepreneur shouldn't care one two Hoots about what you just read out but if if you're entering the industry which is being funded or the rate of funding is going up isn't that a Tailwind terrible way to think about business opportunities and entrepreneurs yeah what will happen is by the time you have to raise you around okay let me let me gloat a little bit about my skill I think I'm looking 10 years out I want to see what's a billion

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dollar opportunity 10 years from now if I'm a good BC and my counterpart should be a good entrepreneur who's also thinking that way we're not building for one year two years these are all cyclical you'll have a short-term cycle you'll have a medium term cycle how do I care what's hot I need to find five intelligent people who believe agree with my point of view and you just said gaming is down he's where he says he made five Investments this year so he's bullish right go find him right if you are bullish on gaming so actually the point was not that nickel so

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I didn't mean to come across the route but the point is if the entrepreneur is building into a market Trend it's a very I'm going to be wrote to the entrepreneur it's a very 80 style of building you're trying to go by the monies you're trying to go without opportunities what is your advantage what is your distinctive advantage and what is your passion about building into that space actually I haven't uh I mean I I partly agree that you shouldn't uh kind of go after a market that's currently being touted as the next big thing I think that's the wrong thing but I think

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entrepreneurs should have a macro global view and a macro Country View on where things are going just just to kind of talk about a sector we have not spoken so much about climate Tech right uh you know I think there is global shifts in multiple ways that being more an NGO funded space now to where VCS are really looking at clients talking about Geo engineering multiple aspects of it I mean because you spoke EV I didn't want to see specifically we specifically new new materials right uh I think there are a bunch of uh opportunities in climate uh Tech going beyond the just the energy the

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kind of the stuff that you spoke about and if I were a entrepreneur today I would look at you know where is where are the climate Tech opportunities and the related stuff right 10 years down the road like he was talking about energy EV or aspects of it might be already played out for somebody starting out today so I'm not trying to get specific here I'm trying to figure out what can we tell people if they work in those sectors in the next 10 years their odds of getting luckier slightly higher so I'm saying the annual Trends which generally reporters tend to write about was way too short term is my only Point

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agreed but what are those trends that you are bullish about in the next I think a lot of the stuff that Rajan and Prashant spoke about consumption also Global consumption I think it's a huge opportunity to take off from where Rajan put the number we've been at that 40 number for 12 years now we've always had companies and we put it on a deck that this is the India opportunity don't come to India trying to buy India consumption it's a terrible story to sell what we are is very good at building world-class products and 40 of our portfolio will be built for the globe right so if you and for that like Rajan

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said you've got to be world class from day one there's no time to catch up some Israeli company or some Singaporean company will beat your backside right so if you therefore you've got to be so Supreme in like you know software engineering skills or understanding an Enterprise product need or a developer tool need or a robotic product or printing 3D artificial livers or whatever it may be but you've got to be world class there's no leeway for like saying I'll catch up in five years in Venture it's different when you're doing solar cell production with plis in Venture there is no leeway right so

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we would love to see and this is where I think we're beginning to touch the you know tip of the iceberg we were at freshworks one unicorn and SAS in 15 or 16. now we have about 15 to 20 of them I think the first ones will happen in deep Tech slash manufacturing not of the consumption variety of really cool deep Tech like you know autonomous robots and you know EV components and things like that where we can build global companies and when that happens is when the ecosystem breaks out big time because you need poster children you simply can't sit here and say let's do it and by the way we're all guilty of this we're also looking for patterns

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right you're saying dude nobody has done this how do you think you're going to be the first guy ever to do this right and so some entrepreneur fights all traditional yeah so that's really well that's a question I had for all of you actually like how do you not get sucked into this like how do you because it's really hard to figure out what will click in 10 years from now right I mean it's a well I think that's where I'll admit a little bit uh and I don't know uh Karthik has to agree to this because I think you also need to know what currently the ecosystem

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broadly wants to invest in otherwise companies can't raise money right so they have to survive they have to survive right they survive the 10 years so directionally there should be in a space that is going to help them raise Capital so that's important so you can't I mean you can't be in ic engineer in our evaluation Matrix it was an adaptation of what Mark Anderson Drew up in 2006. in fact it's a public blog I think I do it did it before front two 2014. we basically understood that you can't get seduced by ideas and trends and essentially if you had to put a weightage we essentially internally

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assign 40 40 20 and our evaluation forms actually make us comment on that 40 is Market opportunity what's a house view on whether you actually believe this Market's going to bake out big right entrepreneur can't be educating you have to have a house fewer now the second is do you think this kid was girl with their team can actually build a billion dollar business that's the next 40 is it yeah I don't see how that can be substituted by let's hire a CEO right right not in the Venture Journey private Equity is all cool because you're already making profits you're stable the last 20 to

95:07-95:79

prashant's point is capital markets are you like totally against the trend in terms of what might get picked up and we paid the price that's why we've learned you to try and do cool deep Tech stuff in 2011 nothing moved for five years can I put you guys on the spot just because this will help some people and make you without explanation take one sector if somebody is building removing all passion all of that outside one sector that you think will grow at a pace faster than others for the next 10 years we can start with nitin I think the first trillionaire on this

