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Pioneering deep tech investing in India | Vishesh Rajaram @ Speciale Invest
13 Plays4 days ago
In this episode of The Spotlight, Akshay Datt speaks to Vishesh Rajaram, co-founder of Speciale Invest. Vishesh shares some amazing stories about his journey in the venture capital scene in India, starting from his early days at Venturis back in 2007.
Vishesh talks about how he’s helped shape innovative startups and why thinking big—like really big—is key in this game and how relationships play a huge role in finding great investment opportunities and what the future of AI might look like for new businesses.
Listen to this episode if you’re curious about what it takes to be a venture capitalist or just want to hear some cool insights about deep tech investing in India
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Transcript
Introduction and Personal Background
00:00:00
Speaker
Hi, good afternoon. Excited to be on this podcast. My name is Vishesh Rajaram. I'm a co-founder at a fund called Special Invest.
00:00:21
Speaker
So Vishesh, what got you into the world of entrepreneurship and startups? So, you know, as I think about it, I think um entrepreneurship was deeply ingrained very unknowingly and very serendipitously in me a long, long ago. I came from a family that had an interest in pharmaceutical manufacturing and there were personal entrepreneurs from the 1980s. And therefore, a lot of my dinner table conversations and just how the the family operated was was very entrepreneurial.
00:00:56
Speaker
Of course, it had a lot of ups and downs and more downs and ups like it is in any entrepreneurial journey. And that
Career Path Shift After Family Loss
00:01:04
Speaker
possibly had a deep impact, very unknowingly me, because as a young kid, you know you don't wake up every morning thinking, want to build a company. But I saw my father do that. And the family setting was very much evolving around that. And I think that deeply inspired me to say that this is you have to create something in life. You have to build something. and And that's a good way to generate value, whether social value or financial value or shareholder value. it's still so i could Deep in my mind, always related building to value creation. And for the longest of time, that's all life is about. Life is about just the family building ah building a business and wanting to play a role in it. And I then also started to build a lot of my career about saying, how do I compliment
00:01:56
Speaker
this end goal of wanting to help the family grow the business and how big was the business like it was pretty small i mean the truth be told we've had our ups and downs my father started a company had to wind it down then worked in corporate for a long time and then started another company and sold to it and and so on right so these were small companies think of them as small medium enterprises and therefore i started to really think about what can I learn and bring to the table that complements him and he came from very much a technical domain and therefore I chose the path of saying that you know we'll pick up finance, we'll pick up business, we'll pick up some common sense along the way and all of that will come in handy. So really the goal for me was but to go and build this company with him and and that's how I started my career. I i wanted to become a chartered accountant because I thought that's a good way to but build a strong foundational understanding of finance law and
00:02:53
Speaker
and everything else necessary. So I started to pursue my CA and I started to work in Pricewaterhouse for a couple of years and and went to banking and and all of this was really to go and join my father. And
Early Venture Capital Experience
00:03:05
Speaker
unfortunately I lost my father to cancer when I was at business school, right? So then this whole holy grave plan that I had sort of very meticulously worked towards just disappeared. And then I, of course, i it was a situation that I took over the company thereafter and ran it and then managed to find a way to sell it because I was closing down from domain. Like you were like a 20 year old running a business trying to sell it. Wow. I was a 22 year old, inherited a business, not knowing how to grow it. That was a tough situation to be in. yeah And this was pharma manufacturing? like ah This was API manufacturing, yes. feeding andpi nice next Okay, that active pharmaceutical ingredients. Active pharma ingredients, that's what they call it.
00:03:47
Speaker
Anyway, I think life was very kind, and the the world was very kind. I was able to resolve the personal situation. And quite honestly, at that point in time, this was, of course, the year 2007. I had pretty low risk appetite. I said, I just want a job. I'm going to work for someone who's going to pay me. and And I don't want to complicate life for the foreseeable future. And and as luck may i have it, I went and joined a venture capital fund. The only one that said anything, I was theyre the only one to give me a job. Let's put it that way.
00:04:17
Speaker
um And of course, I wanted to stay away from risk, but I guess this didn't want to stay away from me. So I ended up working in venture capital, but of course I was an employee. To that extent, my own risk at ah at an individual level was capped, so to say. And I started to work. I enjoyed the job. um This is a venture east. This is a venture east, and you know i I love the job. and fantastic people to work with. What is the history of venture east? Who started it? What was the thesis? The history actually goes back to the history of venture capital in India. The history of venture capital in India dates back to the mid 90s when World Bank decided that you want to foster entrepreneurship in India and one way to do that was to start venture capital. And therefore they brought some money and they went to some of the debt corporations in the country.
00:05:11
Speaker
They went to ICICI, it was called TDICI then, which is now called ICICI Ventures. They went to another group called API DC, which was then called Anthroposage Tech Corporation. um And they give them some money to start a venture capital. And so VentureEase was actually a privatization of API DC. And that's how VentureEase got started, I think, again in the late 90s. Of course, I joined them in 2007 as a first employer in Madras of that technology practice.
00:05:38
Speaker
But you know what, I think I took
Managing a VC Fund
00:05:39
Speaker
fish to water. I absolutely loved the business because it gave me everything that I'd lost. One is the opportunity to be in the entrepreneurial world, to bring an element that they may not naturally know, which is a forest on the trees, finance, governance, business, and help them run companies. Of course, this help is a bit overrated. A lot of them are very capable of running it on their own, but just sort of being the being the inside viewer of what's going on. And I think I i really enjoyed doing that and i and it grew into me and I spent 10 years with them. So like back in those days, like this 2007-8, what kind of businesses were asking to raise funds? And I'm sure that would have significantly evolved to what kind of businesses? It's changed a huge margin from then to now, right? I think, frankly, the 2007-8 setting
00:06:35
Speaker
was not an Android, iOS, smartphone setting. It was still the Nokia smartphone setting. It was still cloud setting think and license software setting. And in India, particularly, confidence of tech product was still low. Tech services was proven by then. And therefore, a lot of the founders coming in were also much
00:07:02
Speaker
much older vintage they would have worked for 10-15 years in a particular industry they would have started a company around it and then look for venture capital and clearly I think even VC risk appetite in the mid-2000s would have been low enough that these people asking for capital also were fairly mature right they wouldn't have been a startup they would have been running that company for three to five years and then they raised capital for growth they would have proven a lot ahead so that's sort of the the the vintage and the sectors. I think at Venture East, we were fairly sector agnostic. I mean, I'd invested anywhere from construction to retail to food to life sciences, fairly broad based. Yeah. Okay. Okay. ah Which was your first big hit or the first successful investment you did?
