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Strengthening The Digital-First Economy | Anurakt Jain @ Klub
154 Plays3 years ago
With a huge market opportunity to grab, it’s a golden age for digital-first businesses. And with plans to accelerate growth for the digital-first economy is Klub.
In this edition of Founder Thesis, Akshay Datt speaks with Anurakt Jain, Co-founder and CEO, Klub, a Bengaluru-based start-up that is pioneering revenue-based financing in India.
Anurakt, a graduate of IIT Delhi and The Wharton School, has extensive professional experience as a venture capitalist. In his previous stint, he worked with InMobi, as a part of the founding team that established Glance and TruFactor. He founded Klub in 2020, whose unique and flexible revenue-based finance approach matches entrepreneurs with the right capital partners, thereby allowing them to focus on driving business growth.
Tune in to this episode to hear Anurakt speak about how Klub is challenging the traditional modes of equity and debt capital and revolutionizing growth capital for digital-first businesses.
What you must not miss!
- Learnings from his experience as an intrapreneur
- Cultural tenets of Klub
- How to build a team of super-achievers?
Recommended
Transcript
Introduction to Founder Thesis Podcast
00:00:00
Speaker
Take a look at this guy, he's dead. Hi, I'm Akshay. Hi, this is Aurob. And you are listening to the founder thesis podcast. We meet some of the most celebrated sort of founders in the country. And we want to learn how to build a unicorn.
Guest Introduction: Anurag Jain
00:00:28
Speaker
Hi, I am Anurag Jain, founder of CLUB. Delighted to be part of the podcast. Thank you for having me over.
Startup Funding Dilemma: VC vs. Bootstrapping
00:00:43
Speaker
I read this great tweet the other day which said that if you're a startup founder looking to make an impact, then raise tons of VC money. But if you're a founder looking to create wealth, then bootstrap it. For most founders, this is a dilemma that's hard to solve. Of course, every founder wants to make impact and have scale, but nobody likes to end up with just 5% of their own
Overview of Club: A Fintech Startup
00:01:04
Speaker
company.
00:01:04
Speaker
and which is where comes in an innovative startup called Club. That's Club with a K. Club is a fintech startup that offers revenue-based financing. What is revenue-based financing? Essentially, it's a loan or it's debt. The only difference is that you don't pay back a fixed monthly EMI. Rather, Club takes a percentage of your revenue for X number of months, which means that Club is truly a partner in your growth.
00:01:30
Speaker
And Anurag Jain, the founder of club has had a fascinating journey spanning multiple countries and has a lot of insights to share starting from how to think big to how to build an organization, how to scale culture and how to build a crack team of super achievers.
Anurag's Early Life and Education
00:01:46
Speaker
Here's Anurag talking about how his journey began.
00:01:50
Speaker
Tell me about growing up. Where did you grow up? What kind of family did you grow up in? Was there an influence of business in your childhood years? Did you think of entrepreneurship as a kid or was it just to study and get a good job? What was that journey like for you?
00:02:07
Speaker
So my journey actually is a bit of all over the India. I'm originally from Madhya Pradesh. That's where my sort of natives are from. I grew up in Bihar. So this is close to Shamgar district of a village called Garot. We still have land there and my father takes care of it as well. Largely, you know, it's just come through the generations of sorts.
00:02:33
Speaker
How did your father come out of the village? Was he the first one to study and get a job?
00:02:38
Speaker
Actually, that's the starting point of it all. So for me, what I was going to say is that the starting point was with my father who stepped out, got an engineering degree, and then joined Steel Authority, a public sector unit called SAIL. Back then, getting a government job was two things. A, it was a lot of stability, but for him, I'd argue that it was getting out of the setting of the village in itself. He did his MBA as well, somewhere in the middle.
00:03:06
Speaker
But he started with that job in Steel Authority and he retired with that job in Steel Authority. So he was a career guy who did it. But interestingly, we got exposed to a city called Bokaro. It's actually called Bokaro Steel City. There is a steel plant there. And that was the perfect melting pot. So the first few years of my schooling were in Bokaro where different people across India had come in.
00:03:35
Speaker
And these were more educated people. These were all engineers and sons and daughters of engineers. And so the academic system
First Startup Attempt and Lessons Learned
00:03:43
Speaker
in that small town was cutthroat. And everyone would want their children to study.
00:03:51
Speaker
and to do well in life. And it was quite unlike other towns and cities in that there wasn't any external influence. So while we were in Bihar, it was an isolated community in itself that was its own microcosm of sorts. So that was the first part of
00:04:10
Speaker
of life up until 600. For some personal reasons we had to shift and to relocate so we ended up going to Rajasthan. So I did the next part of my schooling in Jaipur which was another phenomenal experience in itself.
00:04:28
Speaker
did my 11th and 12th from Kota. Engineering was the option that I had gotten myself into largely because I was terrible at drawing and I knew that I could do nothing in arts and so I ended up going to Kota to prep for the IITs, did not get through the first attempt and went to Delhi, took another attempt, got through and got into IIT Delhi.
00:04:57
Speaker
that one year, all I did was cram as much as possible, but also reflect on what all I had not done in my first attempt to be able to undo the mistakes. Right, right. OK.
00:05:12
Speaker
In IIT, my first math test is when I got a big fat zero. And that's when I realized I am not cut out for this. So while I wanted to be an aerospace engineer, I couldn't. And I got civil engineering as a degree.
00:05:28
Speaker
Even in civil engineering, I was a big fat doll, thanks to my first math test. And that's when I figured out I need to figure out, I need to do something else. I need to channel my energies differently. One of the reasons why I really wanted to get to the IITs which is unheard of is because of the extracurriculars.
