Introduction to Johit Bhayana and Oyster Global
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Speaker
Good afternoon, everyone. This is Johit Bhayana. I am the co-founder and co-CEO of Oyster Global. Pleasure being here with you all today.
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Speaker
If you are a regular listener of this show, then surely you would appreciate the potential of startups in helping to create wealth. Startups not only create wealth for the founders, but also for their investors. If you have ever been curious about how to invest in startups, this is the right episode for
New Investment Initiative for High Net Worth Individuals
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Speaker
Rohit Bhayana is the founder of one of India's oldest venture investors, Loomis Partners. Loomis started investing in startups almost two decades ago. They are now making it possible for a lot more people to invest in startups and take advantage of this unique phase of growth that India is currently experiencing.
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Their newest initiative is called Oyster and it allows high net worth individuals to invest in a portfolio of high performing venture funds and get the benefit of curation, access, diversification in an asset class that most investors do not understand.
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Just take me through your journey and you can start from whichever phase you feel is appropriate. You can start all the way from childhood also if you want to. Just to help us connect the dots.
Founding of Loomis Partners and Focus on India
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Speaker
So Akshay, let me actually start with Loomis since we talked about that. So 2006, my co-founder Sandeep and I came together to found Loomis. We both were having our corporate careers in large corporations. I was in GE leading the technology business, Sandeep.
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Speaker
was at three com he was in the bay area we both came together with a fairly simple thought we thought india's time was there if any way we want to be in india we were kind of all over the map what we wanted to do we could have we could have been an entrepreneur in importing wine into india as much as into
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building a technology company grounds up as a greenfield venture. But we knew one thing for sure. This was a fascinating time to come to India. And honestly, if you asked me today why we thought so, I seriously don't know. Because so much of what seems in place today wasn't there at that time. The startup scene was early. UMass got to be known because of funds. They weren't funds really at that time. The regulatory infrastructure around
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private market vehicles was rather earlier, if at all. So there was very little, really, to talk about what we would shape up to where we are today. But I think there was just a general belief on India's long-term potential, and that drove us back. And was it India, or was it a desire to be an entrepreneur that made you quit the GE role? You were like a CEO at GE, right?
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I'm assuming it's like a fairly sizable pay package that you would have been taking home in addition to the quality of life being in the US. That's a good question, Akshay. Actually, I'll struggle to answer that. And if I'm honest, I think it was a combination of the two. I think India had a big role to play. I think that desire to be on Tanore was big. And the reason I say it's both is because
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I think if something else had presented itself at that time, let's say there was something else in the US turning an entrepreneur. I don't know if my inner passion would have gotten as fired up as it did on the start of India. So I think it was just an amazing combination of the two coming together. It was raw. I can just use that word. It was raw. And sometimes raw energy or raw.
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potential excites you more than very finished and very perfected things. And India was raw. So I think it just beckoned many more of us much more. And that's what we did. Yeah. Like I want to hear how.
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that journey from naivety to wisdom. You must have quit your corporate jobs with a certain mindset and that mindset would have not worked so well as founders of a very, very small company, which you would have started with. Just take me through that journey of...
Overcoming Early Challenges in Starting Loomis
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It was, it was very humbling. I still remember it was cafe coffee day on Tolstoy, Mark, Delhi, literally booking a table by the side and committing the waiter a certain amount of coffees per day. And therefore not letting anyone else take our table. So that's literally stuffed it. Wow. Okay.
00:04:54
Speaker
Yeah, it was three co-working cafes were the co-working spots. And yeah, so that's where it started. And that was a first reality check. There were many reality checks from Niviti to Wisdom, as you call it. I for the longest ever kept mixing dollar millions with Rupi Kaur's.
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I would never get it right. And from the size of investments to revenues and margins, I would go wrong and everything. It took a while to get your vocabulary fixed. I think by the time we got to India, we had spent some... By the time we physically landed here, we had spent some time kind of...
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maturing the thought process. What we got pretty clear pretty soon was it's going to be in the space of technology and technology, not just in services, but technology into applied applications. One of the first things we got into was an intellectual property, IP forensics company, a very young company that was started by a brilliant bunch of Iodians and we joined hands with them to help them build it. It was literally, we were in a little cafe
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In Delhi, as I told you, they were in a little cafe in Bangalore. Literally, we were in the cafe. They were above a cafe. And we joined hands across the two cities. But we collaborated very deeply with them to build a fairly scalable and very respected business. It was called iRunway, iFor Internet. iRunway became a pretty dominant force in the world of technology-led IP forensics. They represented several very large global majors.
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from the Oracle's to the Google's, et cetera. They ended up representing several of them against contested intellectual property cases, working alongside law firms. That was a very deep partnership we did. And after that, several came through. You were essentially selling your pedigrees as the experience, the qualifications that bring us on board on your team as consultants, and we will help you scale.
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Yeah, we were selling capital, just fiddle capital. We just poured some capital and we were fortunate to have some large families back us. We brought that capital with us and we brought our expertise with us. And we partnered with people like these founders to really help them start thinking how they could scale beyond Indian shores.
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IT services was very mature, right? The TCSS, the WebPro, the Infosys, the Tech Mahindras were created, but in very specialized domain-rich tech spaces were still not really there. So we thought that was a very nice segment, whether it was IP, the example I just took, it was supply chain, it was health,
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you would still not in those days call them health tech and edu tech and all that. But these were call them vertical expertise, vertical expertise in various leverages of IT. And those are the segments we started building out in partnership with some of these very early founders.
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So you can think of us like an incubator, you can think of us as a green field, bottoms up studio venture, or a venture studio. So that's what we were doing. We really had to thank some of these opportunities, some were very physical businesses.
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some of very, very physical businesses that we were converting to technology led businesses. These were businesses which had 70, 80, let's say points of presence doing training in IT skills, and we were digitizing them. So that's how we started partnering in some of the early journeys with some of these businesses.
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How did you convince other capital to come in? Besides, I mean, you could have put your own money because you understood the funding world from the US example. But what about the other capital that you got in?
Evolution of Private Investing in India
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So, you know, I think any venture is a story.
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And it needs to be told. It needs to be told a way which is sincere yet inspiring, right? And I think being somewhat more seasoned at it than many of these entrepreneurs, we could do that better than they could. Also on our back, we could carry the story.
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obviously smaller checks came before larger checks and therefore there was always a testing point. You would never just get the big check one fine day, you would always start with a small check. You let that story play out, you would see a couple cycles with it and then you would inspire confidence where people say yeah we really love what you're doing, we'd like to back you more. Also what started happening Akshay was we could really get to understand
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how we wanted to narrow and chisel our strategy down. And I'm kind of building from your first opening question that how did the whole thing come together? So we somewhere on the journey, having started in 2006, seven, somewhere around 10 years later, we figured out.
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Not just India is maturing very quickly, startups are becoming mainstream, investment vehicles are fairly well established, the government is pretty clear about them, these are heavily regulated structures. So once that whole form and format started taking shape,
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We started creating UMass's internal structures around how to participate in these areas. And we called them labs. So created supply chain labs around the work we were doing in supply chain. We created work labs around the work we were doing in creating job skills and employment. We created age labs for creating access to care for senior citizens. Also, we created credit labs for the work we wanted to do in venture debt. So those are the four labs we created.