00:07:53
Speaker
oh Well, you know honestly, actually, I can't talk a lot about this because I'm under NDAs. We can talk a lot more about what I have now because that gives me the feeling to talk. Yes, yeah I understand. okay If you had to summarize that decade of experience at Winter Eastern, what were the major learnings you had? I think I learned the art of investing, the art of portfolio management, exit engineering and fundraising.
00:08:23
Speaker
that which is an extremely valuable lesson to learn if you want to build your own fund. Because I think running a venture capital fund has many facets to it. Investing is just one of it. And I was very fortunate that at venture east the decade I was there, I had the opportunity to pick up all of these learnings, right? Enough so that I started to reflect what did I really want to do with the next 20 years of my life or 30 years of my life. And there were two things which sort of stood on top of it. One for me was I really enjoyed zero to one investing. I mean, eventually we've done growth, we've done early investing both. And I felt myself a lot more relevant in early the investing. A lot of my experiences have also been very zero to one-ish. And that sort of led me to say that this is exactly the space I want to be in. We want to work with founders, pre-product, pre-revenue, small teams, sort of help them think about growing and evolving. So that
00:09:20
Speaker
sort of excited me a lot. I think the second thing was just a home calling to say that, hey, in the long run, innovation is the lowest hanging fruit to value creation. If you're doing things most people can't do and you're doing them well, then you're building a competitive advantage, which is long lasting and that will allow you to build a valuable business in the long run. So that sort of then led me to go down the path of discovering deep tech investing.
00:09:51
Speaker
or Deep Tech as a category in India. Okay. ah You said that venture capital is not just about investing. ah Can you zoom in a bit on these other things like the art of portfolio management and engineering exits? The biggest part which gets missed in running a venture capital fund, it's more different from another startup, right? You have to hire a team, you have to build an organization, you have to build One side of the network, which is a set of investors are willing to trust you and believe in you and your organization to give you their capital to manage it. And at the other end, you need to be in a position to attract high quality founders to want to come and raise capital from your partner with you. And between all of this, you also have to make success work and magic happen, which is you need to pick the right entrepreneurs. You need to work with them in the right manner, help them in the right way.
00:10:45
Speaker
And in the long run, if you're lucky enough, then they end up doing well, that allows you to do well. And then the cycle repeats itself. So, and therefore it's it's not too different from how to build a ah startup, except that maybe the world thinks it's too glamorous and they sort of either ignore or hide these details, but it's is as much pain as it is to build a company ground up. I've spoken to a few founder turned VC or like founders who also ah start a VC fund along with the the business that they're running and ah they are not able to scale it to that extent as say a seasoned VC operator who starts a fund is able to scale it. What is it that an outsider doesn't understand about building a VC fund?
00:11:36
Speaker
ah
00:11:39
Speaker
I think let me answer that in part, Akshay, because i I mean, we haven't scaled our fund like 20 times its size. We don't intend to either. that right so But what I can definitely tell you after having been in venture for the last 17 years is it's ah it's a full-time business. It's not it's just not about investing in startups. It's got to do with helping them and finding your way out of it, exiting and returning money back to your investors, building an organization around this that's able to sort of go into the next generation.
00:12:09
Speaker
So it's a full-time effort. it's It's very different from running your family office. You may have wealth and you want to invest it. That's a very different beast because then you're dealing with proprietary capital, as they call it, versus a venture fund, which is dealing with third party money. The minute you're taking third party money, just like any other founder who raises third party money comes with that is accountability and responsibility and governance. And then
Investment Strategies and Focus
00:12:33
Speaker
in those situations, at least the school I come from, you do it, you do it full time, you do one thing.
00:12:38
Speaker
You don't do 10 other things, so you stay full on it. Okay, interesting. ah ah What is your learning the about the portfolio construct? is there a Is there a strategy in terms of how you build a portfolio of companies? And like do you say that I will do only one company per sector? Or like is it that I like this team and I will fund it irrespective of what the portfolio looks like?
00:13:07
Speaker
So portfolio construct is different from picking in this. one i mean there some There's some overlap with the two different concepts, at least the way we see it. The portfolio construct level, typically a fund of ours invests between 16 and 20 companies. We invest over a four-year period. So we have the discipline to say that you will look out for opportunities in all the four years because the world keeps changing every year. Therefore, we restrict ourselves from investing in four or five companies every year.
00:13:37
Speaker
Now, you're looking at a certain number of companies every year. You're investing in less than 1% of them. Therefore, the pool of companies have to be so large that they're able to invest in four or five companies. That's one side of it. The other side of it is given the stage within investing, which is very, very early. There are two things. had One, you don't know which one will do well, which one won't. The basic assumption you're making is everybody has the potential to do it, otherwise you're not in it. The other part is that they all will need money subsequently to grow. It will be important for you to contribute some parts of it and therefore for a very small and early CH1 like us you have a fairly healthy um and reserve ratio for follow-ons. Fund like us typically gives half the fund for follow-ons. So that's one way to look at construct. Four or five companies a year, over four years 16-20 companies, half the fund for follow-ons. So the other half the fund is sort of equally distributed among the 18-20 companies.
00:14:33
Speaker
The other aspect is what sort of deals will you invest in? It sort of goes back and ties into the philosophy of the organization. And our philosophy is being that, hey, you want to work with audacious founders who have a certain insight or a certain domain understanding that's hard to that's hard to learn, hard to achieve, hard to build in. And that gives you the vantage point to go build a very differentiated product offering.
00:15:00
Speaker
of course, in a market that's growing and large, all of that taken care. And that allows you to then build a very monopolistic, competitive business in the long run. And it's these kinds of businesses that can, despite all the risks that's taken on, have an upside shareholder value creation that's non-linearly higher than the risk you take. That's sort of how we think about it. We always like to take risks that have non-linear rewards.
00:15:30
Speaker
Linear rewards don't excite us enough. How do you judge that this is a risk with a nonlinear reward? How do you do that mental categorization? So I think when you start creating categories or you start creating things that don't exist, that could have a huge impact on on human life on Earth, then they tend to be very nonlinear in creation. But internally, we call that um exponential over incremental.