00:05:45
Speaker
And that got validated. So I spent a lot of time in extracurriculars in undergrad. But in my second year, I actually got into a side thing also, which is I started solving a problem. So there was one particular problem that I felt very strongly about. And I started solving that problem. Today, I can call it my first startup idea. Back then, I had no idea I was working on a startup. What was the problem?
00:06:15
Speaker
The problem was very simple. I mean, I was just trying to create a model in which students from IITs could just coach, not coach from an education standpoint, but just coach from getting into IIT soft skills perspective for students. And so I was speaking with coaching institutions saying, Hey, I have a bunch of friends who want to speak to potential students. Why don't we set this up as a program? And why don't you pay me for it?
00:06:42
Speaker
So it was a problem and I was trying to find an economic solution there. There was demand, there was supply. That was my first attempt at a marketplace. It failed miserably. I didn't realize that the coaching institutions saw this as a threat. They saw this as a threat in that they believed that we could actually start educating the students ourselves.
00:07:05
Speaker
And that would lead to their jobs, I mean, or their sort of links with the students getting removed. So for us, we kept on trying to speak with some of our teachers as well, saying, hey, this makes sense, but finally realized that this doesn't work. And that was the failure of my first startup idea in itself.
00:07:29
Speaker
So because of that startup idea, I came across the term entrepreneurship, as I was just researching up more about it, speaking with some mentors.
Venture Capital Journey and MBA Decision
00:07:40
Speaker
And they told me, hey, why don't you check out the term called entrepreneurship? While I was searching for the term entrepreneurship, I came across the term venture capital. And that was my aha moment.
00:07:50
Speaker
in my second year of IT where I said, hang on, this is so cool. As a failed entrepreneur, I can enable other entrepreneurs and I get paid to do that. That sounds like a phenomenal career opportunity in itself. And that was when the whole bug for, I was bitten by the bug of venture capital and I tried to figure out how to craft my journey into,
00:08:17
Speaker
venture capital, applied to a bunch of companies. And I'm speaking 2002, when there weren't enough companies in India, venture capital funds in India. And so the few that were there, I applied to them, got the standard response.
00:08:33
Speaker
you don't have any work experience you don't have any MBA so we can't accept you and i kept on trying for a long period of time just to realize that this is not the time for me to get into venture capital so after the IIT i got into
00:08:51
Speaker
an IT consulting firm. It was a very short stint for six months because in the fourth month, out of the blue, I got an email in my old inbox from one of the people I had applied to about a year, year and a half back.
00:09:07
Speaker
this person moved out of their venture capital fund and He asked me if I was still interested in joining a company and so I ended up responding back ended up interviewing and joining a boutique investment bank as the first employee back in 2005 something which was unprecedented unheard of my parents were completely shocked but
00:09:34
Speaker
but that was a bold gutsy move in itself, which paid off in a lot of ways. I learned a lot in that few years in that boutique investment bank. That boutique investment bank was setting up its own venture capital fund, which did not materialize. And that's when I decided formally to apply to venture capital, got through venture capital with a firm called DFJ. And so, you know, kind of came full circle after the second year of IIT.
00:10:03
Speaker
And you were like an investment analyst, like you would be talking to potential founders who could be invested in.
00:10:11
Speaker
Absolutely. So I was the only analyst on the team. In fact, it was a very small team at that point in time. It was three investment professionals and a venture partner as well. So four investment professionals full time, only three based out of Bangalore. I was the analyst responsible for speaking with companies, figuring out the investments, assisting the partner and the principal. And because it's a small team, just about doing everything.
00:10:38
Speaker
So I recall doing about everything, including setting up the office space as well. So it was anything and everything, but it was a phenomenal learning experience in itself. So what made you want to like do an MBA? I guess being an investment analyst is in a way like a better education than doing an MBA, right?
00:10:58
Speaker
Actually, it started off from the investment bank in itself because by then I was exposed to all sorts of companies, business models, different structures in themselves. What are companies doing? How is innovation being driven in India? At the point it was still early, young and early.
00:11:12
Speaker
DFJ was just a whole new dimension to it as well. At some given point in time, I was the youngest VC in India, which was not the best thing to speak about. I would actually never speak about it because it made no sense. But I was sitting in boardrooms and board meetings as an observer, but I realized very quickly that I actually didn't know anything. And there was so much more to learn, so much more to figure out. I understood a bit of finance, but it was all about people.
Wharton Experience and Organizational Development
00:11:43
Speaker
It was all about how groups of people come together to solve problems. And that was the real thing that got me thinking as well. So towards the end of my DFJ stint, I actually tried to do my second startup idea.
00:12:00
Speaker
with my current co-founder. So we were a group of four people, one of who is my current co-founder, and we were trying to solve another problem at that point in time. Simultaneously, I was applying for business school largely because the VC fund as an analyst, as you grow up, you have to go for the business school in itself.
00:12:20
Speaker
I was in two minds. I was trying to figure out whether I should or should not go. And a very smart person told me that years later, in your career, it will matter. At that point in time, it did not make sense. And I rebelled a fair bit, but finally ended up applying to a few programs, got through Wharton, and ended up joining. So that project, that second startup idea got disbanded, and I went to business.
00:12:49
Speaker
must have been like a pretty life-changing experience. No, I mean, you were in a way with the best minds of the world. So, you know, what changed in you post that to your stint? Like, did it change your trajectory, your goals?
00:13:02
Speaker
For me, Wharton was transformational in a few ways in that the first class that we had during preterm was taken by a professor by the name of Adam Grant. And it was transformational, it was done during preterm, that is before the course had started off as well. And I realized very quickly that what he was saying linked back with something that I had realized in venture capital that it's all about people.