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And all the work that was happening, this was with pretty seasoned teams, very mature, established entrepreneurs and professionals, who we would invite to come and work with us and partner with us in building these areas. Some of these were built as greenfield businesses, some were built as greenfield funds, some were
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where we would be investing in funds as co-GPs and anchor sponsors. And in other cases, very rarely though, we would enter into late stage companies. So these were three or four formats in which we started building LUMIS out. Leading into what today obviously is Oyster or Oyster Global, which is taking everything that we have done into LUMIS to its next big milestone, which is creating a fund structure through which we want to organize India's private market participation.
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You've seen the evolution of private investing in India from when you started, when you said there were no structures. How did that market evolve? What were the key turning points in that market that really helped it become mainstream?
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So I think India is always a, actually there's no other word but to call it a Baniya country, right? It's a country which is a very, it's a very private country. Listing is very fashionable very recently. Earlier on listings were not just a sign of maturity and something which would happen very late, but when you really want to tap in retail capital.
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And you would still keep the company's controls, even in those situations, very tightly and very close to the promoters. I think India always will be that. India will be very private, very tightly-haired. And that's a great thing that tells you that there is a lot of value attributed to ownership, right? But the other thing is also true, as tight as this ownership is, if that ownership needs to be somewhat mainstreamed, even if it's 10%, 15%, 20% dilution that happens,
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You need to do it in a very structured manner. Now, obviously, institutions know how to step in into that ownership structure, whether a P or a VC fund does. And individuals, whether family offices or high net worth individuals, really
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aren't that comfortable with this asset class. It's a complex asset class. It's a new asset class. It's a long-term asset class. And therefore, I think the biggest shift that happened in India's evolution is not only did we see SEBI and other regulators really shape the market well in a very controlled environment,
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putting in the right regulatory mechanisms, risk protections for investors coming in. You also had a lot of distribution infrastructure created with wealth managers and private banks who really started taking this asset class and really allowed people to participate in it.
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It's still very early days, Akshay, as you and I both know, but at least the infrastructure is laid out now. The infrastructure is education, awareness, distribution, technology, regulatory. The infrastructure exists. Now, how do you on that infrastructure create the right value unlocking and do it in a way which doesn't really
00:14:04
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miss sell or oversell this asset class is really where we are. So I think the way I would put it is, the foundation is late, there are some early write signs, there are some early errors also, but now you know how to build the edifice of the building. You really can see yourself putting the infrastructure together for that.
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Isn't private investing really, really niche as an asset class? I mean, I guess Indian startups attract between, I guess, 7 to 15 billion annual funding, depending on the year, somewhere in that range. I'm guessing, like, the Indian public, like, family offices, HNI, et cetera, would be a drop in the bucket here.
00:14:54
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Yeah, they are. You're right. You're absolutely right. And that's where I think the headroom is so large, right? So let's talk about the numbers you said, and I'll just give you another framework to look at it as. Globally, in the H&Is and Ultra H&Is, about anywhere between 10% to 25% is the asset allocation to PEVC funds, right? In India, that number is less than 1% reduction.
00:15:20
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So let's break down India. India, top one person of India owns about one third of India's liquid net worth, which is five trillion. The next nine percent of India owns another five trillion of liquid net worth, which is gold, stock, bonds, everything put together. The last one third of India owns another one third. So one percent owns
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one third of India, nine percent owns one third of India, 90 percent owns one third of India. So the top one percent for those families or those individuals having a more structured way of participating in India's private market wealth creation is really what we're trying to do. And that's why I was telling you it's such a drop in the ocean.
00:16:07
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And that's one way to look at it. The other way to look at it is the headroom is so large that for how big can become. We were actually looking at some of the numbers which which most of us are aware of as India looks at growing to being a five trillion economy. The two additional trillion that India will be adding on about 10 percent of that two trillion will be private capital.
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A large part of that is going to be coming in from the retail lay. A large part of that is going to come in from H&Is and ultra-H&Is. That will drive the growth in a very, very different way of the sector.
00:16:48
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What is the, I mean, so far, what have you seen in terms of that 1% investing into businesses?
Investment Strategies for High Net Worth Individuals
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Is it typically that they would do strategic investment for their own, I'm assuming this 1% is typically like a owner of a business and that's how the wealth got created. So is it typically strategic investments that they do instead of just financial investments in private investing? I think we'll see three flavors in this, okay?
00:17:17
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I think we'll see a flavor which is very strategic. So you're kind of talking about one extreme. These are people who really get it. They want to invest in companies which are synergistic with their own industry, their own businesses, their own, you know, ownerships, etc. The other are, now I'm taking the total other extreme, are people who are on weekends
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exchanging WhatsApps and learning of new investment opportunities from their friends and family network and saying, huh, what's the harm? Let me put five lakhs here, 10 lakhs here, 15 lakhs here in a very unstructured way, very, very hear it, think about it, and let me execute it before the busy weekday starts.
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So that's the other extreme. In between are asset allocators, right? Asset allocators are large families who are saying, ah, I want to get to 10% in this asset class. And I'm going to do it by constantly looking at the stream of potential opportunities that keep coming to me. And I'm going to see wherever I get the best terms with the best predictability. So we're going to see all three play out. And naturally so, I think
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The first kind will always stay very very aligned with their businesses. The second kind are the ones you want to mature very quickly so that they are not doing WhatsApp based investing. And the third kind are really the kind with whom you want to really open up the possibilities, the breadth and depth of their options available.
00:18:45
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Interesting. The second kind is doing it more for the kick off investing in a startup rather than a conscious asset class or diversification of investment call. Like what a lot of people invest in equity is just for that kick off it. So that's the analogy here.
00:19:09
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It is, it is. Though there is a subtle difference here, the amounts are not small. And when you start compounding it, they're creating a decent enough exposure with very little understanding.
00:19:25
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And I'm talking about the vast majority. There'll always be exceptions to that. And obviously, those people are very welcome to, and they should do what they're doing. They're doing it very knowingly. But for the vast majority, startup investing is exactly what you said. They think their exposures are small, but before they realize they have put in, it could be a crore, it could be 50 lakhs, whatever, across 5, 7, 10 investments. And if done in a structured way, that really can be a huge difference.
00:19:54
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Actually, that's what happened in the US, in the UK, in Australia, in Japan. That's what happened. It wasn't very different than where we are today, right? About 10 years ago, people were exactly doing what we're doing here. Now things have gotten much more mainstream there with platforms which are available.
00:20:10
Speaker
Okay, so these platforms which are like essentially angel networks like Mumbai Angels and so on, this is like the evolution of that second category. People who do weekend investing would probably evolve into joining one of these platforms to do their angel investing.
00:20:31
Speaker
You know, these platforms have done an incredible job, right? So the kind of things, angel networks and others, they've really brought in people to get exposed to the breadth and depth that I was talking about.