00:15:58
Speaker
doing something that's already there doing that better. I would call that incremental, but doing something that just doesn't exist, I would call that exponential. Okay. Okay. At the early stage, most founders claim to be doing something disruptive, right? Like, ah how do you separate true disruption from, let's say, modification of what is already there or copy characters?
00:16:28
Speaker
By the way, just to be very fair to the world, there's nothing wrong in being a copycat. If you're a great copycat, good for you, right? yes It's just our particular philosophy that leans us more towards the ones that are creating something ground up than someone who's replicating something there. And you you end up spending enormous time on trying to make sure that this is something that hasn't been done before. It's very unique that timing for this is right. The founder's understanding and domain is right that allows them a right to win. so Which is why you end up seeing 2,000 companies before you pick four or five companies. There's enough things you end up saying no to in life along the way. You said you look at 1% of the portfolio. Yeah, it's less than 1%. Is that typical across other funds as well? I would think so too. I don't think we can claim any glory to that. That's pretty standard for venture capital. And that is typical across stages as well?
00:17:23
Speaker
I would think so too. yeah I don't know enough, but if I were to guess, I would think so. Yeah. Okay. ah And that has remained 1% over the last decade or so that you've been. At least for us, yes. Because I mean, as you build a deeper and larger organization, you end up sourcing more opportunities. Therefore that percentage still remains. I mean, it's only going to go low and not higher. It's going higher. Mathematically, it means you haven't seen enough or you're seeing lesser to make the same number of investments. It's not a great place to be.
00:17:52
Speaker
Okay, okay, okay. how ah How intensive is the task of ah finding that 1%? I think it's one of discipline. oh And discipline is very hard to build, I think, over life. What differentiates greatness from goodness is discipline in most cases. So that's the hard part because you're going to have to see great companies and you have to have a very high benchmark of what ones you will and will not do and you want to stick to it. You often get tempted about a low-hanging fruit. You think something's a quick fit. You think you can make money or something very quickly. I think over time you tend to realize that there is um there's no show win and everybody has an equal probability to begin. Of course, the probabilities change very quickly thereafter, but but yeah. So I think it's one of disciplines.
00:18:47
Speaker
Can you help me understand this with some examples? Like but what would be an example of being in disciplined? What kind of an investment would be a, or maybe something which you actually- Many times we come across companies with excellent founders and again, they're category creating, they're doing something out of the box. They're clearly much later in stage, and they need significantly more capital in the round that they're participating in.
00:19:11
Speaker
Fun like I said set out that we are a free seed fund. It was supposed to come in very early you're supposed to come in free product free revenues and then It's still a great investment to make but it's not a fit for your strategy and then you have to learn to say no and The other piece sometimes is that we're doing only four or five deals in the year so the best deals get done so sometimes maybe something that's very close good enough, but then you hold back saying that hey, I It's not a cut about the deals you've already done and and therefore you want to maintain in a certain quality. Of course, all of this is very qualitative, and nothing is qualitative. Something that's great in my eyes may be good to somebody else in my situation. But that's the part where the team sticks together and makes these calls. ah When you say something is not a fit for your strategy,
00:19:59
Speaker
What does that mean? So like your strategy is deep tech. So we invest in science and tech. We invest in deep innovation. There has to be a deep tech mode. So something that says replicating something else is better or pure business model innovation. There could be great outcomes, just not something we've set out to do in this fund as a group. And therefore that's not a fit with what we've set out to do. It could also be, this is a company which is much later in the stage. It already has revenue.
00:20:28
Speaker
growing, looking for the next phase of capital to grow again. Something we wouldn't do because we said we our job is to come in very early and sort of help the founder find the diamond in the haystack and chisel it and grow it and monetize it. Okay, okay. I'm trying to learn in an hour what you've learned in a decade and a half, ah but you know when you say that ah The quality of this deal is not as good as the quality of other deals that we have done this. It's very subjective. Sometimes you look at founder profile, you look at their ability to sort of build an organization, look at their ability to fundraise. And you look at their ability to withstand pain more than anything else. Signing up for entrepreneurship, you're signing up for a lot of pain and a lot of dejection, a lot of rejection. And you need to be in a position to accept all that and still go back and build. It's very easy to say it's very hard to do.
00:21:24
Speaker
Okay, okay, okay. ah yeah You said the ability to fundraise, ability to build a team, ability to withstand pain. these These are like the three broad things that you... No, I think there's a lot more. I just touched the top quotes. I think and think it would be told organization building is an art, right? You have to find out what are the key ingredients for your business to survive. I'm sure you'll have a product, you'll have a customer, you'll have a team. And these are the two or three aspects you need to grow. and If you're very early, you also need capital, so you need to stakeholders that can contribute, then you sort of need to do that expectation management, just like how you're doing with your customers and your employees with your shareholders as well. Okay, okay, okay. so I would think of these three stakeholders revolving around your vision of product. Okay,
Notable Investments and Success Stories
00:22:14
Speaker
okay.
00:22:14
Speaker
ah I guess a good way to ah try and get your learning is to actually discuss specific cases. Are you up for that? like Sure, happy to. To the extent we can talk about it, yeah. like like say Let's talk about UltraViolet. UltraViolet is a company we featured in the past on this show. What was the thesis there? How did you decide that this is a high-quality company to build on? and Yes, I think firstly, the the quality of ultraviolet actually stood out in the first product that they'd actually made and just designed the aesthetics and and prototyping. Before they started ultraviolet, they were looking at personal mobility as a market. They built a uni-wheel vehicle that could get you from your bus stand or your metro station to go home. And they had thought about this even before there's a metro in Bangalore. And I'd seen a vehicle back in two thousand late 2016, early 17, which led us to believe that this is a team that can
00:23:13
Speaker
envision a product and deliver the product. And then then you want to start thinking about, are you building the right product? And I think that's where they hit a high score. And they they said, yes, we've seen the the EV landscape for long enough. And and anytime between 2000 and 2016, most electric vehicles, in my view, were poor looking vehicles with poor performance that customers were expected to buy to save the world.