00:13:28
Speaker
And Adam Grant is a professor who has spent years in organizational development, organizational effectiveness, and motivation theories. And everything that happened during that short course in preterm absolutely validated my idea about what I had seen in venture capital. So for the next two years, I tried to fuse the concepts of venture capital that I had learned about investing and building companies with organizational development
00:13:58
Speaker
It's all about how do you get a group of people to work together and to perform together in a common direction. That was the big shift I'd say that happened for me.
00:14:10
Speaker
apart from the fact that I wanted to be an operator. So just those two years were transformational. I always say this that I think business school for me was a net addition of intangibles as opposed to tangibles. I don't think I learned a lot of tangible skill sets in terms of finance or accounting or marketing, but just the intangibles in terms of a different way of thinking. I think that was spectacular. And from that standpoint,
00:14:40
Speaker
It took me out of the well. So I was a frog in the well as I used to call it. I got out of the well and I thought it was a phenomenal place. Just the way that I think today I attribute a lot of that to Wharton because that allowed me to think very, very differently as well. So that was the net outcome of Wharton
00:15:01
Speaker
did an internship in the Bay Area. And I thought that was super cool. So I'd never worked in Bay Area. I'd worked for a Bay Area fund, but that was working in the Bay Area. That was a very, very interesting summer in itself. And I wanted to try and get an operational role in the Valley after graduation. So the very next day after graduation, after convocation, I packed up my bags
00:15:26
Speaker
flew out to the West Coast. For the next two, three months, I tried my hand to get an operational job. I wouldn't get it. The country was still coming out of recession. I heard the common thing. Hey, you're a VC. You are from India. There are no tangible skill sets that you have.
00:15:42
Speaker
So we don't know how to place you. I didn't want to get into the green card shenanigans. So after trying for two, three months is when I decided to come back to India. Incidentally, right when I booked my tickets within two, three days, I finally got a job offer. But by then I made up to move back to India. Okay. Okay. No regrets about that.
00:16:05
Speaker
none whatsoever because as a student I'd run out of money and I knew that that was the right thing to do in terms of moving back as is the plan was just to spend a couple of years in the US at best and then go back to India to build but no regrets whatsoever because much later years on in my career within Moby I traveled
00:16:30
Speaker
extensively to the US and I spent a lot of time working there. So much so that I think I did enough and more than I wanted to from my post-b school experience. So no regrets whatsoever.
Role at Inmobi and Entrepreneurial Shift
00:16:44
Speaker
So how did you end up at Inmobi? It was actually not Inmobi directly. So after coming back to India, I was searching for operational roles here. But by then I had gotten married and so both my wife and I, we were trying to figure out the ideal configuration. So I got an operational role in Delhi.
00:17:04
Speaker
and my wife got a role in Bangalore. So I decided to move to Bangalore with another VC fund. So this was a Temasek VC subsidiary called Vertex.
00:17:16
Speaker
which was setting up its India arms. So I ended up joining as the second person on the ground. Again, the same charter of leading investments in the India market. Did that for about a year and a half, two years, led the investment in first cry, possibly my only notable investment in my entire venture capital career. And I was still trying to marry venture capital with organizational development. So that thread was that Keeler had not gone.
00:17:45
Speaker
In fact, right after B-School, I was pounding the payments on Sandhill Road as well, trying to convince VCs to say, why don't you think about adding on this dimension, working with your portfolio companies? The only fund at that point in time that I still recall resonated with what I said was and recent Horowitz.
00:18:06
Speaker
They had a full blown team that was doing partner management that was working with startups at that point in time in helping them build talent. But I didn't really get a lot of sort of support at that time. So that bug was still there. I tried it out at Vertex, didn't really materialize. So I was trying to figure out, hey, what else can I do in organizational development?
00:18:26
Speaker
I was speaking with the head of PeopleOps, head of HR in Moby, and I was sharing my interests with her around organizational development. And she ended up saying, hey, why don't you do a project with us, for us? So I ended up doing an HR intervention
00:18:46
Speaker
For the HR team as a nobody, I mean, I had no idea about the space, but she was kind enough to just, you know, give me a project. And that project got me connected to the movie founders. I'd already known them before in my venture capital days. And so I was pitching them a few business ideas.
00:19:05
Speaker
As a young brash VC, I was telling them, hey, you should do these things. It would be ideal for the business to grow. And I still recall them turning around saying, Naveen turning around and saying, hey, why don't you come build it for us? And I was taken aback in that I had always given Gyan. I wasn't thrown back at me saying, hey, do you want to build it yourself? And so over the next few months, Naveen and Amit were kind enough to take a bet on me.
00:19:35
Speaker
And that's how I ended up joining in Moby. What was the business you were building? So the whole thesis at that point in time, and this is an era when Facebook had absolutely mushroomed in the mobile advertising business. So it was just two large giants, Google and Facebook, and everyone else was getting clobbered left, right and center. So the thesis was that in Moby as a company, as a marketplace should partner with large entities.
00:20:01
Speaker
that are also trying to disrupt this duopoly. And so the thesis was that we work with OEMs, essentially mobile device manufacturers because they have a lot of real estate and data, and also to work with telcos.
00:20:16
Speaker
who also have a lot of data assets and in some countries they control the mobile devices as well. So essentially how do we get access to exclusive real estate and to exclusive data? So essentially that was the whole proposition about starting off a vertical that works with OEMs and with telcos.
00:20:33
Speaker
This is what led to Glance eventually. That is absolutely right. So we were part of the founding team of Glance. In fact, it was not called Glance back then. Initially, when I joined, there was no term. It was called new initiatives because we were keeping it under wraps. We then christened it internally. It was led by Amit Gupta, founder of Ulu. We then christened it internally to call Walt, which is again an internal project terminology. Walt then evolved to
00:21:02
Speaker
OEM and Telco solutions, that's what we would call ourselves in the market. And then finally it became the two sides split. So the OEM business then became Glance, which has become a unicorn in itself. So yes, that's how it started off.
