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How to woo an angel (Investor) | Nandini Mansinghka @ Mumbai Angels
200 Plays1 year ago
As one of the oldest early stage startup investors, Mumbai Angels has funded more than 200 startups till date. In this episode, co-founder and CEO Nandini Mansinghka dives deep into the nuances of fund raising from the perspective of investors, thus helping startup founders to be well-prepared to pitch to investors. She talks about the legacy of Mumbai Angels and how it has evolved from an informal network to being a part of a larger corporate group now. She also shares learnings from her own journey as a founder of a media-tech startup.
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Read more about Mumbai Angels:-
1.Mumbai Angels CEO Nandini Mansinghka On What Matters Amid the Funding Crunch
2.Mumbai Angels aims to double start-up investments this fiscal
3.Investment platform Mumbai Angels Network steps up game with two new funds
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Transcript
Introduction and Focus on Funding
00:00:05
Speaker
Hi everybody, I'm Nandini Mansinkar, CEO of Mumbai Angels and I'm very happy to be here and chatting with Akshay.
00:00:25
Speaker
This episode is a fact-finding mission delving deep into the business of funding.
Early Stage Fundraising Insights
00:00:30
Speaker
Mumbai Angels is among the oldest angel networks in India, and they have funded more than 200 startups till date. And in this episode of the Founder Thesis Podcast, your host Akshay Dutt speaks to Nandini Mansingha.
00:00:43
Speaker
co-founder and CEO of Mumbai Angels. In this conversation, Nandini shares hard facts about early stage fundraising, busting myths and misconceptions about fundraising and thereby helping startup founders to be better prepared to pitch to investors at the seed stage. Stay tuned for tons of insights on early stage investing and do check the video version of this interview on YouTube.
Nandini's Personal Journey
00:01:16
Speaker
So, Nandari, quick overview of what's your background and, you know, what got you interested in startups in the world of startups? Yeah, so it's been a, you know, long checkered journey, actually. So I actually, I hail from a Marwadi family in Calcutta, way back in the 70s, 80s, where, you know,
00:01:45
Speaker
We were, I think the primary thing that I was told when I was growing up is that look you have to get married and have kids, basically. That's where the journey started. And then I, you know, I quickly just looked around and I said, no, this is not what I'm going to be. And
00:02:05
Speaker
I had very supportive parents and my siblings were very supportive and I basically started charting out my path from there and it was actually not a very premeditated journey. I basically fumbled along.
Startup Experience at Times of India
00:02:20
Speaker
I said, okay, what can I do? So I was relatively good with studies. I said, okay, now let me just try and do higher studies. So for me,
00:02:28
Speaker
getting out of Calcutta was actually the primary driving force when I moved to Delhi and that's where I did my CFA. So this is the combined program, you know, where you do the CFA and MBA together. And this was way back in 1995, I think, yes, 1995. So I did that. And then from there on, I was again, you know, just fumbling along and saying, what are the things that I can do?
00:02:56
Speaker
And I've actually had a very checkered career on doing a wide range of things. And one of the primary places where I could learn this was at the Times of India group. So I joined the Times of India group in their internet division. I was like the sixth employee. That's the time when there was no Google. There was no search engine. And I've actually experienced a startup environment and culture
00:03:25
Speaker
in that organization, you know, where you were just these 10, 15 people in
Role Transition to JP Morgan
00:03:30
Speaker
a room. And I was actually told, you know, that, oh, here is, and that time our go-to platform was Yahoo. So, you know, we were one day, we were told, okay, here is something called Yahoo Auto. Can you build something called India Times Auto? You know, and I would just go with it from the beginning. And I have zero ideas about automobile, but I would do that.
00:03:52
Speaker
And then you would say, OK, fashion. I had zero idea about fashion. You do that. Then I've built, you know, so all these verticals of India Times right at the nascent stages when you were just building HTML pages, et cetera. I've been a part of that journey. And then from there, I think the approach of Times of India was to build online classifiers, because essentially a newspaper earns through ads. And one way to like
00:04:18
Speaker
diversify your revenues to create online classifieds. So that was actually a different absolutely. So it was online classifieds. But I was a part of the India Times group where they were not really looking at that as an extension of the print business. They were actually wanting to become a global platform at that time competing with Yahoo.