00:23:40
Speaker
but customers don't buy products to save the world, they buy products that they enjoy only and therefore our vision was to build a vehicle that is aesthetically good that someone would want to own the product and that gives similar and maybe even a better experience than the status quo IC engine based product and that's what led them to go down the path of building a motorcycle and The other aspect was also from a strategy standpoint for them to say that, hey, a point of entry will not be a scooter. A point of entry will be a slightly more premium product for which people remember us and people associate us. And then when we go to a mass market product, we will still be able to retain that brand. So that's the other piece that resonated very well. And I think, more importantly, Narayananiraj was fantastic founders. For someone to have a vision, then to translate the product, build a team around it,
00:24:35
Speaker
but the set of customers who love the product and have a set of investors who deeply believe in the long-term vision is is a very hard cost to achieve and I think they're doing an excellent job in that journey. Had they already gotten any investors when they came to you? Well, you already got investors in there.
00:24:53
Speaker
Okay, so that ability to fundraise was ah like a subjective bet you thought that they would be able to. Yeah, I think see the ability to fundraise often the surrogate for that is your ability to articulate your vision very crisply, clearly to a common man and try and try and get them to champion you. That's, the one on one of fundraising that you want to be able to communicate to a prospective investor while you're doing something and why that is great.
00:25:19
Speaker
and why it makes sense for them to invest in it. It also comes back with the ability to understand, articulate, and build a great company. Okay. Do you see UltraVirus as the like the two-wheeler Tesla of India, like in the sense that start with premium and then go mass market, focus on design? I think so. I think that's the right analogy and that's the right strategy to adopt for India.
00:25:42
Speaker
and Okay. Okay. Fascinating. ah What about Seindler? Seindler, like almost three years back, their show was featured on this podcast, but ah which is a machine learning robotics kind of a business. so What was the thesis there? What we knew? Again, Seindler was very first principles, right? We met Gokul and Nikhil. Both of them got referred by another founder of ours. We met these people. At that point, they were They worked in national instruments for a long period of time and then they started a system integration services company because they wanted to get their hands dirty in the industry and sort of learn what it is to not just build tech, but deliver solutions. And Gopal and Nikhil came with very first principles approach of saying that, guys, robots do very programatized tasks. But what you want robots to do is to replace human beings.
00:26:38
Speaker
And then they said we will take applications in warehousing, we'll take applications in industry. um And you could have stationary robots, you don't need them to walk. But can you still make them work as much as a human being? The biggest element differentiating between a sitting human and a robot is that of the eyes. And what does the eyes and the brain do to the hands?
00:27:09
Speaker
And that's what they said they would solve for. They said we'll build eyes and brains and go on top of hands for them to function like a human hand. And I think that vision resonated a lot. They had a fairly unique approach to how they're solving for this pain point. It was also fairly clear that in the long run, if these robotic hands become ubiquitous, today the hands do a particular task. You have a robotic line of hands that do A task. For task B, you have another set of lines.
00:27:38
Speaker
Now, if you had one which is fungible across these two tasks, then factories could become smaller. You could run micro factories. You could also run them as universal factories between one micro factory can do 20 different things. And we thought this will unlock a large value in the world of industry and automation. And that's what got us excited to work with them. Again, these are two founders with intense passion, intense domain,
00:28:07
Speaker
and also an understanding of what it takes to come out and build. That pain-taking capability was very, very visible in these two types. Would you say that Agnico would be like the the the biggest success story out of your portfolio? Yeah, I think absolutely. As on date, let me qualify that as always. Agnico will do more from here, so I'm sure they'll be more successful along the way.
00:28:32
Speaker
I'm sure there will be more companies in the portfolio and in the country that do equal or better in their own respective domains. But yes Agnukul has definitely delivered beyond expectations and know launched a rocket on the first fire which has never been done anywhere in the world and done a lot of the Indian soil which gives us a lot of pride and happiness. Also also makes us realize that you know as as a fund like us I think we're very lucky to I've gone through that experience because that's given us a very, very different risk appetite to go back and and work with some of these founders to build some of these great companies. As they always say, success breeds success. It's important to see success to go back and be able to do more of this. That means we're very, very fortunate. I'm very, very thankful to all of these companies signed the ultraviolet. I mean, cool.
00:29:23
Speaker
What was it that made you invest in Agnico? I mean, the founder was an investment banker, I think, before he got into this, right? Yeah, so the founder was an investment banker, he was getting well paid, he was on Wall Street, that's where most of us dream of going. And then he quits all of that one fine day to go do an engineering master's in aerospace engineering. It clearly sort of reflects on just the level of passion and motivation to be able to drop everything you've done for the first 25 years of your life to go rediscover something and come back, right? And I think that clearly defined his vision and his persistence for solving this, for which, of course, we value that a lot. I think the other piece that struck a chord for us was a very different approach to solving the launch problem when compared to everybody else. And they were very, very complimentary to this project. They said, we'll build small vehicles, we'll build large vehicles.
00:30:17
Speaker
That way, we're very complimentary. We don't overlap with them at all. The second piece we said was one of the biggest problems in rockets is it's so intricate. There's about a lot of 100 wells in a small rocket. But it takes time. It's a high precision engineering job. Historically, it's always been thought about being done using subtractive manufacturing, which is you break down, you well, you stick things up. And we said, this is a classic case. If you want something high precision, you build it ground up, which is built it using additive manufacturing or 3D printing and that's sort of the goal that they went after and and that allowed them to bring down the time to build a rocket to 72, a rocket engine to 72 hours which traditional traditionally will take north of 16 weeks to build and we said wow this is great you know if you're able to deliver something like this then you have a comparative advantage that will last long enough between six days and 16 weeks many years we go by. Do you believe it's better to be in
00:31:15
Speaker
to bring an outsider's perspective or it's better to be an expert in the area in which you're building. like equal is that you do If you're building a company, a startup that we invest in, we want them to be experts. We don't want them to be jack of all trades. No, I mean, Agnikul is an example of an outsider's perspective, right? Like someone who was that like essentially an investment. Actually, I think you know after he'd left his banking world, he spent the world a fairly significant time in rocketry.
00:31:45
Speaker
It was not just a consultant turned entrepreneur. I think he went through earning his stripes to understand the business and he's fairly technical even today. He's not CEO at the business level, he's very much technical or product level integrated okay so software. And to us, I think that's very important. I mean, the founders need to understand the integrities of the product and build around it and that's so super important for us.