00:21:18
Speaker
It was during this stint that you thought of club.
Genesis of Club and Solving Capital Access
00:21:22
Speaker
How did the idea for club come about? Because this itself is like, you're in a way like a founder, part of the founding team building up a new vertical. So what made you want to start club? Club did not start immediately.
00:21:36
Speaker
Just when I was wrapping up my stint at Glance is when I was thinking of moving out and doing something else. Conversations led me to move into the second entrepreneurial project at Inmobi, which was linked to the telco data project as we used to call it. So essentially working on the telco side, unlocking the massive data assets that telcos have. And so I got into that second project.
00:22:05
Speaker
where I was leading an acquisition in the Midwest in the US. And so I would travel extensively to the US trying to complete that acquisition, which took a long time in itself. We acquired a full team there. That business ultimately got rebranded as True Factor, which has, again, gotten rebranded to certain components that we acquired at that point in time.
00:22:31
Speaker
So those two components are doing extremely well. They have become large business units in themselves. And so that was the second entrepreneurial project that I was involved in in Moby. So you quit with an idea in mind or you quit with just the desire to do something? The quitting part of in Moby was with some idea, but also with the desire to do my own thing.
00:22:55
Speaker
I was fairly clear by then that I had done two entrepreneurial stints at Inmobi and I wanted to do something of my own. That was one definite reason for sure. But it was not absolutely throwing a dart in the dark. There were some ideas, some concepts that we wanted to work on. They had been fermenting for some period of time. We wanted to build a consumer brand in line with our ikigai.
00:23:18
Speaker
So we were trying to do something out of the regular humdrum of corporate life and wanted to build a consumer brand.
00:23:25
Speaker
That is the genesis of Club in itself. But as we did more research, as we spoke with more entrepreneurs, more founders about the space, about the sector, we always heard a recurring problem of capital or the lack of capital. And it was good to start off the consumer brand, but if you wanted to scale the consumer brand, then there was a lack of capital. And every single founder entrepreneur always spoke about that no matter what. And so we started working on the consumer brand.
00:23:55
Speaker
It was supposed to be like a D2C play. It was more meant to be a slightly different thing. D2C as a buzzword was not prevalent then, but we were trying to build a speak easy bar, which was going to be more of a networking place as well, and which was going to spawn off its own sub brands as well.
00:24:17
Speaker
including some D2C brands. So it was a consumer brand with lots of things under the hood, but the whole thesis was that there's so much more to be done with just a group of people coming together. It was predicated on the fact that we would be able to scale up, but as we started researching, going back to that point, capital was a much bigger problem that we heard of.
00:24:42
Speaker
and we were both finance people and so we would always scratch our heads going like why is that good founders, good products, good customer affinity, good financials are not getting rewarded by the capital markets.
00:24:57
Speaker
And around the same period of time, we randomly came across the term revenue-based financing in the US. This was for SaaS businesses. And there were companies that were doing it for SaaS. And we sort of started speaking, saying, hey, why don't we do this for consumer businesses in India? We do get access to alternative data sets. A lot of digitization has happened.
00:25:20
Speaker
Because of our own consumer brand, there were a lot of individuals who wanted to pack that brand. And we said, why don't we source capital from different pools of capital in itself, sort of make this a more hybrid way of raising capital, and apply that through revenue based financing, where people get returns as a revenue share. So initially, we were focused on the food sector. And that's how club in its current form shape a manner got started out.
00:25:49
Speaker
which was a revenue-based financing company for the food sector. Search happened to us in that we applied, we were the last company, the 20th company of the second batch, search two cohort. We got through the search program and literally on the first day we were challenged to think big.
00:26:07
Speaker
And if anything, Ishita and I can think big. That's not our problem at all. And we said, hey, we are going to take a decision which we knew was going to happen three quarters out. Are we a fintech company or are we a food first company? I mean, are we going to anchor on the sector or are we going to anchor on the product? And we knew that decision will happen three quarters out. Just on the first day of surge itself, when we were forced to think big,
00:26:35
Speaker
We said, let's take that decision today. And so that very day we took a decision that we will be FinTech first and we will be sector agnostic.
00:26:47
Speaker
If you like to hear stories of founders, then we have tons of great stories from entrepreneurs who have built billion dollar businesses. Just search for the founder thesis podcast on any audio streaming app like Spotify, Ghana, Apple Podcasts and subscribe to the show.
00:27:09
Speaker
So how does revenue based financing work? How do you get paid back? I mean, I understand giving the money like that would be like easy, but how do you get paid back?
Revenue-Based Financing Explained
00:27:19
Speaker
The best way to think about revenue-based financing is that we give capital to companies but take back the returns as a revenue share. So there is no equity dilution. There are no warrants. There are no fixed EMIs like that of debt. But every month, whatever the company makes, a percentage of that, a pre-agreed percentage of that, is what goes back as returns. So the advantage is during good months, the returns are accelerated. But during months with low revenue,
00:27:49
Speaker
when there is seasonality, when there are COVID and news revenue shocks, the returns are also lower. So it's a skin in the game financing product. Do you calculate that this is for X number of months or this is still a certain rupee value has been paid back or is it for perpetuity? Like how is the deal structured? So at least in the US, how revenue based financing started out were these were more perpetuity models or longer term relationships. India tends to be a very different market.
00:28:18
Speaker
We actually had the biggest blessing in disguise in that we did not know of a company called Clearco now, Clearbank back then, which is the 800 pound gorilla in the space. And so we were not encumbered by trying to replicate a business model in India.