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planet will be someone solving for climate problem okay elaborate it's getting close he's got another 800 billion to go yeah the speed at which climate change is affecting our lives right as in eventually when push comes to shove you know like how covet resulted in so many billionaires out there for making vaccines you know people who are solving uh for some of these problems how okay anything I mean like any climate intervention types residents say for example including Elon Musk doing

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electric cars so you mean things like EVS energy transitions yes land-based Foods I mean like I said it's very early for plant-based food but solar like anything that is you know that little thoughts I I'll kind of chime in there big proponent of climate I think we are if you look 10 years ahead right there are two Trends I think one is health and how how much disruption we will see in what I call as Upstream medicine what is Upstream medicine Upstream medicine is that really every disease that you ultimately see right as a manifestation has started 20 years before in some form and today we don't have the

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Diagnostics or we don't feel it and doctors can't uh kind of detect it so you only detect it at the end right so what medicine 3.0 will be and maybe we are still not seeing a lot of that in India but I think we are at that cusp of being able to look at so much data Upstream that you will be able to start one's journey in not getting into that situation 20 30 years later right today yeah at when you're 35. you know what the funny thing is so far yeah you remember those sectors where I said funding is increasing both of you have just spoken about that yeah no because I think this is Eevee Health yeah I think it's the

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current Trend yeah but the thing is to do what what I mean what's your thesis there like you said um you know it's it's in it's a broad space right but what do you do there there'll be a timing for all of this so for example right sustainability and materials are all sustainability is a huge opportunity globally recycling has not worked so you can't use garbage material first rather than later figuring out how to segregate garbage so there is a unique opportunity for India here we have one of the largest reproduce that either gets burnt or that just goes totally waste right one of the largest producers of bamboo

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globally right but what is the share that we have of any kind of sustainable material that gets put out point zero zero one percent but there's a golden opportunity that is there right now actually let me add U.S no no U.S just introduced a 25 tariff for all sustainable material from China right this is this is a reverse material yeah yeah not sustainable material sustainable I mean if you if you get bamboo stuff from China China India is zero and I'm saying this is like golden so I'm saying I'm so excited about this because it's like you're wearing a

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bamboo grow bamboo and Pitch Perfect that's just it's gone from 1 to 10 million U.S domestic brand in 18 months okay like hemp for example right we've been researching on him quite a bit it's just ridiculous how good that plant is you know it's like a coconut tree you know every it fixes nitrogen yeah you can consume you can I mean when I say consume No Seeds yes you know cannabis yeah is a is a dirty cousin I know I'm talking about him I know but it sounds funny to say I went to the restaurant next to the bar okay so climate health look so I think it's not on your list but the number one theme that Venture

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capitalists around the world are focused on currently is AI so um it's probably not shown up on the data yet right and I think uh if you're an entrepreneur thinking about starting up firstly you have to be deeply technical I think going back to the thing we've been talking about don't chase the trend the number one Trend right now is AI you know I think AI is is going to have very very significant impact and again like I think what could be very interesting is either tooling you know if you if you can make uh AI infrastructure better faster

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cheaper more reliable hey can you make these models hallucinate less that's really interesting or you have vertical I think vertical use cases are going to be super super interesting right so you can look at Healthcare you can look at education you could I mean you could pretty much every industry okay so we did climate Health AI Karthik I'm like I feel like um we can't sort of materially move ahead if we don't sort of skill the larger segment of population towards employment in some sense so employability what leads to that in a more material way is going to become

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more important are you saying education could be education but it's basically towards a profession skilled skill based Skilling explain elaborate put that like so like we have one example of late so I'll use that and plug them in so which we didn't realize until the guy came and pitched us and we've been seeing two three more in the pipeline so basically by the way since we transitioned from AI the upskilling of everybody into a becoming very proficient you know AI enabled sort of programmers is inevitable so there's a whole industry that will have to upgrade so just enabling that upgrade I think is our domain to win if you ask me because

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we can do it at a cost structure which nobody else on the planet can do it's great being India India right so I'm talking again from India give me like a practical use case no so now I'll come to what we've funded recently a company called birohan so they realized that the phlebotomist who comes and takes your blood Sam say that again phlebotomist the guy who takes your blood sample okay only 10 or so are formally trained and given a diploma Etc but let's just learn on the job okay okay so whether you are comfortable with that or not that's the reality of the country and the it's it's not a job where you'll

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get universities to sponsor classroom education around this and train them in a professional fashion and they discovered that out of the 60 percent of healthcare Professionals in this country are not doctors and nurses does everyone but that and you and I would never know where they get trained in some sense right and we're not talking about pharmacists we're talking about people in the Health Care System right so they are going call District by District have approved courses building in Practical training with the neighborhood Hospitals and Clinics tying up with that house that education

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that college which has the ability to get the uh the degree approved and training Away by the hundreds and guess how much three years of curriculum costs there three lakhs because it is leading directly to employment and Skilling which can be repaid by those people and 97 employment success right at the end of the program three years ago something like this existed I wouldn't have believed it so you're saying upskilling opportunities creating professions has not been a very good strength of India if you ask me other than a very small sliver and there's you know we left it to the itis