00:04:45
Speaker
of India, you know, so you said, actually started saying, Okay, what all is there in Yahoo? And you start so I was also trying to build, you know, something called a web directory. So actually go I had a team of people who would go and look for websites and put lists together. So I'm talking absolutely pre Google age, but it gave me a lot of
00:05:06
Speaker
you know, understanding of how to actually stop saying this is what my skill set is, and just do whatever is out there. And the, so post India times within Times of India group, I actually had the, you know, fortunate
00:05:22
Speaker
experience of being a part of what was called the central strategy group of the entire group. And that was another experience by itself, you know, where one day I was working with the legal team, then marketing, then finance, then business radio. So you did everything. And that was, I think that's when the seed of entrepreneurship actually, you know,
00:05:45
Speaker
was with me. Post that, of course.
Post-JP Morgan Ventures
00:05:48
Speaker
So then from there I took another absolute 180 degree turn when I shifted from Delhi to Mumbai.
00:05:56
Speaker
when I joined JP Morgan. Now from a completely unstructured environment, I was in this completely structured, you know, multinational bank who where you are very clearly told, this is your role, please do this well. And more importantly, do this with as much precision and detailing as you can. So that's the other part that I learned, which which I had not learned earlier, you know, so where attention to detail where every dot, every
00:06:26
Speaker
So that was that other learning that I had, which I think was fabulous. So you actually got this full sense on how to run anything end to end. This I did till about 2010. JP Morgan does banking in India or this was like a back office for US? This was the investment banking research group. So this research group, actually, so it's, so I wasn't, yeah, no, so it's the,
00:06:57
Speaker
So you work with the India office also, and you work with internationally, all the offices, where you were actually for every pitch that was going out to the client. The team was doing everything except for actually pitching. So like, for example, I was, you know, how I came into this is because I was the media, I was, you know, I'd looked at media from time to time. So I came into the media group in JPO.
00:07:24
Speaker
where my job was to actually build the pitches for any client you are pitching to across the world types. And then, of course, I moved to the telecom media technology group, et cetera. So that is what was happening in 2010 or so.
00:07:41
Speaker
Uh, 2010 is when I realized I can't do this anymore. You know, I had to just jump off and do my own thing. And, uh, I quit in 2010 on a business idea that actually jumped within a week of quitting on the Excel sheet. I said, as I was, you know, trying to do something absolutely bizarre, like a self publishing website, you know, so I said, I will do this. And I sat down and I looked at the Excel sheet.
00:08:10
Speaker
with my brother and my husband and all three of us, we said, no, this doesn't work. So cancel. So here I was at quit and one week, nothing. I think what is very important for anybody who's listening at this point is at no point once I quit, did I ever regret saying, Oh, I should have gone back. That I think is the core of what entrepreneurship is, you know, it is
00:08:37
Speaker
It is a lifestyle choice. It is not a one job versus other. And the minute something starts not going, okay, you don't just jump back and say, okay, let me. So I think that was very critical.
Evolution of Mumbai Angels
00:08:50
Speaker
And then from there on 2010 to I think about 2016, 17, I actually tried, I think four different, four to five different businesses. Okay.
00:09:03
Speaker
Couple of them were just at the idea stage. Some I just tried and I did it for three, four months. Didn't work. Just talk a bit about each one of those. So see, I think initially the minute you do this now, the first thing you start telling yourself is that you are this fabulous consultant. I think this is this consulting. All of us have this chip on our shoulder that I'm an investment banker and JP Morgan. And here is this queue of people who are wanting to learn from you.
00:09:33
Speaker
I did that. So I said, let me set up an investment banking unit of my own. And I did this for some time. And I said, not happening, not scalable, not spending my time or energy. So several of these, you know, then I then actually thought of setting up an incubator way back. So look, this can be done, etc. So these were the two specific ones that we did.