00:28:33
Speaker
We were trying to build something very first principle. So we took some design choices, which were very first principles, including the fact that we do not do products which are perpetuity in nature. We believe that every company has a certain risk associated with it. And we are in the business of assessing that risk and pricing that risk.
00:28:55
Speaker
One of the risk elements is what we call tenor risk. Now, should we take a three month tenor risk on a company or an 18 month tenor risk and everything in the middle is the dynamic calculation that we do for each company. And so we are investors or rather we've been investors who are not trying to pigeonhole ourselves into certain slots. We are not trying to say no to a company.
00:29:20
Speaker
We're not trying to pick the market winner. We are trying to say yes to each company because we are truly trying to assess its risk and match it effectively on the other side. The risk gets translated into the tenure. Like if it is high risk, then you ask for an 18 month revenue share or if it's low risk, then you ask for let's say six months revenue share. Is that how it works?
00:29:44
Speaker
It's not as simple as that. A, the converse holds true in that if it's a high risk company, then the tenor is shorter because we want to see how the company performs over a shorter period of time, take lesser exposures on it. And if the company does well, then we do another round of investment with them and we keep on doing this over a period of time. And if the risk is lower, then we have the visibility to give a longer tenor to the company in itself. Give me like a hypothetical example with numbers just to make it clear.
00:30:13
Speaker
If say, for example, it is a young brand, as we call it, low in revenue, what we would call an Instagram brand, something very, very young, low revenues, not a lot of operational vintage, then that would be a high risk company. This is where we would do 10 hours from three to six months. We want to see how the company performs.
00:30:35
Speaker
The quantum of capital will be on the smaller side under 25 lakhs just to see whether the company is able to repay it. Again, the quantum of capital varies by company, so it's not a blanket statement at all. Just to give some ballpark guidance, if it's a company doing 10 lakhs MRR, MRR standing for monthly revenue run rate,
00:30:58
Speaker
then typically we can take an exposure of about 10 lakhs on the company itself. Now these numbers again vary by the tenor, by the revenue share and ultimately the yield that we expect. So if we were to give 10 lakhs to the company and we expect a yield say for example of 5%,
00:31:19
Speaker
then we expect 10 lakhs into 1.05% to come over that six month time period, basis a certain revenue share on the business in itself. So these things tend to be a lot more dynamic in nature and that is the calculation that we are doing.
00:31:37
Speaker
I'm going to kind of recap. So you would decide what is the rate of return you want on it. So like say on 10 lakhs loan, you want a 5% rate of return. So that's like 10 lakhs, 50,000 and then decide on a tenure and then that divided by the tenure is what would then become the revenue clawback or the revenue share that would get entered into assuming that the same monthly run rate continues, something like that.
00:32:00
Speaker
Yes, just two or three things to add there. Rate of return means something very specific. So I'm going to call it yield, that 5% is actually called yield. The rate of return is actually imputed backwards. And one also has to think through a lot of other use cases and scenarios as well. In that you apply too high a revenue share on a company, and the ability to pay comes down. And you apply too low a revenue share, and the returns don't come back as well.
00:32:28
Speaker
you have to incorporate seasonality in some of these modules as well. You have to incorporate cyclicality of businesses as well. It's a tad more complex, but you're absolutely, you understood it correctly. So do you only lend to digital businesses because you have data there, like a business which is not like selling online, the amount of data you would have about them would be less, right?
00:32:54
Speaker
Well, it depends. Digital in itself is a very broad terminology. Online is just a portion of digital in itself. There are a lot of businesses that sell offline that have digital data footprints.
00:33:06
Speaker
For example, we work with a lot of offline brands that are in the food space. So we work with cafes, cloud kitchens, companies, D2C brands that have stores and that are doing store expansions. A lot of these businesses, one would call brick and mortar traditionally offline, but actually if you start assessing the businesses, everything is digital.
00:33:31
Speaker
Their billing systems are digital. Majority of the revenue streams are digital in nature. Their inventory systems, their marketing systems are digital in nature. So there are a lot more data sets that you can look at and assess. So we don't believe in the whole concept of online and offline. In fact, what we see in India, and I'd argue across Asia, is that businesses become omni-channel very quickly. First of all, multi-channel and then omni-channel very, very quickly.
00:33:58
Speaker
So if it's an online business, it will start selling on all sorts of online channels very quickly, and then we'll go into offline. If it's an offline business, it will start selling into multiple offline channels, GT, MT, and then get into regular online channels as well.
00:34:15
Speaker
How does your share of revenue flow to you? Is it like an integration with the billing system or is it like a monthly reconciliation that how much revenue was generated this month and then you send them a bill or something? How does that happen?
00:34:32
Speaker
It's a combination of both. This is also part of the proprietary stack that I will speak about the least. I'd argue that giving money is easy. Taking it back is much, much harder. And that is where a lot of innovation also goes in to be able to collect this, to be able to repay, for the brands to be able to repay the money, but in an easy, simple, seamless manner. And to be rewarded for good behavior in itself.
00:35:02
Speaker
So that's where a fair bit of work also goes in, which is all proprietary tech that we've built. How do you reward for good behavior? Like you give a better rate of interest or?
00:35:15
Speaker
larger quantum of capital, better cost of capital. And so we are a scalable provider of capital in that companies that continue to work with us have raised six, seven, eight rounds of financing through us. So they just keep on raising more and more round of capital as they repay and the terms just keep getting better as well.
00:35:36
Speaker
And this is for largely product based companies or even services companies also. Anywhere where there is a recurrence of revenue, including services is very much scope and charter of what we do. So it's not just product companies or consumer product companies.