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of the country to do machine training and things like that and I think there's if we want to come if we want to think of can we become a superpower in health tourism can we become a superpower in exporting Education Services across the web from here to the rest of the world can we become a superpower and compute more Computing Skilling our Engineers who we churn out by the 300 000 350 000 by year a manufacturing destination that challenges China I think all of those lead to where is that skill set it's not simply going to come out just because you give a degree that transition from so Infosys in the web browser put them through three months

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and teach everybody coding it doesn't matter whether you thought chemical learn chemical engineering or textile Engineering in three months you're coding right and so that was to serve a specific purpose and if you look at India as a whole I think that's a huge opportunity okay so now we have established Market sizes and what sectors each one of us think we should focus on actually I didn't do one I will pick energy transition without getting into it because there's so much research available on energy transition I think fission fusion will become Main stream much faster than we are expecting

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it to and that will also in a way solve some of the other problems we discuss too much climate Tech here yeah I think that's a good way to close Market size as much as we could derive down to the very basic numbers and one preference of every sector that each one of you thought people should focus on another question which is very applicable to you guys is say I am a startup and I'm pitching to you guys to raise money you've done this a long time in your experience what have been the traits I will ask each one of you individually traits in companies that have worked out

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and what have been the common traits in companies that haven't worked out give me two things that you have found in common between companies and Founders that you've invested in that has worked out yeah it's usually the 180 of what works doesn't work so one of them is my bias as I said for people who truly relate to the problem that they're solving so which is aligned with what both of you would Chase as well in your in your lives and how you've built uh I think the reason I believe that is very important is because the journey in my view the supernormal

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journeys the ones that those five companies that deliver the magic those are 10 plus year Journeys and full ridden with potholes and shocks and emotional setbacks the only thing that keeps you going is the mission so if you have started with the purpose of saying there's some quick bugs to be made here I don't see it work okay got it so one thing you said is Founders with long-term vision with something they relate with yes a problem in their own personality they want to solve for a long period of time yeah the second one is I think incredible Evolution as and by the way we used to think teams

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are important of course they're important but I think I'm back to over indexing on one alpha female alpha male equivalent because I don't think you can distribute that vision and vision why one alpha mere one also no maybe not just one alpha no that's what I meant either I'm being generally true but I'm saying alpha male or so I'm saying I'm saying it's important for there to be one CEO Uber founder CEO and yes theoretically private Equity or late stage growth can replace them saying these guys are useless I'm trying to judge that seed which is my bread and

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butter whether they're capable of learning inquisitive and self-improving to become CEOs at every stage are those the top three traits you watch for inquisitive curious and willing to learn yeah change in another word otherwise no chance they can scale you want to go next no I mean say all the Investments that I've done is in areas that I deeply care about no but how how right the Investments you've done what have you learned about this that's why the only ones I think I've associated with the people who I think deeply care about the problem as much as I do I think in today's world almost

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in everything that we're doing we need a technologist right I mean like people like you and me so I think uh like Karthik said I think you you can be a CEO material but you need a CTO in today's world in whatever you're building so it's also important you know when you meet you want to see who's the guy who's going to help him you know if the person who's talking to you as a CEO you need to see the quality of the CTO as well no you can't big big fan of co-founder right and karthik's point I mean you need to be multiple uh I mean to Rebecca company work you you need that right balance in

109:26-110:00

terms of personalities you need these complementary skills okay too I want something interesting from Rajan toxic childhoods create great entrepreneurs something like that like not the hard-working obsessive typical stuff no I mean look resilience right look on average a successful startup will have several near-death moments right you run out of money you get sued by a biggest competitor uh your co-founder leaves so I think being able to stick with it is really important what has this founder he or she or the founding team members are there you know signs of you know resilience and just sticking with it and

110:00-110:60

just going at it right and how do you discern that it depends on the experience right like we ask the question like okay like just uh actually they seed invested in this company called ethereal machines these guys have been added what seven years seven five under our watch seven years right yeah so they've been at it for seven years I mean like it's hard it's really hard the only two other companies in the world that do it and everybody said they couldn't do it they just stare at it they stare at it they stare at it whoa that's good because you know now that shows resilience right so uh so it could be in your own company it could be

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something that you did before you think willingness to change their belief systems constantly no I think you should you should write your values in ink and your strategy you should change but then if you do that you can't be a jailbreak no agile is like basically you know the values I'm talking about values your strategy should change values is like what you're about right like you believe in X and Y and so on for example what do you believe in no for like values of uh let's take uh like you know I'm a company should I even have values of course you should what are those values uh focus on the electrical Google value

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that I love focus on the user and all else will follow do you think they really do that yeah they focus on the user more than themselves yeah focus on the user more than they focus on Revenue even today really absolutely so so going back I think the first is resilience second is agility meaning you know you're able to change so I think if you're going to be successful one you're going to have to go through many near-death moments uh and second you have to be able to change your strategy change you know like Etc change yourself you have to evolve yeah actually that would be the third thing right when I

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said change your values and belief systems I asked whether the founder himself has to change what he thinks believes and lives constantly constant about the market I mean if you separate out the values of co-inherent values right like Integrity is a value you know what I mean like hopefully you're not changing that um being customer obsessed is a value hopefully you're not changing that you know unless you're willing to go at 10 to 15 years making very little money going through really excruciating times working seven days a week 20 hours a day don't do it because I believe all that