00:20:46
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And then there is collective wisdom playing in. When there are 10 angels who are potentially looking at something, they're exchanging notes. There is a leader who's emerging. The leader is taking up their opinion on why he or she is looking at that particular opportunity. So things start shaping in a quasi-institutional way, if I may. So effectively, what are we talking about? We're talking about how do you give individuals
00:21:10
Speaker
an institutional leverage, an institutional infrastructure to participate in this asset class. Okay, I understood. Now the people who actually are GPs when VCs, is that a big pool of capital coming from India? Like most of these VCs like say Broom or Solaris or so on, how much of their capital comes from Indian GPs?
00:21:40
Speaker
So we have some numbers, I think on the whole, so India is about 100 billion in assets into management in the PBC asset class. And out of this 100 billion, I would say less than 10% or at best 10% is what is coming from, let's call it the non-institutional investors.
00:22:07
Speaker
You know, these are still people who are accredited, they're above a crore rupees in investments in the space. So that's about, I would say, let's say less than 10%. So less than 10% is the second category of weekend angels.
00:22:21
Speaker
No, I would say this less than 10% is one, two, and three, all three put together. That's still how small it is. All right. If you look at the second category, they'll be fractional in there, really fractional in there. Very, very small. Where we are going to Akshay is becoming very interesting.
00:22:37
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India as a whole will be about $600 billion, as many reports have suggested, from EY to the industry body, IVCA,
Growth Potential of India's Private Market
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et cetera. India will be $600 billion in this asset class. Think of that, that's a staggering number of zeros that you'll have in putting this number together. Of that $600 billion, we can clearly think of this participation from non-institutional investors be as high as 20%.
00:23:04
Speaker
So now let's go back to it. 10 billion growing to approximately 120 billion, a 10 fold increase of participation. Now that sounds vague, but since the headroom was so large and it was such a tiny drop in the ocean, there is just such a massive base effect playing out.
00:23:24
Speaker
And how will this happen? Who are the players who will make it happen? Is it that the VCs will start going to more Indian family offices to raise for the next funds that they are raising or like what are the ways in which this will play out? Yeah, it's happening all possible ways. Akshay, it's happening with the VCs directly going to them. It's happening through the wealth managers and private banks. It'll happen through fund platforms like us. It'll happen through fund of funds. There'll be multiple ways in which
00:23:54
Speaker
this will happen. And I think literally as you and I are speaking, all the four or five I talked about are happening, right? It isn't that it's one or the other. What will help is a bit of structure to this industry, and that's what we are trying to do.
00:24:09
Speaker
Okay, understood. Let's go back a bit to the Loomis and Oyster journey. You know, so take me through that decade of building up Loomis. What were some of those challenges you encountered, some of the learnings you had building in this private investment space? How did you, for example,
00:24:27
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become better. How do you hone your judgment? I think the biggest thing an investor brings to the table is his sense of judgment in whom to back and the home to say no to. So just take me through that journey a bit.
00:24:41
Speaker
Actually, comedy of errors. So everything that we thought we would make mistakes with in learning, we had to learn the hard way. So yeah, we, that's how it happened. So, and India makes India, the good and bad of India is the same, right? India is massive. It's complex. It gives you, it throws at you so much that a lot of failures come quickly. The point is how do you convert them into your learning? So I guess we got more than a fair share. But let me pick a few that I think were
00:25:11
Speaker
very relevant and very important in our journey. I think fundamentally, we were an operator mindset form. As an operator mindset form, you fundamentally believe in not failing, which means you'll keep staying at something, you'll keep putting more capital at it, which means you'll keep
00:25:34
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you'll keep fueling it without taking a judgment call of saying, now I gotta just cut it and let it go. So I think that was a big part of our learning. And gratefully, some of the abortionties presented themselves pretty quickly. And we had to make some hard calls. Our instinctive nature was not to let them go, but I guess that's where the learning starts when you're playing it. So that was a big part of it, one.
00:26:03
Speaker
Two was, there is a huge issue with being promoters in India, right? When you're promoters and when you take large stakes in firms and you become promoters, the kind of complex regulations that start playing around that
00:26:22
Speaker
make it very, very complex to do business in somewhat of a, somewhat of a more aggressive fashion. You start watching your basis very quickly because you know, every little step you're taking, there could be challenges coming your way. So we learned that we didn't want to be, we didn't want to be too aggressively bold in some of these days. So promoters was a second big thing. I would say third was,
00:26:53
Speaker
how you wanted to trade off terms with the founders, right? And unlike the West, unlike more mature markets, where terms are very, it's fairly cookie cutter, right? You're getting into this kind of a deal, the deal will have a particular characteristic and it will be fairly well accepted that the given take off terms will be such and such.
00:27:18
Speaker
In India, till very late, and I would say even now, it almost feels everything is up for negotiation. Everything can be asked for and taken for. And that kind of makes negotiations very, very long drawn.
00:27:36
Speaker
I think we by far take the longest time in closing deals. It's gotten much better now. And I'm keeping the funding winter aside. Things have gotten far better now. But otherwise, we would really take very long, very, very long in closing deals. So that was a big part of our learning. Finally, I would say exits are challenging. Exits are challenging in India.
00:28:05
Speaker
It's a massive market. It's perhaps the only market in the world after the US, which has both a huge innovation quotient and a huge consumption quotient, which makes it fantastic for us. I think we have some amazing decades ahead of us. But so far, it hasn't been the easiest country to do exits.
00:28:28
Speaker
in. And therefore, managing through that journey of private markets, where, you know, unlike public markets, where you're listed, there's liquidity, etc.
Challenges in Private Market Exits
00:28:40
Speaker
These are long term participations, and with very little visibility to exit, it makes it all the more challenging. So the depth of the market is still limited. Yes, those are some things which we learned. And I think when we came into this
00:28:54
Speaker
market, we kind of came with a certain euphoria of like, you know, these things will shape us much sooner than we thought, much sooner than they actually did happen. Are we getting there now? I would say it feels like we are three fourth of the journey there. They're always the last miles where it gets very, very long drawn and challenging. But definitely things are much better today.
00:29:22
Speaker
How do you build a fund which has an operator's mindset? Is it that you very selectively do one investment a year because you want to invest time in co-building the company? Is that the approach you took, unlike a more traditional VC which does 10 investments in a year with a clear
00:29:41
Speaker
Understanding that out of these 10, six will not give me any return. Three might give me some break even and one will be a breakout giving me multiple returns. Yeah, actually even you said one a year. I think Akshay, we would have done one every two, three years. So we would be that committed to a build out.
00:30:09
Speaker
stay at it, stay committed to it, make sure it was airborne. It had taken off, its team was fully independent. Any support it needed from us was only on an ask basis. And that support was only if it needed really shift orbits, that kind. Otherwise the business was on its own. Yeah, so it takes a lot of time to nurture a business. I really don't think we did more than two in three years. That's the kind of average we did.
00:30:39
Speaker
Wow. Just take me through the investments. What was the first one you did then? So first was I Runway, like I told you. That was the first investment we did. We did a company called Talent Edge, which was an education technology company. We did a business in education. Which years? This was, I think, about 2009, 2010.