00:35:53
Speaker
Like say an ad agency? An ad agency if it has recurring revenue would become part of the scope. Typically ad agencies don't have revenue recurrence per se. These are not SaaS businesses. These are more one-time in nature and hence a little hard to model out and to predict. Do you fund this from your own balance sheet or like you know the money that you're giving them? Where does that come from?
00:36:18
Speaker
It's a combination. That's where we are the world's only hybrid marketplace. We tap into different pools of capital through regulatory compliance structures. It is not done from our balance sheet only. In fact, up until our last round, we actually had very minimalistic balance sheet exposure.
00:36:36
Speaker
We don't believe in raising equity money and then deploying it in other companies. It's just, it doesn't make sense. So we don't do that. We have different pools of capital that we source from. What are these different pools? Yes. So these different pools include NBFCs, domestic institutional investors,
00:36:56
Speaker
It includes banks, it includes HNI's, it includes international investors. So a combination of all of these is what we utilize. We pair the right set of companies across the risk-return spectrum with an appropriate pool of capital and that in itself is a fair bit of intelligence that we built over the last few quarters.
00:37:19
Speaker
Okay. Okay. Okay. So what is the landscape of revenue-based financing in India? I know that there are a lot of companies which work with Amazon marketplace sellers. I think that is like one category in this market, right? Like people who do bill discounting, like once you sell on Amazon, then they'll give you 95% off that what Amazon is going to pay you. What else is there like in this space?
00:37:45
Speaker
India is a fairly credit underpenetrated market in itself. I'd argue right from the traditional structures, which includes traditional debt and equity, which means bank debt and equity in the form of venture capital and private equity. Those are the more traditional forms. We now have a fair bit of SME financing in the form of working capital financing, which is what you're referring to.
00:38:09
Speaker
Build discounting or invoice discounting factoring which has started off as well in the market has picked up a fair bit of steam. And then revenue based financing in itself which tends to take slightly more midterm exposures.
00:38:24
Speaker
Invoice discounting is just discounting that particular invoice over 30, 45 days in itself. So it's a very short term product in itself. It does not allow a brand and a company to invest in inventory or marketing or growth in itself. And so there is still a need for more medium term capital. That is where revenue based financing comes in.
00:38:46
Speaker
Okay. You know, did COVID put stress on companies and make them more likely to default or, you know, or was it the other way around that you discovered those companies which benefited from COVID or like, you know, what has been the impact of COVID on businesses?
00:39:03
Speaker
So COVID has been, I mean, of course for the ones that there is of course a huge survivorship bias to this, but the ones who have survived would all argue that there has been massive tailwinds because of COVID in itself.
00:39:20
Speaker
just the adoption, the digital adoption, what would have taken three to four years got compressed in a matter of three to four quarters. And that positive impact is what a lot of businesses have seen. Of course, COVID was a time, the two waves were
00:39:36
Speaker
periods of extreme flux. That's when a lot of businesses discovered the flexibility of revenue-based financing as well in that this is where a product like this makes complete sense. So we actually saw a lot of benefits associated with it. A few businesses did have downturns.
00:39:55
Speaker
during the weeks of lockdown but as soon as markets opened up they jumped back and so much so that we had to build optionality in our products such that companies that are absolutely mushrooming off don't end up overpaying as well and so we have seen net net
00:40:13
Speaker
After accounting for survivorship bias, a lot of businesses do well. A lot of shift to digital across traditional businesses as well. And that is where financing in itself has become more digital in nature, which is what we are enjoying completely.
00:40:30
Speaker
So what is your roadmap towards becoming a unicorn? How do you see that happening? Is it continue to get more customers for the same product or also do like, you know, expand into allied products or, you know, what's the roadmap?
Club's Mission and Marketplace Strategy
00:40:45
Speaker
So first thing first, we don't think of that as the target in any form, shape or manner in terms of becoming a unicorn. Startup valuation is a map of demand and supply at the end of the day.
00:40:58
Speaker
And there is an over indexation on that. And it leads to certain very weird things happening in startups that we are going to see. We are already seeing and we are going to see over the next few quarters as well. We are truly here because we are trying to solve a problem. We are on a mission to enable growth for love brands. As simple as that, as complex as that.
00:41:26
Speaker
We believe that there is a much larger purpose that we are executing towards. Founders of companies genuinely are not able to get capital to build their businesses. And we think that's such a large problem for us to solve. We are grateful every single day that we get to work with phenomenal founders across the spectrum of
00:41:47
Speaker
majority of companies, it's a privilege that we've taken very very seriously at the club. We handle people's money. It is a position of extreme responsibility. If you're able to build what we are building and deliver more throughput, deliver more value,
00:42:04
Speaker
we know that intrinsically value of the marketplace also increases. And if the value of the marketplace increases, then it will be rewarded by investors who would see more potential to it as well.
00:42:19
Speaker
What is stopping you from going 10x each month? Is it that there are not enough quality founders around or that it takes time to assess the risk of each founder? What are those kind of challenges which you are solving on a day-to-day basis? I think I'm going to take a step back and respond to that question. In that two-sided marketplaces are built gradually where you are making sure that supply and demand are built in tandem.
00:42:47
Speaker
you over index on one side and the marketplace becomes lopsided and it fails. And markets of Asia, thereby India, tend to operate slightly differently. These are not markets of US where you can absolutely just over index on one side and the other side will be naturally attracted to it. In India, you have to build it gradually on both sides. So while we are seeing phenomenal month on month growth rates,
00:43:13
Speaker
A 10x growth rate is not simply driven by adding more supply. It is also not driven by adding more demand. It is in careful matching of both sides of the marketplace. And if we continue to do that, there will be step jumps in the business. So every two to three months, we have a step jump in the business where we move the orbit of the business in itself. And so it will be step jump up to a certain point in time.