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yeah because I've seen it do we really believe that success is because of hard work I think it's Obsession absolutely no I mean I don't understand like just to set it right so so I started trading the market in 97. uh zerotha started in 2010. all our success came in 2016. so it took us 20 yeah there you go right you know so there is you know like today of course now we can have five days a week and all of that but like you know so it it happened in my office for six years sorry no that's my point right that's the point exactly yeah no but but I'll tell you where the dichotomy arrives in this conversation

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I feel hard work in the mainstream is a way of appeasing our ego both as a consolation and as a reward consolation when things don't work out I can tell myself but I worked hard when I win appeasing my ego on the other end because everyone can argue like probably the Watchmen of my apartment works three times as hard as me so can you really correlate hard work to success absolutely necessary but it's not sufficient I go back to that argument I don't and it's not a guarantee it's like that everything is necessary I'll tell

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you why okay I agree with you there hard work is a precondition it is but it is not the main condition you might have gotten lucky by getting enough Capital to be able to buy some of that on the cheap in a hot Market Etc but actually the more Capital you get if you're a responsible entrepreneur your work just increased again right so it's never ending in my view because your organization does not hit steady state neither does your customer base neither does your product anytime in the near future yeah but Karthik see the thing here is I'm looking for nuance if people watching this are told you need to be hard working you need to do

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this you need what are they learning from us this is not hard working hard working is not seven days a week 18 hours 15 hours excessively hard working this is insanely hard work what did you say you need to relate is different which is not obvious to the entrepreneurs watching this because you guys have the experience of picking so many I don't want the generic right I know but the thing is you know as you guys know more than anybody else like actually this is not rocket science this guy just as an example ethereal he asked me last week when I'm in Bangalore right and he's hacked a meeting with me to the airport tomorrow

114:98-115:63

to get that extra hour so you want evidence that's kind of evidence is networking skill in today's world to be able to have gotten that meeting with you either through a referral or something no this is my profounder for five years nobody is that a very important thing absolutely yeah give me that then so that's what I'm saying you have to push and that's not Mia by the way huh I had to play out the scene in my head on how I would interrupt him on his walk from the podium to his car 10 times Last Chance was the door was shutting so I had to hold the door me okay you give me one now you give me

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one Storyteller and yeah so um can you really tell the story in a way that's interesting very few Founders can if somebody is looking to build product ahead of insight and a deeper appreciation for what really the problem is I think I've seen that as a recipe for disaster in most companies what they will have is a 100 member Tech Team yeah right average product I am very average product because they have not gotten enough insights so I think this thing that you need good Tech is a

116:30-117:00

like hard working is a prerequisite but how you apply it how it's a hard work you can direct your hard work so that's what I wanted to kind of even in the hard work discussion say you can direct it with the right hustle in the right way to achiever right end goal right okay or it can be just misdirected feel good hard work okay so I think outside all of this uh it's just people skills you know just to be able to keep your team together I think I think what he's trying to say is psychologically even as an alpha male you need to be more accepting of your feminine side from a very psychological standpoint

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it's more than that I think yeah no that's what I said you've got to become a coach yeah that doesn't there are no boundaries there yeah because that's societal construct really has negated the youthfulness of a feminine side in a man so much that most males are not able to do that so that's a good point if I could add one I would say crude up childhoods staying away from privileged upbringing is something to look for like here like I don't know but you know I think I'm the first to admit like you could look for it by the way but as a Founder you

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know the questions you can I mean you could have a privileged background but if you're not willing to work seven days a week what do you look for no no no I mean you're saying for somebody I think the beauty is if you love the idea everybody has a screwed up childhood if they want to locate it that way they have to like build on that emotion have you ever met someone who has told you like and truly believed that they love their childhood no no they're extracting something yeah for a right to win yeah right and they're saying this is my this is my proof I proved it to the world that I can win yeah and they're extracting some part of

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course they're extracting I think I'd also say that you know like trying to tell a story that's not real very quickly because this is what we do for a living you meet thousands of Founders another thing I was hoping somebody would say authenticity say like it is yeah there's no Automation in the business packing stuff okay great authenticity to the extent of self-recognition where you're not pretending to be a machine you're not pretending to be a saint you're not pretending to be anything but you're cognizant to the fact that you're greedy you're jealous you're insecure like

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every one of us sitting here is so the time spent pretending to be a person that does not have those traits is futile and if somebody recognizes that I think it's extremely appealing and endearing so this whole idea of founder market fit yeah it has much as important as product Market fit is in 10 years will you love doing it you're passionate about the space but the space requires execution the space requires you to solve a problem and that typically requires different skills and characteristics that may not be natural to you and are you willing to change and are you

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willing to become that different person you know like I mean I was talking about these B2B manufacturing startups that I'm I'm seeing these Founders I mean struggling because they all thought this is entrepreneurship and startups meant Tech right and now they're figuring out these are like really heavy lifting problems but the thing is I stay true to the mission yeah so my question was really one you're going through tough times right and then one you're going through good times tough times you you kind of know you know like people you know if a business breaks you know it's a tough time it broke but other many times where