00:32:11
Speaker
okay Okay, okay, interesting. ah One company which stands out in your portfolio is Rocket Lane, which is like a, I wouldn't call it Deep Tech, right? This is like a B2B SaaS company. ah What made you invest in that? So I think within the broader Deep Tech, at least in the years we were investing between 2018 onwards, we did have a certain allocation to do Deep Tech in software as well, which, I mean, for us, ah The comparison of deep tech and software is basically work with founders that are creating new categories in software. And that are also embedding AI in it. right so To that extent, there's something new different and incremental. But what's special about Rocket Lane is the founders. We've known the founders for a very long period of time. We've known them in their previous startup that they sold to Freshworks. And we knew that they had done great things at Freshworks. They built products, rounded up to scale.
00:33:06
Speaker
And they'd sort of come out to start something new. And we were fairly keen that we'd be part of their journey. And we knew that this was going to be a category creating company. And they focused on you know customer support as a customer onboarding is as a problem statement that they've gone after and and built a fairly unique product around it. so Have you done
Thoughts on AI and Tech Innovation
00:33:28
Speaker
other similar software? We we were about 10, 15% of our portfolio that clearly falls under this category.
00:33:35
Speaker
We've done a company called Trulak, it's out of the US in India. This is a team from X Microsoft R and&D that's gone about building a voice and text AI solution that's able to talk to customers and run the entire front desk of, let's say, a hospital chain or dental chain or or a sparse alone, for example. Okay, okay okay interesting.
00:34:00
Speaker
you ah What is your take on AI? Like, you know, there is obviously, ah we are living through the AI hype cycle, ah but you know, what is your take? ah What are the options? I think AI has definitely made me sound more intelligent. um I, of course, use equivalence of chat GPT to reframe some of my emails, some of the content I write. So I definitely gained 20, 30 points on the IQ side when I use AI.
00:34:30
Speaker
um And I think it it's clearly disrupting how we do things. The the big question, Mark, really is how does it create value for large enterprises? And I think that's the opportunity that's unfolding in the years ahead. How do large enterprises are okay? How do they bring in further levels of automation and efficiency? And in doing all of this, what you end up doing is you end up bringing the cost of technology down.
00:34:57
Speaker
And history has always thought was that whenever the cost of technology comes down, the adoption goes up. Also cell phones came down, the adoption went up. Also laptops came down, the adoption went up. Cost of airfare came down, the adoption of travelling by air went up. right So I think that's the holy grail. How do you make technology and adopting technology less expensive for it to then go through mass adoption?
00:35:22
Speaker
So, you know, like the the the GEO effect gave birth to a lot of companies which were riding on the back of cheap ubiquitous data availability. What will AI give birth to? What kind of businesses ah will get created here? What are the options? I think the ones we see obvious value are the ones that will help large enterprises find a way to use and adopt AI for higher levels of automation and efficiency. So this may not necessarily be a product, it may be a product for services business.
00:35:52
Speaker
But a lot of these large services guys are going to go through re-morphing for lack of a better word to see how AI can change the way they deliver services. And large enterprises are going to try and find a way on how AI can make life more efficient, how would they can deliver greater value to customers, be it health care or financial services, sort of the more obvious use cases where AI can have an impact on customer delivery.
00:36:19
Speaker
Okay, okay, okay. ah Is ah like, you know, is it possible for there to be like a Chad GPT equivalent from India? Do you see that happening? And should that even be an aspiration or? It can definitely be an aspiration and it's definitely possible. I think that a concrete question is, do you need one? If you need one, you can always make one. Maybe there can be something in regional language that's all already not there. and greater deal of, you know, efficiency and predictability. Yeah. This is fairly a possibility. yeah Okay. Okay. But the thing about AI and all of this, is you know, it feeds itself, right? like Lots of people are trying to be great search engines. You could have a search engine that does regional language and those niches of course exist and there could be an opportunity to build those niches for sure. But many of the larger ones end up being winner takes all like
00:37:13
Speaker
how large research is controlled by Google while there's Bing and there's a couple of others that also deliver it. okay okay Because the amount of capital needed is like the the primary constraint here. It's large. Capital
Founding Special Invest
00:37:28
Speaker
and talent, and of course, they sort of go hand-in hand in hand.
00:37:32
Speaker
okay ah Let's come back to your journey. So you decided, I think, in 2016 to... Yeah, in 2016. That's right. What was the trigger? What made you want to? I think the trigger was two or three things. I think I'd done 10 years in venture at another organization. I'd sort of grown back the risk capital that disappeared 10 years ago. And I said, maybe this is the time I want to build something. And and I wanted to give myself a ah fair shot to try and see if I can build an organization to round up. But I was fairly certain I wanted to do it in venture capital because that's the only sort of industry I've been exposed to at least for for the first 10 years of my career. so
00:38:12
Speaker
That's sort of what leaned into saying it's good to come out and build a knife. And I was fairly keen to want to attempt this strategy, right? This strategy of doing something very early, doing something with a very high risk, sort of very counterintuitive, right? This is like almost saying that there's a two by two box of risk and reward and taking the highest risk highest reward option. But there's also a time where not everybody's jumping after saying, Hey, I've taken the maximum risk of the table. And therefore i was I was also certain I wanted to do this at my,
00:38:42
Speaker
own terms with my own credibility at Stake, that makes it all sort of adds up. So you started special with Arjun, right? I actually found that special, that's the right word. Arjun's a dear friend of mine. I've known him now 17 years. He's a classmate of mine from MBA and we've grown together. And then when we said we will do this, I said, Arjun, we should do this together. There's definitely going to be a lot of joy and a lot of pain and it's good to do this.
00:39:11
Speaker
jointly than each of us by ourselves. Okay. What was the FundOne size that you wanted to raise? FundOne was a 61 crore size. Quite frankly, when we got started, we and we always look at like ground up as against top down, right? So I think the big question to ask is what does it take to set up a fund? You have to go register and be regularly compliant under SEBI and what's the minimum to get started to write investments? The size is 20 crore.
00:39:41
Speaker
The only goal in life was, let's be in business first. And to be in business, you need to raise 20 crores. So that's what we ended up doing. In the first six months, we raised 20 crores and we started to be in business. We started to make a bunch of investments and sort of put our strategy and our philosophy to test. And along the way, we ended up raising more capital. And by the time fund one was closed out, it ended up being about three times that size.