00:43:44
Speaker
After that, it starts becoming exponential when both sides get attracted to the marketplace. So essentially, network effects start taking into shape. We are not there yet. We see early signs of network effects, but these are early signs of network.
00:43:59
Speaker
You had this very strong desire to learn organization building, organization development, and the thesis around people being the key to a business. So how are you implementing those desires at club? What is the way that you're building up club as an organization?
00:44:17
Speaker
Let me start off by saying that it's not a singular thing that you do that ultimately leads to an organization getting built and for it to hum in a particular to operate at a particular frequency in itself. The second axiom there is that startups evolve very rapidly. So anything that you've done six months back organizationally has to be torn down and redone.
00:44:43
Speaker
at least in the initial few phases up until a certain maturity comes in by itself. With those two axioms in place, we've actually started out with a very different mindset altogether about building the cultural fabric of club. Most companies would have and we looked at enough and more inspiration
00:45:05
Speaker
We looked at enough and more companies that had multiple long lists of things that they are aiming for in terms of cultural values. When we started thinking about it, we realized that that's not the way that our brains operate or what we are trying to build in a company.
00:45:22
Speaker
So we have what is called a four tiered cultural tenets. We have four tiered cultural tenets. The first tier, which is the foundational block for us, is what are called our virtues. Virtues are things that we cannot teach, that we cannot train, we cannot impart. You either have it
00:45:42
Speaker
or you don't. If you haven't, you will find club to be a very easy place. And we try and tell a lot of candidates, if you don't identify with these virtues, stay away from club. Because these will get over indexed a lot. On the bedrock of virtues comes our next philosophy, our next tier, which is what we call clubs. Wow.
00:46:04
Speaker
clubs way of working these are five simple tenets that we run like a drill sergeant into our team members these are things that you will learn at club if you're working at club can you detail it out like what are those virtues or what are those vows
00:46:25
Speaker
So let's start with the virtues. So the five virtues that we speak about are fire in the belly, which is absolute crazy hunger to just to learn, to grow, to be better. The second one is hard work. And while a lot of people speak about hard work, our hard work is our understanding of hard work is that your average of hard work should be higher than the max of most people.
00:46:51
Speaker
So you're a hard worker of a new order altogether. The third one is trustworthiness. High integrity is very important to us. The next one is intellectual curiosity. It's always just learning more things. It's just having a growth mindset about all sorts of things in life. And the last one is humility. Incredible
00:47:12
Speaker
intellectual humility about what you know, but more importantly, what you don't know. So these are five virtues that we sort of ask pretty much all people who are interviewing at club to identify with. And if they don't, we recommend them to steer clear. Moving on to the next one, which is essentially our way of working. The five of them are what we call high A to D.
00:47:40
Speaker
A to D stands for attention to detail. It is so important to have very, very high A to D because we deal with people's money. Even five PESA here or there doesn't work for us. And so zero defect to work consistently is something that we ram into our team members as well. Structured thinking is the next one. Essentially the ability to manage multiple threads parallel and sequential in nature
00:48:09
Speaker
and be able to know what the priority is at this particular point in time while making sure that others don't drop in themselves. So that's another big thing. The third one is clear communication, both internally and externally. We could do a lot better externally, but just in terms of internal communication,
00:48:28
Speaker
We tend to focus a lot in making sure that our input and output of receipt of information is very, very clear in itself. The next one is extreme ownership. So the ability to own things, get them done, and then to help other team members as a team in itself. It's sort of taken off from the seals in the US in itself. The last of our tenant there is positivity spreader.
00:48:54
Speaker
So essentially, startups are tough in nature. So we try and keep inculcating that you have to look at the brighter side of things. And so positivity spreader is the fourth way of working tenant for us. So that's the second layer on which things are built, which leads us on to the third layer, which is actually the cultural values.
00:49:17
Speaker
Culture is what is the next layer for us. Now, interestingly, when we thought about culture very deeply, we realized that there is nothing called ideal. Culture is actually finding balance and that balance tends to shift and it tends to vary. So it's about finding that right balance at that point in time, which is ideal for the situation in itself.
00:49:40
Speaker
So the five cultural values for us, which is sort of a balance in the middle. The first one is think big and execute small. So we really believe that thinking big is important, but the execution is minute in nature. It has to be piecemeal in nature at a step by step in nature. When they say Rome was not built in one day, they are right. But then you need to have that vision that a Rome is going to be built and much more if you have to do it as well.
00:50:10
Speaker
The second is delivering high velocity output and high quality output.
00:50:14
Speaker
A lot of times, even in India, we are trained that move fast, break things. We don't believe in that at all. You have to move fast. It's not just movement. You have to deliver velocity, which is not just speed. It's about the distance traversed, but also with high quality in itself. The third one is be objective and retain emotionality. Startups are so much about taking objective decisions, yet you need to be
00:50:41
Speaker
You need to have a drive, a hunger, a passion, a vision, and that's all emotional. So you have to find that balance between the two in itself. The fourth one is always be building and always be selling. So essentially you keep on building, yet
00:50:56
Speaker
You have to sell that in the market as well. And again, finding the balance between the two. The last is raise the bar for yourself and for others. So it's not just about an individual contribution in itself. It's also about expecting and demanding more from other team members.
00:51:13
Speaker
These are the three layers. The last one, the simplest one is the mission, which sits on the apex. Our mission is to enable growth for love brands. That sits at the top of the pyramid. So that's our cultural tenets. I know I took a long time to speak about it. No, no, no. I think it's worth the time spent. What is your headcount today?