00:31:08
Speaker
We did an investment in People Strong, which ended up becoming India's largest HR tech company. And it's one of the most dominant names to date, arguably the largest in Asia in the space. We did a couple of investments in supply chain tech, including
00:31:32
Speaker
including one which ended up being a fairly large operating reverse supply chain called on-process technology. We did an investment in a fairly large gig platform company for jobs in gig scaling called Awaken.
00:31:53
Speaker
It's still a fairly successful company, not the largest, amongst the top two, top three in India. We also did investments in aging and the longevity economy, like I was telling you. One of which is called IMOHA and the other is called EPOC. IMOHA focuses on enabling elders age in their own homes.
00:32:17
Speaker
Epoch enables elders with long-term care requirements to age in a home-like environment but in its own facilities. So it's in between a hospital and a home. Yeah, so these are some of the names that perhaps you might have heard of or you will hear of at some point in time and I really hope you do hear of them for all the right reasons.
00:32:39
Speaker
I interviewed the founder previously. What is the structure through which you were doing these investors? Was it typical to fund one and then fund one invest in a couple of companies and then fund two? Was that how you were doing it?
00:32:58
Speaker
I'm just more curious to understand that operator we see structure. And that's why I don't even think you can call us a VC or a PE. So we were doing these investments and continue to do them from our balance sheet. And that's where actually the operator mindset comes in Akshay because for a very large part of us, we are believers that when you're building businesses,
00:33:20
Speaker
When you're building funds, you can't really time the exits. You really can't perfect a clock cycle, right? You can't say, oh, I'll enter here and I'll exit there. And especially when these are private businesses, you're owning them or owning a large part of them. You really want to build them as if you'll hold them forever. And you can't do that with pooled capital.
00:33:37
Speaker
you have to do that first with your own capital. Then you can get pooled capital and pooled capital can come in and get an exit. So fund one can come and exit and then another fund X can come and exit and another fund Z can come and exit. But the founding team or the promoters have to be owning it pretty much as long as they can unless they themselves are taking an exit on the whole play.
Loomis' Unique Investment Approach
00:34:00
Speaker
So we wanted to enshrine that spirit in the structure.
00:34:04
Speaker
It could not be that we meant it, but we didn't implement it through the structure. The structure and the spirit had to go hand in hand. And therefore we did not build a pooled capital. We built a balance sheet capital through which we were gonna take stakes in these businesses, build them grounds up at the right time, bring in few angels at the right time, bring in the first institutional at the right time, bring in the next large strategic institutional, so on and so forth. That's what we did.
00:34:33
Speaker
Interesting. So essentially people who invested along with you, they own LUMIS the parent entity rather than some shares in some particular fund one or something like that.
00:34:48
Speaker
Yeah, Loomis Capital is very closely here. It's just a very small group of people, mainly us founders, management, and few very strategic individuals who we have worked with over a long period of time who came in with us. So alongside Loomis,
00:35:08
Speaker
along the journey come few other individuals who will come directly into the ventures we are building. And then somewhere along further down the journey, we will bring in funds and institutional investors. Okay, so let's take the example. I'll take one example for your benefit. People straw.
00:35:27
Speaker
because that one has seen the whole journey. So when we joined hands with people's strong followers, it was literally I think the first year into their thinking and their build out. We built the business over the next four, five years pretty much between us and them and one or two individuals that we brought in alongside us.
00:35:47
Speaker
And then in 2014 or somewhere like that, we got an HDFC as an investor to come alongside us. And we took the company to the next level of growth after that. And then in 2017, we got another investor who eventually exited us.
00:36:08
Speaker
or multiples who came in and bought our stakeout and bought a large part of the founders and management stakeout and gave us all an exit. And today, People's Strong is a multiples company. So that's typically how the whole cycle played out. The first investment you did was done by Lewis Capital, the closely-held company, which is just held by the founders.
00:36:31
Speaker
Yeah. The founders management and few family offices, like I said, family office or individuals that we got strategic investors. Okay. Yeah. Okay. Yes. Okay. In the case of iron, we're the first company. It's one of India's most respected family office who came along with us.
00:36:48
Speaker
We built the business, the ironware business. They invested through Lumis or they also had stake along with you? No, no, no. They invested directly. Lumis investment was always very, very limited, very small, but would come in obviously very early on. But coming back to ironware, then as the business grew over a period of time, it partnered with one of the largest global IP forensics companies, and that IP forensics company then ended up acquiring it.
00:37:18
Speaker
Okay. Do you think this was the right call to build this way instead of starting a fund? You know, I mean, today, like, for example, you know, all the big funds that people talk about,
00:37:37
Speaker
probably LUMIS could have been one of those top three funds in India kind of a thing. If you had gone the way of raising a fund, the way most other VCs do, instead of the operator investors approach that you took. Yeah, so actually that's a,
00:38:02
Speaker
what would I do if the cards were dealt all over again? So, you know, somewhere you, everyone has a certain personality type, a certain operator style or investor style. I think we did what worked best for us. And along the way, I think it also gave, so today, if we were, let's play the scenarios in a different way.
00:38:28
Speaker
Had we been a fund, we would have today been doing a third or fourth fund. Our first fund would have been certain size. We would have made investments out of it. Some of it although we would have created a second fund just going by the fact that we've been around 16 years. I'm sure by this time we would have been in our fourth fund. I'm sure we would have made good returns. I'm sure we would have had a few hundred portfolio companies.
00:38:53
Speaker
I think comparing that would probably be like a couple of hundred billion dollar size. Yeah. Yeah. Or who knows even a billion dollars. So, but compare that with where we are today. We've built a few businesses, which are very marquee businesses, very large stakes. We have sponsored a few funds, uh, fairly successful funds in their own rights, including one, which is arguably amongst India's leading venture debt funds.
00:39:17
Speaker
We have also now put this platform called Oyster, which actually enables us to participate in as many fun journeys as we would like to and mainstream the access to them to thousands of more investors. So I think had this happened, if we were not, had we landed where we landed, if we were creating good capital, I'm sure not, we would not have been able to do that.
00:39:43
Speaker
Therefore, I think you end up taking different courses and they play out for all the right reasons. You just have to stay true to what you think you are. And the best part about UMass Akshay was that it helped us. The way we executed it was true to who we were. It's highly gratifying, highly satisfying. You play in your own skin. You're not trying to be somebody who you're not. And that's worked pretty well. The team's been around. We feel very happy about that. It's been the team which has stayed together. And now as we build
00:40:13
Speaker
one of the most important things in our journey as Oyster Global, I think we are getting a chance to participate in so many more firms that we are directly, directly becoming a part of their journey. Why did you decide to go that route, the Oyster route? So essentially, I think at some point of time, you would have felt the need for
00:40:38
Speaker
scale could be achieved not through an operator mindset, but more through a like, you know, like a financial investor's mindset. That change of mindset led to oyster instead of leading to like we were talking of maybe a fund which would be a billion dollar fund. Why was it that you chose the oyster route instead of the billion dollar fund route?
00:40:59
Speaker
Yeah, that's a damn good question. I ask myself that question every time just to hold myself honest. Actually, you know, even oyster to us as a business, we're building a business. So first and foremost, I want to say this to you. Oyster is a business which we are building out. It's not a fart. Oyster as a business isn't the business of farts.