00:40:05
Speaker
And like how did you pitch this? Was it on the back of the India story, on the back of your credibility or Arjun's credibility? or I think it was a bit of both. Of course, it was riding heavily on the India story and how it's a good time to invest in India and how ventures and asset classes are bound to grow. And of course, we leaned on the fact that Arjun has been an entrepreneur in the past couple of times and has also done investing. I've done investing for the last 10 years at that point in time. And that sort of allowed us to Ghana, some capital to to get up and going. It was not easy, of course, never meant to be easy. But yeah, that was the journey. And whom were you targeting, like family offices? Quite obviously, we were just targeting people we knew who trusted us. That's the only way it works. when We have nothing to show except um claims and assumptions to make. Then you go to folks who can trust you. That was it was just family and friends and friends of family and friends.
00:41:03
Speaker
Okay, okay. How did you get the deal flow going, like, you know, in terms of that 1% target? Of course, we've been in venture long enough already, right? I've been in venture for 10 years. I've been an entrepreneur. And therefore, our cycles for deal flow was sort of there. It needed us to keep revisiting it, re-establishing that we are out here to make investments and look for opportunities. And that's how it really picked up. What are the sources for deals? Like, you know, is it inbound. I think the biggest ones are really referrals from other entrepreneurs and us working closely with industry in academia that allows us to spot some of these trends early on. Okay,
Fund Strategy and Success
00:41:46
Speaker
essentially like referral is the primary way to find. Referel is clearly one way because it brings in a lot of warmth and credibility. The other one is where you go out and you look for opportunities. You work with incubators,
00:42:03
Speaker
Bankers at times but more importantly with academia the centers of excellence and incubation cells And then some of look at some of these texts very early Okay, so a lot of it is relationship is unity
00:42:20
Speaker
Fascinating, okay. So once you had that fund one going, what kind of companies did you invest in? How did that? We focused on four categories in fund one. We invested in space, we invested in a nickel, we invested in a Sapphire constitution company called Galaxy, we invested in robotics, we did similar, we invested in energy, we did an electric plane company, we invested in a company that makes water from air. So we focused on energy and sustainability,
00:42:49
Speaker
focused on space, we focused on AI, we focused on advanced manufacturing and that sort of led us to make about 18 investments over a four year period. Okay. And was fund two easier, bigger? What was the journey? Fund two was bigger because we learned from fund one that you need capital to support in subsequent rounds and fund one was a small fund. And I think we also hugely benefited of some of fund one's early success.
00:43:19
Speaker
We ended up raising about 300 crores for Funtoo in 2021. Of course, we also had the benefit of just post-COVID where people were very keen to sort of put money out to work and grow. So I think all of that sort of all came together. ah How did the targeting change in Funtoo? Like Funtoo was your personal networks that you would have picked? I think Funtoo was very similar. It was their networks and they put their networks to use. ah They'd done well enough to They put their credibility online and introduce us to other people. And that's our fund two group. Okay. Okay. And, and what was the outcome of fund two? What kind of companies did you invest in? Fund two was a 21, 22 fund. So it's still very early in this third year at the moment. They made about 15, 16 investments. They're doing pretty well. Some of them in semiconductors, some of them in energy, some of them in space, some of them in manufacturing. They've done well overall, but it's still a very early set of companies.
00:44:15
Speaker
Okay. And you're currently on Fund2 or have you started Fund3? We're still investing on Fund2. Of course, we have Fund3 coming a few quarters away, but we still have a few more investments to complete from Fund2. What do you anticipate as the size of Fund3? It wouldn't be very different from Fund2 because the strategy remains the same. The point of entry, the stage of entry, the kind of company's own invest.
00:44:41
Speaker
That philosophy is in changing and therefore we see no reason to change the font size, you know, other than adjusting for you know inflation and maybe some differential ownership that you want to own. How would the your wealth creation happen as the GP's here? Would it happen only when there is like a strategic acquisition or a public listing for your portfolio companies? So I think venture capital GP's make money when they return the fund very, very profitably. Yes. So you have to return the anti entire fund back profitably and you make a percentage of the profits after you've returned the fund back. So therefore wealth creation goes hand in hand with value creation, which comes out of making great investments. So for someone like us, wealth creation is a great byproduct of doing great investments. Right. I mean, yeah, this is essentially a
00:45:39
Speaker
Like it's a wealth management business. If you create wealth, then you get to share in that. one But I mean, my question was more from the perspective of when does the exit happen? Does a series be, would that be an exit? It's not obvious, right? There's a couple of logics out. You don't want to sell a good asset. You want to hold it for the longest. Right. But I think when you think about exits, I look at it in two or three different lenses.
00:46:08
Speaker
There's one lens that you made a bunch of external assumptions. And if they've all changed, then you want to look at it. Especially if they've all changed for the worse, if they've all changed for the better than that much. Second time is you made a bunch of internal assumptions and if they go worse and you also try and think about it sooner. Third is also a portfolio level, right? You've got so many companies. If some of them are doing well, you've got three, four of them where you want to encourage some of them partially.
00:46:33
Speaker
You want to make sure you do some of this management at a portfolio level. And that's the other angle to think about exits. Okay. ah ah Typically, like, like yeah give me some examples of exits you've had so far, right? What, what was the decision making there in terms of why you chose to exit at that time or? I think we had one case where the company, which is working in the AR VR space, are clearly ahead of its time.
00:47:00
Speaker
ahead of its industry, did extremely well build some great product, but the rest of the industry hadn't caught up. And therefore business wasn't scaling to our expectations and the team was extremely savvy, did a quick turnaround, took product to different buyers and finally managed to sell it to a large e-commerce company that bought them because they saw an application to using ARVR to increase engagement on their websites.
00:47:25
Speaker
Okay, okay, okay. ah Have you also taken other exits, like I'd say when a series B or a C is happening? and So we've taken, yeah, we've done out of six exits, one of it has been a partial exit at a series C and above, but the rest of them won't be nominees. Okay. And these are typically like strategic acquisitions, similar to like that's like somebody who wants to acquire the IP. The full company, yes.
00:47:53
Speaker
Okay, okay, okay, okay, got it. So that 61 crore in fund one, what do you estimate ah you will return to investors? I think a good fund, a great fund does lots of anywhere in five and 10 times the fund and we hope to be a great fund. Okay, amazing. So 300
Supporting Portfolio Companies
00:48:13
Speaker
to 600 crores is what you're looking to. I guess Agnico itself would make up a large part of that, right? like Fingers crossed. I guess this is why the the VC model is to like go big or go home. like That one big blockbuster would make up for all the sins. You want to try and do that three or four times in a fun for it to be meaningful.