120:28-120:99

companies are going through good times and they break because co-founders don't get along well happens you know they start out with the same uh kind of passion you know focus and the business takes a difference it's doing well but it's become a different business and one of them relates to that different business and the other one does not relate to it it's also sometimes it could be that the the CEO Persona has evolved to something and the number two or number three in in hierarchy for what it's worth is not as motivated to continue doing the same thing or has become less relevant just one thing one thing

120:99-121:83

a person pitching to you does wrong you would like shut off instantly over simplification of time elaborate total addressable market right oversimplification it means that person's homework is like you think India has 140 crore people I'm selling shoes I can sell no no no no no no no it's not that bad I mean they won't get up but I'm saying that they have no I mean okay agree and Allied Services is a 500 million 500 billion market right and he's selling he or she is selling organic uh fresh FNB right I get your point over simplification of time next I would say look basically if I don't

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say wow even once because of lack of insight can I say one overtly optimistic without voicing that the future is uncertain and all of these events can occur yeah not premium next Karthik cases where I've seen Founders sort of uh give no voice to anybody else on the call they bring people in US yeah that's true theoretically team or co-founders and uh basically you feel like the others have nothing to share it's the variant of a CTO problem equivalent you need someone who you know can express that strong Vision as well and a lot of mistakes have been made because we've overestimated that

122:61-123:22

individual's capability so I start Believe It or Not number 20 minute introductory call sometimes I will ask for who owns how much do you think overconfident people are better off to deal with than under confident people when starting a company because they will overcome to pick one I'll pick the overconfident why so there has to be a will to say that I can conquer any mountain right in some sense okay that it doesn't without that there's no chance the first small Peak you'll give up I mean I think setting the wrong expectation or selling um

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and I think I also the energy of sorts you know like if I don't know a bunch of questions quick fire one of you pick it answer it I think it'll help everyone like we were trying to establish how much VC money has come into India and we figured that number is 60 or 70 billion the AUM in the VCS are is roughly around 60 60 billion today and I think the total startup funding is a lot more than that right because uh so so they're leaving peace I'm not talking about peace because a lot of capital also came from strategics so if you look at the year 2021

123:92-124:61

the total funding into Indian startups was over 40 billion dollars that was up from 10 billion in 2020 and 20 I mean this depends on like which data but 2019 was 14 billion right so the way to think about startup funding which is largely VC but also include strategics yeah that was Duo I'm guessing right in that 2021 yeah the big ones are tucked into that yeah but that's 10 billion of that right 10 billion right so so see and also you know what we are not counting is we are saying AUM of Indian VCS right VCS in India I think it doesn't include SoftBank is saying is that there is AUM that is

124:61-125:26

kind of quasi-allocated for India but sitting outside is public market better than private markets no liquidity cheaper multiples maybe lesser growth you know which side I am for money blanket for investors Founders investors privates because that's where Innovation is okay if I were to start a company today let's say I'm making something that we spoke about we spoke about a drone com drone company should I be a LLP a partnership or a private limited company pick one why I think keep it simple

125:26-125:88

private limited you want to you want to keep all options open in terms of taking additional capital and it's higher taxation if it were to be profitable but the thing is there's no other option if you want to raise Capital it has to be proud yeah one is that and second I mean look if you have to raise Capital best to be private limited yeah if you ever I think that's not a Insight which is easily yeah I think I think in lifestyle businesses which are oriented towards partnership or service revenue of one kind then it makes a lot more sense to have an LLP or a proprietorship or whatever because you intend to take that cap that the profits you know into your

125:88-126:64

own pocket and and then pay taxes but in every other sense when you have a secondary shareholder you have to pay private Limited okay is the 220 models queued does it misalign interest from stakeholder to venture capital guys and is the seven year tenure or the 10-year tenure too low I think the 10-year tenure is for early stage VC is a necessity and in markets like ours I think it's more like 10 plus 2 or 10 plus three it is not as easy for a venture capital guy to make money as most people assume absolutely you have to return significant value before you can start charging my new entrepreneurs that we who win for us make

126:64-127:33

multiples and multiples of the money we make and make it much faster than we make it so as the patience game where you have to still average out all your winners to see actually meaningful money and comes right at the end okay no just one that's just one question so in the U.S the you know like we were I was reading this article which said over the last decade the The Benchmark NASDAQ has outperformed the the VC Benchmark right so in a world like that where you can actually buy an ETF for almost zero cost do you think there'll be pressure on this 220 in the future I mean forget India I'm just talking in the global you know in the US without getting to

127:33-127:91

specifics I think there are occasionally some funds who can charge even more than that correctly it comes it comes only because this repeated uh evidence of success and beating those benchmarks and that is a entitlement of the top quartile of the region the top performing funds of outperforming NASDAQ yeah right so I think it's a top quartile uh syndrome everybody else you have to give a chance for them to try so you can suddenly give them a lower price and and a lower cost structure and say beat sequoia or axle how will they beat them right so the starting point sadly is that and uh LP can choose not

127:91-128:56

to participate in that new fund but I think less than that you can't function because you have jumbo size funds and you're just making too much fee what about specs how have the specs done most of them have shut down for most assets it's a Gamble would anyone like to Define SPAC in one sentence special special purpose acquisition company usually where there's enough people willing to give a equivalent of a venture manager the ability to go and identify one or more assets and do a roll up right so the financing comes before knowing what they want to buy and you're essentially giving