00:51:31
Speaker
We're 40 people. Isn't this overkill for a 40 people startup? It's hard for someone to even remember. Or is it something which is more of your personal, like a guide for the founders to keep in mind? If you were to ask most companies about culture and ask team members, do you remember culture? I would bet my money that they don't. Not all of the things.
00:51:55
Speaker
not all of the times. You don't lay down cultural tenets for remembering them. You lay down cultural tenets because when everything else is forgotten, these can be remembered.
00:52:08
Speaker
and that's the single purpose why culture exists and it needs to be articulated. I'd argue what we are doing is so complex that it can easily be a 150 person team. We do what we do with 40 people because of our cultural tenets, because we are self-selecting a very
00:52:30
Speaker
elite set of team members. We are not trying to be the Marines. We are trying to be the SEALs. We are that elite commando unit. The more elite you get, the more clear you need to be on why you are doing what you are doing. And even if you don't remember all of the things,
00:52:49
Speaker
Can you just remember that there are four things that matter? Even if you can remember that it doesn't matter, the rest will come naturally because virtues no one needs to remember. You're already screened for it.
00:53:05
Speaker
way of working, no one needs to remember it. We will tattle train you, we will ram this into you if you're a team member at club. Cultural tenets, you remember, you don't remember, doesn't matter at all. The only single thing that you need to remember is the mission. That's all we ask. The rest, it doesn't really matter.
00:53:23
Speaker
Right, right. Yeah, this is actually thinking we're executing for amazing. You already thought about what a large organization should have and executed it today in anticipation of that amazing. So how does your hiring work?
Hiring Process and Cultural Values at Club
00:53:40
Speaker
How do you build this team of SEALs?
00:53:43
Speaker
At least our interviewing process is going through iterations. This is where every six months we have to scratch down our template and to restart it grounds up. Today we get a fair bit of inbound as well. We are reaching out. We work with a fair bit of agencies as well at this point in time.
00:54:02
Speaker
But there are multiple screening layers. These screening layers are both technical and non-technical. The advantage of a small team is that you start understanding the fabric of how the team operates. These are unspoken things. These are things that we are testing out. Again, the virtues and power, right? So right during technical and non-technical screening, a lot of people just keep getting screened out.
00:54:28
Speaker
our rejection rates are incredibly high and we've looked at some of that data and it's mind-boggling at some level but that's what we need to do right if we have to do what we do after that it starts advancing into more detailed technical rounds where we ask for case studies and then you end up speaking with one of the co-founders who's taking not just a technical round but also a non-technical cultural fitment
00:54:57
Speaker
We also have bar raisers internally. So bar raisers are always pushing the boundaries of how the team is going to be and going to be designed. So it's a combination of some of the best practices that we found and we are again in the process of redoing and rehashing it as we speak.
00:55:15
Speaker
See, I can understand as a founder, you would be able to judge virtues like, say, fire in the belly and hard work and, you know, those five virtues that you spoke about. But those are fairly subjective to judge at scale. Like if you were at a stage where you were hiring 50 people a month, how would you judge that, like those virtues?
00:55:37
Speaker
I know this is a podcast, but I've been smiling. And the reason I'm smiling is because I think some of my team members judge virtues far better than even I do. And I'm incredibly proud to say that, right? I mean, if they are able to do this, that means you've done something right. Yes, they become much harder if you're trying to add 50, 100 people every month. We're very clear we are not trying to add 50, 100 people every month.
00:56:01
Speaker
That's an organizational choice that we took a long time back. Our choice has always been as founders is that less is more. If we have less high quality people, we know that as a unit we'll be able to do a lot more. It's again the same seals concept. You will not see a platoon of seals going after a problem.
00:56:21
Speaker
you have very small units that actually attack problems. And everyone knows what they are doing in that particular unit. Our belief is that in this mad rush for hyper growth, we start throwing people at the problem. And yes, there is a time and place for throwing people at the problem. But then you have these boomerang effects where you add a lot of people, then you're downsizing, and then you're adding again, and you're downsizing. We took a conscious call. We will never do that. We will be high bar.
00:56:51
Speaker
tough to get into, tough to work at, for sure. But if you enjoy this, then you will hopefully learn something as you move on in your professional career in itself. So we are not aiming to do 5200 editions every month. And so this works. Does your interview process have like a form in which people rate on virtues? Or is it like more unspoken and
00:57:18
Speaker
No, so at the end of it, the interviewers actually end up rating the professional as well along cultural dimensions. The cultural round is specifically designed for it. A lot of team members are assessing on the technical side, but the cultural side absolutely goes down into virtues as well.
00:57:37
Speaker
We also try and do something else. It's much simpler for us to repel people than to attract people. It's counter-intuitive, but we are putting ourselves out there such that people don't want to apply at club, that they know that this is a tough place. We still work in progress. I definitely don't want to claim that we've been able to do it, but we are trying to communicate as much as is possible that if you think it doesn't work, chances are it won't.
00:58:07
Speaker
We are just trying to catch the best signals between the noise. Not that it's meant offensively. It's not. Everyone fits into different kinds of organizations. There are some organizations that won't fit for you. And we are trying to call out very clearly about what we are as an organization, such that if you don't think it makes sense, don't join us. It's OK on both sides.
00:58:31
Speaker
As in you've created friction in the application or the selection process so that there is like a self selection where people are opting out on their own.
00:58:40
Speaker
It's not as much friction, it's more about communication. We are trying hard to communicate more effectively and I'd still argue we can do a far better job of it. But we want to communicate about what fits, but more importantly, what doesn't fit at club. And if we can go out there telling people more about what doesn't fit, we are fairly certain that the fitments will happen.
00:59:08
Speaker
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