00:41:20
Speaker
just like Zero lies in the business of stocks and mutual farms. But if you ask Zero the founders, hey, who are you? They say, we are a platform, we are a business. We are a platform, we are a business. We are not a firm. We are in the business of funds. We are in the business of private market funds. Why we got into this space, I think it's actually quite interesting because having been 16 years in this journey, Akshay, we saw it from every single vantage point.
00:41:47
Speaker
We saw that as a greenfield business builder. We saw that as an investor in some startups. We saw that as a co-sponsor in funds. We saw that as a builder of funds. We had kind of seen all four personas. We built green, greenfield funds. We invested in funds. We built greenfield businesses. We invested in businesses. Having seen all four personas, what we realized was we were, there was tremendous amount of value in locking that was happening.
00:42:15
Speaker
but the asset class was still very, very, very complex. So how could we simplify it? Oyster as a business model is nothing but two Northstar metrics, transparency and expertise. How do you bring transparency and expertise of an institutional grade to an asset class and mainstream access to it?
Oyster's Focus on Transparency and Partnership
00:42:35
Speaker
That's what really Oyster is trying to do. It's trying to give an institutional class diligence in allowing
00:42:41
Speaker
and H&I, a massive, fluent investor, anyone who's putting up a crore of rupees to participate in India's tremendous startup's journey through a fund manager, not through direct investing in an underlying startup. What is the oyster product? Maybe talk me through the first product that you launched. What's been the journey so far of oysters?
00:43:09
Speaker
So oysters products are any kind of combinations, primary or secondaries, into funds, right? So what's a fund there for? A fund could be a VC, a PE, a private career, a venture, any of these four kind of asset classes. You could combine them in certain combinations to give diversification as a key objective in private markets. Diversification is a very big objective. You can combine them in various combination permutations.
00:43:38
Speaker
put them in an AIF structure, which is a legal structure in a category to AIF, and then give access to that AIF to thousands of investors who you go to through distributors. So that's typically what our product is. Our first product was we partnered with Bloom 1Y, which was Bloom's opportunity fund, and we
00:44:02
Speaker
We obviously diligence to it. We love the founders, the general backers. We love their thesis. We love their transparency. They come very similar to us in that thinking. And there was a reason we picked Bloom as the first fund. We thought it best symbolized what we stood for transparency and expertise. And we took their opportunity fund, which was a leaders fund, and gave access to that through our distributors to several of our investors who came into it.
00:44:28
Speaker
It was very, very, even in the peak of the funding winter, we did this late last year, it was a peak of funding winter. In a very brisk fashion, I think it was less than three months, we concluded it, we closed it. So yeah, that was our first product and very happy to be part of their journey.
00:44:46
Speaker
Okay, interesting. I want to zoom in a bit on this. So you would have committed a certain amount of investments to Bloom, like that this amount should be kept aside for you that you will fulfill. That's how it was, like your arrangement with Bloom. Yeah, like with any investor when you're coming in. So we think of us like an institutional investor who's investing in Bloom.
00:45:12
Speaker
And as that investment, we have to underwrite our confidence. What do we think we will invest in them? You know, after tremendous amount of due diligence, after tremendous amount of capacity sizing, we put a number X and that is the amount we commit to invest in, Bloom or any other fund. Okay. And how much was that first product? What was the amount of that? If you're at Liberty, it was a meaningful size of the total being number.
00:45:41
Speaker
Okay. Okay. Understood. And typically a VC does not need you to put in the money on day one, right? They call the money depending on where they need it. So when you went to investors, you also had that same arrangement with them that we will call this money when we need it. Yeah. Yeah. You, you keep it very similar to, to be underlying fund because you want to keep it in retail.
00:46:08
Speaker
A VC can do that because they are taking large chunks of money from people who have credibility, trust, et cetera. But when you're going retail, and this is somewhat retail, right? The Oyster product. So Akshay, it's retail. And when you say retail, I want to be mindful that as per Sebi requirements, still one crore plus. So these are still etch-a-nise we're talking about.
00:46:31
Speaker
And these are, and therefore these are people who understand the asset class well, they understand the risk, they understand the drawdown schedules and everything. So yeah, no, we have had absolutely no delinquency and, and we, we mirror the underlying drawdown schedules more or less. But then when you lend combination products together, not just.
00:46:50
Speaker
let's say not just bloom, but when there are four or five, you're putting in 30% in venture capital, 40% in growth equity, 20% in private equity, some co-investment allocation. When you're putting the whole structure together and then underlying each of those allocations, you have two or three funds and therefore you're blending them together.
00:47:10
Speaker
Then the drawdown schedules are somewhat more staggered. They are happening over a period of time. They're still mirroring the underlying funds, but now they are truly the units which are allocated to an investor for your combinatorial product. And that's what it is. Is that scalable?
00:47:31
Speaker
I mean, if you were to have a thousand investors someday, it just sounds not as scalable as taking the entire money upfront.
00:47:41
Speaker
See, money is, you never want to take the entire money upfront actually, Akshay. There's a drag you create on IRR. Capital has its own cost, right? So you actually, if anything, want to do capital efficiency by bringing capital closest to the point of its actual deployment, which is going into an end startup or an end SME. So point number one, no, you do not want, these are two different things.
00:48:05
Speaker
The quantum of drawdown and scalability are two different things. I'm happy to discuss scalability with you. But at least the shadow on scalability is not because of drawdown. I just want to make that one point aside. Now coming to scalability. See, actually, India is the world's fastest growing, wealthy market, right? You should know these numbers already and perhaps preaching to the choir. India is adding more etch-and-eyes and ultra-etch-and-eyes.
00:48:32
Speaker
in the top of its pyramid faster than any other country in the world. Now with that kind of wealth, these are a very vital part of their asset allocation to have some corpus 5, 7, 10, 12% going into this asset class private markets. So we're pretty much at a point where 20 years ago in the US or 10 years ago in China, this has already played out. The US has seen a very large platform player happen in the form of iCapital, Europe, Samur there,
00:49:01
Speaker
Southeast Asia has several of a similar kind. So basically we in India will see a fairly similar strategy play out. The point is not whether oyster global will do it. Somebody will do it. We will be one of those, you know, participants in building out that strategy here in this part of the world. And I think India's market will really is, I think it's really ready to adopt to it.
00:49:27
Speaker
So people in India love platforms. We have all seen how zero the grow on one side. We have seen how the whole basically demand and supply fulfillment in India has a lot of efficiencies to be brought in. And the only way you can bring them in is with platforms.
00:49:47
Speaker
Um, tell me about these other platforms you mentioned, uh, you said I care and, uh, I cap, I capital, I cap, I capital, I, I as in I for India, I capital, I capital is a very large, uh, U S platform. They have about 170 billion AUM, uh, the dominant of the U S market. There's several other platforms as well in the U S I capitalists amongst the leaders. Uh,
00:50:14
Speaker
There is Moonfair in Europe, again a very similar way for HNI's to invest in a blend of private equity products. An iCapital investor could come in through his or her advisor. Let's say the advisor is a Morgan Stanley.