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incredible power to an operator or an investor to say that there are great ideas out there which are mature that I can buy the problem is most Pac managers go and buy there's I think there's a misalignment of interest and they buy Bad Assets how is India different from the US why are funds making a higher return in America than India we are in a different point in our journey right as a country and we have just got started in the VC ecosystem where entrepreneurs are learning how to build learning how to scale learning how to IPO and return money so unless there is

129:21-130:02

I mean just one m a here and there can't build the ecosystem right okay so this one is actually close to my heart uh when IPOs are happening like I have a friend called Kiran from biocon she was telling me about her IPO when it happened how it exponentially helped grow her business at a time when access to capital for her was only the IPO route at that scale why are all VC funded companies of today not raising primary Capital but doing ofs and giving exits and secondary Capital to previous investors and thus dumping

130:02-130:67

overpriced stuff onto unsuspecting retail investors like me so I agree with nitin on this I didn't know you share the same view publicly but I think it's almost like a sin to do that with public investors because everything has been ofs so I'll tell you what has happened basically the private Market was available for sale secondary round where you're not putting money into the company but a previous investor is exiting to you so misalignment of Interest people thought they can get away with ridiculously priced IPOs in the public market but that was Venture Capital doing it of course of course yeah

130:67-131:27

I when it comes to problems in India it's nobody's fault it's everybody's fault I'm not you can't just exempt the founders from it they if they really want to put down their foot they have to if they're so determined don't raise stupid the founders weren't for the right too yeah yeah it's not just don't make excuses of like you know coming down to a person at some level you're right the capital is a bigger bigger sort of culprit right so what what it was doing was essentially trying to bolster up the price because everybody's come at a certain entry point and they want a premium at their exit and

131:27-131:93

unsuspectingly there were investors private investors who were willing to buy it that exorbitant price who then also wanted 20 bump up because they said I just showed up your you know issuance price to a certain level and then the company looks back and says I don't really need any money so you actually skewed the entire idea of an IPO uh into the equivalent of what the Americans call a direct listing but after pumping the price up significantly with no basis of justifying that kind of valuation so the private investors who have an incredible capacity to buy this kind of stocks at much higher premiums are saying we are

131:93-132:56

fine we're all covered in in terms of price Discovery and there is a funny thing called a pre-ipo around before that's exactly I am the very small Capital as a result sometimes maybe there's a secondary but a lot of times if there's another category of investors called crossovers but everybody is dumping onto the retail who is kind of like getting so the education now I give my Founders is if you truly want to go IPO and you don't want us to feel really bad as your investors basically make sure that no investor retail or private has ever lost money in a two three year period right so nobody's saying you can't you can control every shock of the

132:56-133:14

price but if you've gone and listed and the damn thing has collapsed to not come back in three years then all of that is on your head or set a ratio right if you're doing a issue not more than 20 can be ofs or secondary yeah but you're right there was too much sitting and we're all in a rush to get out maybe that's something for the regulator to look at and do potentially the surprising thing here is the retail subscription usually is like 10 15 so it's actually the institutions participating that's also true the qib yeah I think what has changed from kiran's time to now right is the availability of

133:14-133:80

bench capital and growth Capital right you can build a company for 10 years you can raise many rounds of financing you can raise hundreds of millions of dollars you can push back your IPO that still does go to say and I think by the way that Dynamic has changed now right I think 2021 after 2021 I think if you look at idea Forge and all the upcoming IPOs at least our senses they will be priced much more appropriately the ofs the secondary component of an issue if it is capped will probably be better for the ecosystem in the long run yeah why is Venture Capital focused on so few sectors in India no that's changing right let's start

133:80-134:51

focused on what I mean now question is what force sectors agriculture gets very little venture capital no agriculture is actually there are a thousand Agri Tech startups but relatively because I think you see it's all it's always a question of supply of entrepreneurs who have the intention to work in that space and to relate to that space and like I said who want to go tap into that opportunity so it's not like we'll get entrepreneurs and we'll not fund them actually India has among the most broad base maybe next to China by far much more broad-based than the US so UK or Israel so there's a lot of sectors

134:51-135:16

outside of let's say biotech Life Sciences a few of those really deep sectors we probably have for an ecosystem this young we have sector-specific VCS in every sector there are two or three funds which just focus on Agri what's the correlation between public markets and private markets is one leading the other public markets leave the private Market private markets tend to do well because you have exited IPO right correct ofs [Laughter] I brought this up earlier tonight that only two companies have raised more than 50 million from external investors this year no no no two companies have raised

135:16-136:02

more than 40 50 bucks full calendar year there's been two this year so it's a it's a it's a tough market so doesn't that mean chaos in VC world is the best time because you know what's happening is cleanups and stability no not only that companies are focused on what they say which is to get profitable do you think india-focused funds are much larger than they should be like for example if Prashant were to only have 100 million dollars to allocate to India would you perform significantly better I think if you're in the early stage component of the fund fund seed to scale right so you we don't stop at supporting the company just for seed and like