00:48:41
Speaker
okay okay and So how does this ah affect your lens of looking at a company when you know that a profitable business we need not necessarily add value to your portfolio? Like somebody who's building a business which is sustainable, profitable, but it may not give you that 10x, not even 10x, you probably need like a 50x return ah in a company.
00:49:08
Speaker
ah Actually, I'm not sure. Firstly, there's nothing wrong about being profitable. It is going to be profitable. And I think someone like us always values profitability a lot more because it allows you sustainability and a sustainable business can live another day and fight another battle. And that's a great place to be because when you don't have that opportunity is when you die. So we we love sustainable businesses, but our strategy is to invest very, very early.
00:49:35
Speaker
It's very unlikely a company is going to be profitable on the first month or the second month, or even the sixth month. And that's clearly the time we get involved. And in most cases, these founders are building something which is hard hardware-ish, which takes capital to build. It's just not two people in the garage. It's more than that. and de And that comes with a certain gestation period. You're not going to have revenue in the third month. You're likely to have revenue in the 15th month. And therefore, you have a gestation period. And that needs capital.
00:50:04
Speaker
right So the very choice of opportunities we're picking are the ones that don't have the opportunity to be cashflow positive in the first month. And if they are on the rare occasion, we would absolutely love it. But I mean, would sustainability be a major part of your decision making or would it more be about, is this a blockbuster multi-bagger? So let's go back and find out what a blockbuster multi-bagger means.
00:50:34
Speaker
A blockbuster multi-bagger by its very definition means you've made a lot of money. Yes. But you get to make a lot of money when the business is valued in a certain manner. A business is going to get valued in a certain manner if it has profits or has a potential to make profits. And high And high growth, right? So without there being a sustainable business or a predictable path to being a sustainable business,
00:51:04
Speaker
I don't think you can get a blockbuster. And is I don't know if there's any other way to do it. So when we talk to our deep tech companies, including the likes of Agnico, there's always a conversation about when will you be sustainable? When do you not need other people's money? When can you be on your own? Because that's the path of ultimate value creation, right?
00:51:28
Speaker
Right, okay. So you spoke about supporting the portfolio companies, building an organization to enable that. So what is the organization you've built at Special which enables? So the organization we've built at Special has two facets, right? If you've got to look at 2000 companies a year, two people are insufficient to do that. So of course we have a team of 12 people. All of us look at opportunities ground up. Each one can source opportunities. So opportunities don't have a top-down income across the organization.
00:51:59
Speaker
And that's the larger piece of the team. And when we think of being useful to our companies, there are two or three dimensions where you look at it. You clearly think about raising the next round of capital, given our experience and what we see day in India. or You're able to bring in some element of value there. Also, helping through early hiring. Because the first three to five hires end up being extremely important hires in the growth of the organization. The third element is that we work actively to think about strategic alliances and business partnerships.
00:52:28
Speaker
and getting the first few customers because when you're building a product that's been built before you have to be very careful that you're talking to customers often so that you know what they want so you don't end up building something that's different that nobody wants you want to build something that everybody wants is different from what everybody has right and therefore that's a important important piece of intelligence to constantly carry with yourself
Long-term Vision and Influences
00:52:50
Speaker
and enabling access to that is part of what we try and do So what kind of team have you built? Like what is the split of like functionally or other functions or departments? Very flat organization. We're about eight people on the investment side. Everybody sources investments. Everybody's job is to make and manage investments. Okay. Cause we have a platform team, which is on the finance governance so and investigation side, but but that aside, we're all expected to do everything.
00:53:21
Speaker
um okay okay okay Okay. Interesting. ah the ah like you know What is like a 10, 15 year horizon? What do you see special as like from a long-term perspective? I think it would be nice if we had a role to play in working with founders that have built very disruptive category creating companies.
00:53:51
Speaker
And we continue to be in that position for 15, 20 years. That would have definitely been a job well done. What would be a comparable company today that you admire and you want to be like them? A comparable VC? So I think there are definitely some funds in the US that have always stood out for backing nonlinear innovation.
00:54:20
Speaker
not being deterred by the failure that it presents. I think Vinod Khosla is definitely a strong living example of having built an organization with such values. And it's again very first principles. I've heard him on multiple occasions say that know the 5% chance of something working that can change humanity far outweighs the 95% chance of that not working. ah Okay.
00:54:47
Speaker
So the the size of the impact ah multiplied by probability is what you should look at. So if there is an outsized impact for a company to create. I think the risk always, outweighs ah you're coming in very early. There's always going to be a high risk. And that shouldn't deter you from doing things that could change um change the face of humanity, be it making Earth a more sustainable place of being it going to Mars or being it building cities and space. ah What have you
Learning from Failure and Decision Making
00:55:20
Speaker
learned from your ah the investments which did not work out? Is it just that some will not work out as part of life or are there specific lessons? Sometimes, firstly, we all have to acknowledge that entrepreneurship is a very hard job. like It's very difficult to go build things ground up.
00:55:39
Speaker
And therefore, sometimes things may not work. Sometimes you may find it very hard to build and you may not be able to fulfill it. Sometimes the market changes too, right? I mean, there are inward facing things and upward facing things. Outward facing things you don't have control over. Like COVID changed how Earth operated for two or three years and in a lot of businesses that were very traditional were almost put on the verge of extinction and they bounced back, travel and hospitality being a classic case.
00:56:08
Speaker
And therefore, failure can come from a variety of reasons. And I don't think we should get too bogged on by it. You should be able to learn from it. You should try and put yourself in a position not to repeat it. That's a great place to be. Right. So that's blood failure you've been truly lucky if you can avoid failure. Yes. Smart if you can learn from it. yeah That's what I'm trying to learn from you. Like what did you learn from?