00:50:33
Speaker
Through a Morgan Stanley, Akshay is a client of Morgan Stanley. Akshay through Morgan Stanley will come into an iCapital product. An iCapital product could have a single underlying fund. It could have a combination of funds. So that's what a customer would do or an investor would do in the US. Very similar to what an investor would do in Europe through Moonfair.
00:50:54
Speaker
Okay. And they have the same concept of the drawdown happening as it when it's needed. It's not like upfront. Yes. Yes. Yes. Yes. No, absolutely. Absolutely. You do drawdowns upfront when your opportunity costs are trade off or set off in the right way. In case of a long product strategy. So actually a typical PVC file is anywhere between seven to 12 years in tenure.
Understanding the VC Fund Lifecycle
00:51:18
Speaker
which basically means the first one third of its life, it is drawing down capital and investing. The next one third of its life, it's kind of growing the portfolio. And then the last one where it's exiting and harnessing, right? So you do not want to have very steep upfront drawdowns. Okay. Okay. I understood. I was purely talking from the perspective of, uh,
00:51:42
Speaker
Like if you had like a thousand people each of whom investing a crore each and then you had to manage the drawdown schedules with all of them and so on and so forth. That was what sounded slightly like very operations heavy kind of work at that scale. But I'm also guessing that you're not looking at people who invest only one crore. The one crore might be the entry. Oh, absolutely. One is the minimum.
00:52:10
Speaker
One is the minimum, I guess our average as of today is already two crores. And this is when the minimum was one. We've had people come in with 10 crores, seven crores, all kinds of amounts, 15 crores. So I think there are all kinds of investors coming in, but you made a valid point. I want to think the point you just said, Akshay, I think it will, it is and it will be an operations-heavy business.
00:52:37
Speaker
It'll have a lot of technology leverage. There'll be massive parts of the engine which will be very digitized end to end. But at the same time, customer concerns and investor relations will have a high degree touch and governance will have a high degree touch. And they would always need very capable people and workforce. So yeah, absolutely. It is gonna be operations heavy.
00:53:05
Speaker
Okay. Understood. Understood. Okay. Help me understand the economics of this. There would be something which I am guessing like a Bloom would share with you for facilitating the investment. And how much of that further do you share with the financial advisors who refer clients to you? How does that whole piece of the economics of it work out?
00:53:30
Speaker
Yeah, so when we look at a product and we are stepping into, or let's say a fund and we're stepping into the fund as an institutional investor, we would typically come in as whatever the terms of the funds are. Their share classes, though based on the size of the investment we're doing, we would typically get a fairly advanced share class because we are a large investor. What's a share class? I don't understand that concept. So every investor
00:53:56
Speaker
Every investor based on their investment quantum will have different share classes. A typical investor would be a one crore investor and they would get, let's say I'm just throwing a number, they'll get a 2% management fee that they'll be charged. Whereas investors coming with a 50 crore check will have a far lower share class where their management fee will not be 2%. Perhaps it'll be, I'm just throwing an example, it might be 1.25%.
00:54:23
Speaker
So they're going to be all kinds of share glasses for different sizes of investors. Oyster would typically be a large investor and therefore we would come in on a fairly attractive share glass, which allows us to create
00:54:37
Speaker
elbow room economics are spread between what our investors are coming whereas what we are investing in the underlying. So that's the volume advantage we get. It's also volume advantage which is not just a win for us but it's a win-win for the LP also because
00:54:54
Speaker
The kind of volume advantage we're getting allows these people to participate in funds where today they will not be able to participate. Those funds have very high minimums. So volume is playing both ways. It's playing in creating economics that we and the distributors can share. It's also allowing other investors to participate in the fund, which today they will not be able to. So that's how the structure comes together.
00:55:17
Speaker
I understand. So if the normal management fees is 2%, then you get a 1%. So 1% of the AUM each year is your margin, which might be for a 7-year period. So 7% would be your margin. Yeah, and of that, you're just not taking, you're taking the merges of your overheads, you're paying the distributors, you're paying the wealth managers and everyone. Yes, your answer is correct.
00:55:43
Speaker
Okay. I understood. I understood. Okay. And how big do you see this market is? Like, what do you think are the number of people who would be, like, what's your tan here, addressable market here?
00:55:57
Speaker
So, you know, let's, let's take a global battle. It always helps, especially when you're creating something which has not been done in this country before. So you can always take inspiration from what has happened in a full blown out scale in other countries in the U S if you took a take a large fund, like let's say black store.
00:56:15
Speaker
Blackstone's total non-institutional investor base is as large as 45 to 50% of a trillion dollar AUM. I think not the 450 billion dollars is what is retail. And I'm using the word retail rather loosely in our context, these are accredited investors.
00:56:35
Speaker
So let's talk about a figure of let's say a minimum of $450 billion. So that's a massive build out. India is nowhere there yet. But would it be fair for us to say that in India, out of a 600 billion AUM that we're looking at India being in the private market side,
00:56:52
Speaker
Can we safely say that 20% of that can be non-institutional investors? Absolutely, especially since last year, like I told you, our 100 billion, about 10 billion in any case was that. So can 10 become 20%? Absolutely, over the next five years. So 10% of the total capital becoming 20% of the total capital, $120 billion being the size for India for retail or non-institutional investors is extremely real. That's the tag.
00:57:22
Speaker
Okay. Okay. Understood. What would, you know, the other way of also looking at time is like, what are the number of HNI's in India who would realistically put in one CR plus in this kind of an asset class? What do you estimate that number to be?
00:57:40
Speaker
You know, and that's a definitional issue, Akshay, but I think if you go by EY's definition on it, I think the number came too close to India has about eight lakh families, or let's say a million families, which will fall in that threshold where they will be, they have the potential to do a million, sorry, one rupee crore into this asset class. That's about the number.
00:58:05
Speaker
with the right liquid networks and all in the permissible limits of participating in this asset class, there are about, I think, 800,000 values. Okay, understood. It's not easy to market this product because of the regulations of SEBI around it. Just talk to me about that, like what are the regulations which restrict the ways in which you can market it and therefore what are the ways in which you are doing your customer acquisition.
00:58:34
Speaker
Yeah, see, Sebi, firstly, Akshay has been extremely progressive in this asset class. I think Sebi had an advantage that it had its peers around the world, SEC in the US, FSA in UK, Europe, et cetera. It is all its peers whom it could look at and say, hey, India is coming late to this game. How do I make sure investors are protected and look ahead and really leverage all the learnings from these other markets? So firstly, I think really we have a terrific
00:58:59
Speaker
regulator in this space because it's a it's a complex asset class it's a liquid asset class a long-term asset class obviously you have to be very mindful of if at all are on the side of over regulation then under regulation so I would first want to put those two things upward now having said that all the things that you know apply it's it's a privately placed product it cannot be publicly placed so
00:59:25
Speaker
Celestation is not allowed, minimums are prescribed, disclosures are very, very high. Whatever you're disclosing in the PPMs, in the private placement manuals, only that can be marketed, only that can be spoken about, nothing else.