136:02-136:73

Karthik was talking about this being able to provide the entire Continuum of uh support to the company I think is something entrepreneurs value and they want you to be with them uh for a reasonable part of the early cycle because it's not easy all I mean the say the there have been periods where we have had great funds who can follow on in series B and C in India and there have been periods where there have not been uh that has been a void in that market so I think it's if you want to support your companies and and make sure that they have that Capital continuity I think it's good to

136:73-137:36

have a certain scale if I were to be starting off in the work ecosystem today and I want a job with you guys in a venture capital fund what do I need to do what do I need to study what experience do I need usually it will help you if you've worked in in the startup ecosystem yeah I think so so if I worked in a fintech startup you would be more likely to hire me you just hired somebody yeah yes she worked in Africa and what are the typical pays when you start off at a VC firm depends on whether you're analyzed for sure the first first level at the bottom no you're an associate right yeah you're an associate I think you start somewhere in

137:36-138:25

the uh 60 70 lakh what are you seeing really for us it'll be half that number [Music] [Music] who's actually figured out how to work in a work environment you don't want to train them on that it's like a fancy education a prerequisite but do most people who enter your accounts program usually two years of Consulting and if they've worked in a startup for a year or two that's a huge boost this the sad part is the quality of applicants because it's such a small cottage industry you get such high quality it's difficult to ignore and try and catch a Maverick in that crowd of 200 stuff

138:25-139:08

that's the number you get per application it's work from home AI VOC culture Society inculcating a certain level of I would say distrust in the capitalistic way of life all of these put together if there is one big change you see in the way we live and work next few years what could it be I think most countries as the gotten richer and I think they found it difficult to manage this idea of good capitalism and this whole trickle down in terms of that that

139:08-139:74

the rich get richer the poor don't get poorer but I think we we have that challenge I I don't know if you have an answer for that but I think we we will have challenges income inequality another way of putting it you're saying asset prices are inflating faster than wages in the world wages in the world and few people can the good can afford better and better products [Music] yeah I think consumers will continue to seek out experiences more and more you see that now with the younger gen Z Etc right you know homes they don't own cars and I think that Trend will just

139:74-140:43

continue so if you're an entrepreneur building looking or specially focused on consumer looking to build on that great experiences right I think is uh you can't go wrong like some of our best performing companies or Global Travel companies I think it becomes even more important um to establish what Rajan referenced a while ago around what your value system is in sticking to it not trying to cater to all of the elements that you spoke about uh you can't cater to a wfh person if you believe it's wfo right you can't fake VOC culture if you don't believe in it everything changes the way you select

140:43-141:11

people the way you build organizational culture is tuned to your core beliefs right so all of these are impediments and how quickly you can scale I think you're much happier with the organization you've built 10 years down the line um so at least building a small Venture firm I think this has become very important for us well I think I'm actually a little optimistic here uh I think the the newer generation of on a question the true cost of everything in a sense I think the problem with Gen this generation right the the 2002 now whatever 20. I think the capitalism had

141:11-141:68

taken a very kind of an ugly side where you're growing at any cost right I mean you don't care what's happening you know I mean you just have to grow at whatever cost but the younger generation like because they don't want to own material things they want to go travel they're going to experience things I think they'll be less capitalistic than the generation that went by businesses entrepreneurs who are building for that world for that audience will be able to stand out there's something that I really really

141:68-142:37

believe in I think subconsciously Society is ignoring so much in this drama of virtue signaling which is happening in the ecosystem I feel many people are pretending to be unnaturally virtuous unnaturally altruistic selfless whereas they truly are not that pretends worked in the previous generation I can give you many examples but I wouldn't like to by lack of access because people could not see what a person was doing at every point of time I think in this generation and the next

142:37-143:07

uh to recognize our shadow personalities to recognize that we are all human and be authentic about it be authentically greedy authentically capitalistic I think that will be the cool of tomorrow and I hope more people think like this because if not for that you know we can all sit and complain about income inequality but income inequality has not happened necessarily because of the ecosystem but because of human nature if I were to divide all the money in on the planet equally amongst everybody tomorrow one will work harder than another day after tomorrow one will be

143:07-143:73

more skilled at a certain thing and we will come back to where we are today maybe not in five ten years but in 50 years or 100 years because that is the very nature of us being human and that is what makes us Thrive to begin with so I don't think we should look down on the anomalies of capitalism I think they need to be respected imagine an alternate world where every company is run like Air India was once run I don't think it would be net net better for the productivity I don't think socialism works at all and we have more than enough precedent of that I think capitalism has to be

143:73-144:49

appreciated and that probably is the most likely scenario in which our country can get lucky and go towards that five trillion 10 trillion dollar economy in the fastest way possible okay last leg of today oh we have one more charity all right yeah last leg okay so when we started this show which was not a long time ago uh like see we don't do very dramatic entertaining things like it's not like you know I want to call you here and talk about baijus and bharatpay none of what we did uh the very intrinsic reason for doing this is the summary and everything that we discussed today is not available for a student

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graduating college in India today but this is a prerequisite for somebody starting a company and and a facet of this which we started a couple of episodes ago I would not even like to say charity uh firstly I don't believe charity is altruistic I feel like everything has subtext in context which I might not be able to speak about in a manner which will be comprehendable by many many people including myself in most cases but I think charity is done from a place in your heart where your morality is being appeased and we're all each triggered by different virtues in