00:56:34
Speaker
the failure. Was it more of inward or outward? affect possibility invert and outward right and There's a high chance for things to be outward, especially when you're trying to take create things that don't exist, right? You may end up creating things that nobody needs also. and Sometimes that's the big learning. You want to make sure you're not timing it way off. You're not building something that's great, but that nobody needs for the next 10 years. And yeah you won't be able to sustain for 10 years. And that that puts you on a great challenge. so I think one way to sort of unlock that is always build something that's needed. That's relevant. That's now, that is in the near future. And then you always have somebody who's able to use it, buy it, pay for it, value it if you make it. That's a good place to be. How many of your bad decisions are out of ah the fact that as humans we have imperfect knowledge so we will never make perfect decisions versus
00:57:27
Speaker
emotions clouding the decision? I think we've gotten old enough that emotions don't cloud decisions, right? Firstly, an organization like ours, it's a joint decision. It's just not one person waking up in the wrong side of the bed and deciding to do something. So it's, I think I'd like to optimistically say that none of this is emotionally driven decisions. It's always decisions based on logic data to the extent you have. And a lot of that, of course, in the process of past experience or an ability to predict the future, some combination of both. And you can be wrong in those, but I don't think they're stemming from any emotional spurts. No, I mean, you know, like FOMO or like, you know, being carried away. I somehow think that the journey of becoming a good VC is also the journey of being unclouded
00:58:25
Speaker
in your judgment? I think I simplified all of this by saying you just have to be disciplined. But yeah, you're right. I think think internally we need to ask ourselves, are you intellectually happy and honest about making this investment? Are you willing to live by it for 10 years? Are you doing this because it's the most nicest thing to do? Are you doing it because you truly believe in it? I think it almost all i mean in all cases, it's been more that we truly believe in it.
00:58:56
Speaker
truly imbibe in it and truly think this is relevant for the future. Yeah. What do you do for your personal growth? you know because Like we discussed that decision making is your core skill and to take unclouded decisions. Learning in a very unbiased manner is one way to stay alive in this business. What does that mean, learning in an unbiased manner? You listen and you hear and you're accepting even if they don't necessarily match your intuitions. And then you go deeper into them and you try and understand them and and discover if there's truth to it and validate it. And that's a very
Advice for Aspiring VCs and Founders
00:59:37
Speaker
important skill to carry. You have to learn. A lot of our companies we invest actually come from learnings from some of our other companies. Like we've invested in a company called Eternal Energy. They make lithium cells. They make lithium cells that don't generate heat.
00:59:52
Speaker
Now, why does one have to care about heat and lithium cells? You know that once you've worked with a company that uses lithium cells in a two-wheeler, and then you don't want heat because you want them to be safe, you don't want fires, you know, heat will impact the life of the asset. All of that. No, that's a micro-learning thing. When someone tells you something, you absorb it and you learn it, and you try and relate to why that's needed. And and that leads you to having micro-insights, which then tend not to be very valuable. Fascinating. like the ah
01:00:23
Speaker
I think the hard part is to be unbiased. The hard part is to go into a conversation saying no matter what I have to teach the other person I'm here to learn, to listen more than I can speak and and see what I can pick up from it.
01:00:37
Speaker
Fascinating, fascinating. I think hopefully the founder knows more about something than I do. Otherwise I've made a bad decision, right? So I don't have to go on a meeting saying I don't want over the product in the founder. Am I the stupid now or I've been stupid before to have made that investment decision? So you want to go into that room and absorb and learn what the founder has been doing on the ground.
01:00:58
Speaker
And then you can apply some of your patterns, some of your past experiences or what has happened when someone else tried to do something like this in a very similar setting and pick that experience and share. Now that's the benefit of the aggregate. The benefit of the absolute is not with you, it's with the founder. It's the benefit of the aggregate that you carry that you want to pass on to the founders. Fascinating. Fascinating. ah Let me end by asking you this. you know What's your advice to people who aspire to become VCs?
01:01:31
Speaker
So, you know, this is about a good one because like I said, I'm very serendipitous. We see myself losing in that I charted my life goals to saying I want to be a VC. But now that I have been VC for the last 17 years, I think my lesson for myself, this is a very long term business. um It's not one of instant gratification. It takes a while for you to see if you're successful, to see if the decisions you made are planned out right or wrong and whether that's leading to you know impact outcomes and value creation. And therefore, I think you have to be patient and you have to have a lot of nerve. I think those are the two things you need to have to to survive and build a career in venture capital. I want to add on one more question for you to answer. When should a founder actually think of going to a VC? And you know because there is that 99% failure rate ah
01:02:28
Speaker
Possibly for a lot of founders, there it's a distraction to go to a VC, they'd be better off. I think the cliche answer really is if you really need the money and that money can't come from your customers or your family, then that's when you really want to go out and take extra money. But external money is also a lot of accountability for it. And many a times, I mean, it allows you to do things. It's not that you don't have freedom, you have a lot of freedom, but know You have the freedom based on the expectations you've set, right? And within expectations plus or minus three sigma statistically, you can do things, but you can't go way out and you start off by doing a two wheeler company and then you can't go three months in and say, I'm going to flip it. I'm going to do a four wheeler company. That's the opportunity. Now you could still do it, but that's going to need you to make sure you work with your stakeholders. Just decision making needs you to be a little more accountable and inclusive.
01:03:24
Speaker
Versus if you don't have that, you wouldn't do a lot of the things based on your bot in your instincts. So that's both good and bad. Uh, sometimes you may consider it to be bad because you've got to convince a large set of people. Sometimes you make good because you've got another pair of eyes, uh, and other people to question some of the decisions you made. And that just makes you, uh, a little more robust in some of the actions you make. So I think Tricia is don't take it on this. You need it. Do customer financing is the best way to finance it. They're able to pay you and that's the solve problems. Great.
01:03:56
Speaker
you know As a founder myself, i I think somewhere every founder thinks that they need it, but how to be unclouded in your ability to judge that, are you VC ready? ah Are you investable as a business? Yeah, I think those are highly qualitative questions actually. I mean, investability depends on each one's fund and their strategy and so on and so forth.
01:04:24
Speaker
I think I would start it from the other way around. If you need the money, then go talk to VCs, figure out what they have to say, and then there's a self-discovery process and matchmaking process. Take this course of time. But if you need the money, then and you're not VC ready, you still need the money. Meaning the money is far overriding anything else, and you need to get yourself to be an easy ready, whatever that means. I think that's the right approach to take here. Fascinating. Thank you so much for your time. We say it was a real pleasure.
01:04:59
Speaker
Super excited to have been on this discussion with you. Thank you again. Okay.