00:59:44
Speaker
Yeah. So I think, you know, you have to close a product within a certain amount of time. After the first close, we've closed within a year of that. These are pass-through structures from a taxation standpoint. All the usual things from KYC to AML on investor region of capital are obviously paramount, which is, I think, par for course. So I think, yeah, everything that is
01:00:08
Speaker
happening in the West, plus many more things to make sure that BS class is not mis-sold, over-represented, under-disclosed, et cetera. So, no solicitation and no public placement means you cannot
01:00:25
Speaker
put a, like a ad, like a digital ad, like, okay. And nor can you call people and say, Hey, would you be interested in this investment opportunity? Yeah, you can't, which is why I think.
01:00:40
Speaker
having distributors on board, you know, the private banks and wealth managers who really have the right kind of client profile and keeping it only to their clients is really what the whole business is about. And we are doing that in a very, very controlled fashion with fewest of the partners who we know we have that comfort with and that too only on a private placement basis.
01:01:06
Speaker
Who are these people who have access to H&Is? Give me some examples of the kind of people who would. So there's several. India is fairly large, right? Recently access on city bank merged and they've created one of the largest forces in the space. You have IIFL, you have Kotuk, you have Nuvama. So you have several, you obviously have the global majors from Barclays to Julius Barr to Stanchart. Yeah.
01:01:32
Speaker
A lot of these players now are very mainstream in India, the global players, and the India homegrown wealth managers are again, a very, very thriving business model. And given the country's wealth, you know, it's directly linked to the wealth expansion. So naturally, this is one of the fastest grave is several of these wealth managers are actually getting listed themselves. And they're doing extremely, extremely well. So this is like,
01:02:00
Speaker
And, you know, I haven't personally experienced wealth banking, so I want to understand this a bit better. So for example, like ICICI has like a wealth banking category they give to some customers, which my father got, and therefore I also got benefit of that. But I did not.
01:02:17
Speaker
There was no sense of relationship happening there. It was just that you got like a zero balance account and a couple of other benefits and that was about it. So is the kind of people you're talking about different from that kind of experience, which I saw there, what is the kind of experience that these wealth managers give to their plans?
01:02:38
Speaker
So a large part of this is actually not the banking accounts or that relationship as much as it is the services, the advisory services that get them, the access to products like ours that they get them. So that really is where these relationships are pivoted around and less about the conventional banking.
01:02:58
Speaker
So, it's wealth banking typically would bring them products, bring them services, bring them advice, bring them curated products. That's really what they would be doing. And this is different from like a registered investment advisor.
01:03:16
Speaker
A registered investment advisor would be doing exactly the same. A registered investment advisor would, however, not be compensated by the manufacturer of the product would be compensated by the beneficiary of the services, which is the investor. That's the difference between the two. Okay. And you would also be going through these registered investment advisors.
01:03:41
Speaker
We would definitely be showing our products to the registered investment advisors for them to advise their clients on. Actually that's a very mature, it's a very small community actually, though a very mature community. Actually they are the ones perhaps who have a very, very clear state of how to do asset management, asset allocation for their clients. So definitely we would be going to that.
01:04:04
Speaker
Okay. Understood. Understood. What's the roadmap like for Oyster? What do you see as your AUN in a couple of years? Do you have some milestones in mind? Akshay, the best way I can answer this is given how the kind of numbers you and I discussed, if India is getting to 600 billion, if 20% of that 100 billion plus is going to be non-institutional investors, if Oyster has the advantage of being amongst the first movers, if not the first mover,
01:04:33
Speaker
We should have a very large part of that market share. Obviously, we have to execute well, we have to scale well, we have to keep the highest grid of diligence within the right regulations, stay highly governed, etc. So I don't see why there should be a reason why we can't have a very large share of that market.
01:04:54
Speaker
Like a couple of million dollars. Yeah, for sure. I think if we don't do that, we have not done well. I would definitely say we should have a nice few billion dollars under AUM in the next few years. Wow, amazing. You have to execute well, what are the things which come in that? What are the key things you have to get, right?
01:05:16
Speaker
So at the heart of this whole thing is we have to make sure that diligence stays beyond compromise. We put the best products on the platform. What this means is that on the legal and governance side, we execute well to the regulatory requirements, which means that for the products which are already being serviced, investor relations is second bar none.
01:05:39
Speaker
It's a complex business. And you made the point earlier on that it's an operations-heavy business, which it is. So technology is at the heart of it. We stay to the roadmap, technology roadmap, and executing our interfaces, our security, everything. So I think every aspect that you would expect out of a financial services business touches this business. It has origination of products. It has distribution. It has regulation. It has customer servicing. It has everything that one would expect.
01:06:06
Speaker
complex business, ops heavy business, tech heavy business. So one has to get all the whole orchestra right to play the music. Interesting. How do you do due diligence of funds? Like how do you decide which funds you want to combine and offer up as a product? Like how does the product get made? Give me an example of a product you're currently making or what's the next product you're going to make?
01:06:32
Speaker
So, I'll take both the questions. So, first, diligence. So, diligence is actually basically a pipeline being curated through early conversations all the way down to making sure that you're dealing with experienced fund managers, you're dealing with people whose track record holds well, you're dealing with people whose past successes can be representative based on their current strategies to also create results though there is no guarantee but you
01:06:58
Speaker
You have a high degree of faith that they can do that. They've held the team together. They are not isolated pockets of performance, but a fairly dispersed performance. Many of those things go towards creating a very high grid diligence. Once a fund is diligence and several funds are diligence, then you can either offer the funds as a standalone to do your investors, or you can offer them in a combination as a blend, like I was telling you. So both the possibilities exist.
01:07:29
Speaker
We have, for instance, recently curated a product where we have given investors access to a very, very strongly diversified portfolio where about 60% of the portfolio strength comes from the consumption power of India, power also of India, and 40% comes from technology and innovation sectors of India. So when we combined that, what we did is we put about 30 to 35% allocation to VC funds.
01:07:55
Speaker
about another 30 to 35% growth equity investing and the last one third to private equity investing. So almost in a fairly homogenous manner and putting that capital in some of the best underlying funds which at some point of time I would love to share the names with you.
01:08:14
Speaker
But once you put those investments behind those fund managers, you really know you have given an investor an access in a diversified fashion, not just to the two powerhouses of India's economy, which is consumption and innovation, but also to strategies from consumer tech to health care to financial services, which really mirror India's growth story.
01:08:39
Speaker
So we really, we really are very excited about this recent product we have created. It's called the Oyster India Pinnacle Fund. Okay. And are you ready to share how much will be the EU for this? What, what's your target?
01:08:53
Speaker
It's going to be anywhere between 450 crores to about 600 crores. Okay. So you mentioned three types of private equity firms, like private investment, vehicles, VC, growth, and private equity. What's the difference between these three?
01:09:11
Speaker
So VC comes in a very early stage of a life cycle, right? It could come as early as just literally after the first few angels have stepped in. So seed, pre-A as they call it, and it can go till the time the company has gone through its early revenue models and its product market fit has been established and it's start getting its first few clients. So that's the high risk stage or high risk and high return stage of VC investing.