145:18-145:85

life morality being a very big one so let me call it change we also hope this episode can bring about change in society and get more people to contribute in their particular societies so what we do with the end of every show each of you commit to donate a certain amount of money I don't collect the money you donate directly to the charity which gets picked but we put up five options on a poll online on YouTube and social media and in a very Democratic manner people will vote for it whichever charity wins amongst the ones that you guys have picked will get the some culmination of

145:85-146:77

that money so each of you could maybe suggest the amount that you would like to donate to whichever charity and name a charity as well to put up in the poll since we spoke so much for climate and I kind of I'm all all in there yeah I'd like to kind of pick act environment okay act as something a lot of the VCS here have been part of and uh I will commit of course I've already committed to act and commit an additional 25 likes to act okay uh new capital okay and uh act uh environment focuses on air water waste and land use all huge problems for India and as we recover a lot larger and larger economy we we got to take care of

146:77-147:52

some of these Rajan next yeah so um the charity is a small charity in Delhi called the smile Foundation focuses on children and helps them on health and education and it's a charity that we're quite active with where you know my door teaches English and you know we do a bunch of other things with them um actually it's uh nutrition health and education so I'll commit the same amount that yeah uh Prashant has committed 25 25 50 Gothic there's this group called angan in uh in Mumbai okay they work with child abuse and all of anything that comes out of

147:52-148:24

those that help those children my sort of mental limit is like let's say a lack of rupees yes makes sense you are you selecting something because I have two in mind so I can tell both of us no no I let audience pick mine yeah so uh so there is say trees so I think you know like through through the rain matter Foundation the way we are trying we're thinking about climate change is that it also has to solve for Indian problems which is creating livelihoods so what say trees is doing is is to kind of put more money in the hands of the farmers so turn those Barren lands into food forests

148:24-148:90

in very you know grown through sustainable practices see if you can geofence give them some carbon credits as well as a supplementary income and yeah so the money really goes into getting those food forests up for the farmers and we've been we've been supporting them uh for a while from the rain matter foundation so so yeah so uh relied 25 lakhs morning okay and the environmental support yeah so I'll also add 25 lakhs and I will let the audience pick a charity for me and we will put this poll out as soon as the episode is out super thank you everyone for doing this thank you thank

Key Themes, Chapters & Summary

Key Themes

  • Indian Startup Ecosystem

  • Venture Capital vs. Private Equity

  • Investment Trends and Strategies

  • Sector Analysis and Market Dynamics

  • Fund Structures and Investment Vehicles

  • Market Size and Business Scaling

  • Online-Offline Business Strategies

  • Entrepreneurial Insights and Value Addition

Chapters

  • Introduction to the Indian VC Landscape

  • Expert Introductions and Backgrounds

  • Comparing VC, PE, and Angel Investing

  • Challenges and Opportunities in VC

  • Sector-Specific Analysis and Predictions

  • Understanding Fund Structures

  • Strategies for Growth and Scaling

  • Combining Online and Offline Business Models

  • Closing Thoughts and Future Outlook


Summary

The podcast is a comprehensive discussion about the venture capital (VC) industry, featuring insights from various experts in the field. The conversation is structured around the experiences and perspectives of these industry professionals, providing a detailed exploration of the venture capital landscape.


The discussion begins with a focus on the excitement and potential within the Indian startup ecosystem, highlighting the substantial investment in VC in India, estimated at around $60 billion. The participants delve into the nuances of VC investments, differentiating between the roles of fund managers and the broader investment in India's growth potential. There is a forward-looking approach, with an emphasis on identifying billion-dollar opportunities a decade from now.


The conversation includes a segment where each participant introduces themselves, sharing their backgrounds and experiences. This personal touch adds depth to the discussion, providing context to their insights on VC.


The discussion then shifts to a detailed examination of the venture capital world, comparing it to private equity (PE) and angel investing. The conversation covers various aspects, such as the challenges and opportunities in the VC industry, historical trends, and future prospects. There's a focus on the Indian context, with an emphasis on understanding the unique aspects of the Indian market and the potential for startups and entrepreneurship in the coming decade.


There's an exploration of the issues and dynamics within the venture capital industry, including the challenges faced in the last decade and strategies to improve outcomes in the next decade. The participants discuss various sectors, analyzing which ones are growing fast, the tailwinds and headwinds affecting different industries, and the overall investment climate in India.


As the conversation progresses, the experts delve into more technical aspects of venture capital, such as fund structures, investment strategies, and the distinction between different types of investment vehicles like angel funds, VC funds, and PE funds. They discuss the implications of these structures for both entrepreneurs and investors, providing a nuanced understanding of the ecosystem.


Towards the end of the discussion, there's an emphasis on understanding market sizes in different sectors and the importance of scaling businesses in India. The conversation provides insights into how startups can achieve growth by combining online and offline strategies and the significance of unique business insights and value addition.


Overall, the document is a rich source of information for anyone interested in understanding the venture capital industry, particularly in the Indian context. It combines expert opinions, personal experiences, and a deep analysis of the industry, offering valuable insights for entrepreneurs, investors, and industry observers.