01:09:40
Speaker
And give us some examples. Gloom is a great VC fund in India. There is Stellaris, there is Fireside. These are some wonderful names in the world of VC investing. Then comes growth equity, which is really coming in the middle, which is where the businesses are now revenue ready. They are scaling and now this is the growth gap.
01:10:05
Speaker
This is capital to help them really scale. You're not deciphering the business model. Business model is established. Now you're growing and the capital to fuel that is really growth equity. Private equity investing comes in much later. There's Iron Pillar, there is Filter Capital, there is Sixth Sense. Many of these are some of the better names in growth equity.
01:10:29
Speaker
And then come funds which are private equity funds, which are coming much later. Companies are mature. It's about consolidation, change of ownership, transforming the margin for the company, getting it ready for listing or strategic buyout. That's the private equity stage. That's where you have funds like multiples and risk capital, so on and so forth. So these are typically the three stages of private equity investing or private markets investing on the equity side.
01:10:59
Speaker
Okay. Understood. And I'm guessing of these three VC would be the worst accessible to like an HNI and private equity would be like fairly inaccessible to an HNI simply because of the quantum that they invest in. Therefore, it has got nothing to do with that. Some of the world's most successful VC funds are very inaccessible and not such a great success at P might be very accessible.
01:11:23
Speaker
So I think in the end you ask that question, which is what we want to do really? We want to bring the highest performance of access regardless of which of the three categories they are in. We want to bring the highest performing ones to access to all the kind of investor classes that are eligible for it.
01:11:44
Speaker
As an investor, how do I think about private investments? For example, in public investments, you are supposed to get over a long term something like a 14% rate of interest, even if you just invest in a basket of like a nifty or something like that. How does that compare with private investment? What kind of returns are typical over a long period of time?
01:12:15
Speaker
So I can take benefit in the work that a lot of industry research bodies do, like Crystal. We actually recently oyster partner with Crystal in benchmarking India's private market players. What we saw there, Akshay, is that you could, a good performer, a quartile one performer on the VC side could be as high as 30, 35% IRR.
01:12:40
Speaker
a good performer on the VC side could be north of sorry on the PE side could be north of 20-22 percent and a good performer on the on the growth equity side could be 25-28 percent. So really that's what you're looking at. PE is coming in at 20-25, growth equity between let's say 25-30 and venture capital 30 and above and therefore it's obviously the risk and the returns are
01:13:06
Speaker
commensurate, VCs have the highest risk, they also have the highest returns, and private equities are the other extreme. These are far more predictable, risks are relatively lower, it's still a private market asset class with its own inherent investment terms, but then the returns are also relatively muted.
01:13:29
Speaker
You said that India doesn't see exits, so how have VC funds delivered 30-35% returns considering how few exits India has seen?
01:13:42
Speaker
So see, and this is where we will end up seeing a lot of growth equity and a lot of private equity funds come into India. So naturally what has happened Akshay is India has seen through its applications era and its digital era and now through material sciences and space tech and agri tech. See, we have seen now the whole spectrum get mature. We're seeing innovations and startups happening in all sectors of the economy.
01:14:08
Speaker
from pharmaceutical to health tech to material sciences to space tech, not just to applications and digital.
01:14:16
Speaker
Now, with that kind of early investments happening through VCs, the next stage of participants that are coming into this sector and space are because now these investments are maturing are the growth equities and the private equities. We have far fewer private equities. We have far fewer growth equity firms than we have VC firms. Perhaps, you know, I'm just hesitating a guess, but perhaps the number is 10 is to one. For every 10 VCs, there's one
01:14:44
Speaker
growth equity and for perhaps five growth equity, there's perhaps one private equity, which is natural, right? That's how the whole value chain is moving.
01:14:56
Speaker
So, therefore, a large part of the exit set have happened, have happened either to the next player in the stage, and in some cases to strategic buyouts. Very few cases to listings, obviously, as we know. That, by the way, will be the case by large for a very long time. It isn't that
01:15:14
Speaker
When I said exits have been a challenge that, you know, things will just change overnight. They're not going to change overnight. But what I do see happen is that we will get a whole lot more of growth equity and a whole lot of growth more of private equity participants coming. So at least movement from one stage to the next stage will become much more easier. Also, what is happening is with
01:15:34
Speaker
Strategic buyers now expanding there are getting much more comfortable with startup-based acquisitions. See, earlier what used to be happening is large strategic buyers would only buy a mature company's revenue stage, mature companies, or revenue model mature companies. Now they are buying innovations. Now they are buying intellectual property. Now they are buying customer demographics. There are business transfer of assets happening. So I think the whole space
01:16:03
Speaker
In the whole space of startup investing, the combinations available for a strategic investor to come and exercise and buy out a startup or a late-stage company in various forms and shapes is tremendously high. Okay, understood. Or it's getting better at least, even if not tremendously high, it's getting better.
01:16:25
Speaker
I'm guessing that there would be two ways for a VC fund to show exit or rather return money to investors. One is you sell to somebody like it could be the next stage player like a growth or a PE fund or it could be an IPO or it could be a strategic investor. And the second is that Fund2 can buy Fund1 portfolio. Does that also happen?
01:16:46
Speaker
That also happens. India hasn't seen much of that, but that also does happen. But I think it's more of the next stage part of buying the prior stage part.
01:16:59
Speaker
Okay, so there's a very small percentage of the VC selling its current portfolio to the next person. That's a very small percentage. Yeah, especially the well-managed VCs would do it very carefully because they would obviously want not to have a conflict of interest. They would want to make sure that there is another PE or a VC leading the round. Even if they are investors in the fall-on round in their past portfolio, they're coming in the back of somebody else establishing valuation. So, you know, things are disclosed and very transparent.
01:17:27
Speaker
Keep in mind one thing, Akshay, these are players who are as good as their reputation is. So the one thing you can't do for the short term is just trying to flip your assets. Because sooner than later, the world gets around. And like I said, diligence is the heart of this whole thing. And people would double, triple, quadruple click everything to know, how did you make the returns? OK. Do you get a lot of fund managers pitching to you?
01:17:57
Speaker
Like, you know, our typical VC gets a lot of founders pitching for funds. Do you get fund managers? It's the same business. Yeah, you're absolutely right. It's, it's, we reach out to them. They reach out to us, gradually oysters, you know, presence is getting known. So we have a fairly active pipeline development that happens for the funds. We are looking at it at a given point of time in all the categories. We see the growth, private credit, et cetera. So we are looking at them at all points of time. Yeah. Okay.
01:18:26
Speaker
Okay. For people who want to be front managers, do you have any advice for them? You know what? It's something which I will give again as an operator mindset, so I would rather not give them any advice. I would let them play to their strength. All I can say is play to your strength. Have your own strategy. It's a long business, a long cycle business. You can't be somebody who you are not, so just be yourself. Amazing. Thank you so much for your time, Roy. Thanks, Akshay.
01:18:55
Speaker
And that brings us to the end of this conversation. I want to ask you for a favor now. Did you like listening to the show? I'd love to hear your feedback about it. Do you have your own startup ideas? I'd love to hear them. Do you have questions for any of the guests that you heard about in the show? I'd love to get your questions and pass them on to the guests. Write to me at adatthepodium.in. That's adatthepodium.in.