00:09:59
Speaker
Then came Idea Booster. So Idea Booster was my first attempt at a business that actually took some shape and it went some distance. This was actually, if you think of angel funding for content. So what I was trying to do at that point was, can I actually, you know, fund movies, TV series? That time, of course, there was no, you didn't have so many. I think it was just an idea before its time because today maybe it would work.
00:10:29
Speaker
It sounds very interesting, like a Kickstarter for entertainment. Yes, yeah. And that's for equity, you know, so you're doing it. So I actually also managed to produce a, like, fun and wake-up movie. This was a Bengali movie called Ludo. And it is on Netflix. Watch it at your own peril. So this is not the Hindi Ludo, this is a...
00:10:58
Speaker
Bengali, it's a horror film. But once I made Ludo and I spent that money and I was just lucky to be able to return money back to my investors. So people did not make a loss. But I realized that this is not scalable. So I would either have to do 100 movies of a crore each, or I would have to go into, you know, the more the larger ticket size movies, which is a very different business. So I said, no, this is not happening.
00:11:27
Speaker
While I was trying to sell Ludo is then I realized that look here is this other gap in the industry where there are a lot of people who have content and they don't know how to reach out to buyers. So that is how Digibooster came into being where we said, can we actually create a platform where
00:11:49
Speaker
And that time, of course, you didn't have the Netflix and Amazon who are so active that like I'm saying, I think we're talking five, five, six years back. So maybe ahead. I think I was a little early at that time also. So we tried that for some time. And while I was doing it, you know, actually I realized I didn't understand content. So I realized that my strength is creating a platform
00:12:19
Speaker
I know how to bring buyer sellers together. I know how to actually create a marketplace, but I did not understand how to price content. So if you give me two movies in front of me, I did not have that gut feel to say, this is, this is worth five crores. This is worth two crores. And that, that, that is a disaster, right? For somebody to do this. That's when I realized I need to step off and this is not my gift.
00:12:44
Speaker
So this was the journey that was going on. And what I did is I actually got an investor in and we tried to do, you know, we actually tried. So then then I stepped off and I said, I'm no longer active. And I got an investor and we got a CEO together and we actually moved into influencer marketing. So that was again way back in 2018, 19, I'm talking 18, yeah, 18, 19.
00:13:09
Speaker
Uh, I think they tried it for two years, but then again, I think COVID got us. So we, we shut down, uh, did you booster in early 2020? So that, so those while these conversations and these experiences were going on in parallel, what I had done is in 2010 itself, I had actually joined Mumbai angels, you know, as an investor. So in that time, it was a very small group of some 20 people doing, you know, five deals a year type of a thing.
00:13:40
Speaker
And that's where I found. How was it structured? Like was it structured as an AIF or just like a bunch of people investing together. So each one signs an agreement individually with the startup. Absolutely. Absolutely. All of them go on the cap table. Absolutely. So actually that was our, I will come to how Mumbai enjoyed the structure today. That was our model actually, even as late as last year.
00:14:05
Speaker
We were coming on to the cap table directly, but the difference between that time and, you know, a little later was it was very small, you know, some 15, 20 people and doing three, four deals a year. That's it. You're very happy because, you know, and these were like, like old school industrialists who had money or what? It was a mix. So India actually, you know, the angel investing scene from the time. So I've been now part of this is 2010.
00:14:31
Speaker
It's always been a mix, you know, it's always been a mix of first to third generation entrepreneurs. So the minute it comes third generation, you're talking people who are sometimes who are in their 20s and they have enough family wealth to be able to deploy this. And India, that's always been the structure from the beginning.
00:14:54
Speaker
So that happened. And then I did some investing as an investor over there. And while I was trying to build my other ventures, I was quite excited about Mumbai India. So I started spending time there pro bono. I was a part of the screening committee. I was part of portfolio, lot of things. I was leading deals, et cetera.
00:15:19
Speaker
And of course, you know, Sasha and Prasanth who had started this as a network, you know, they'd become very good friends. I think in 2017, I think the same time when I said Digiboosters not working is when I started having a conversation with Sasha and Prasanth. I said, look, here is our opportunity to actually make this really big.
00:15:42
Speaker
But this will require a complete rethink. It will require it to be run like a company with the focus on building value in the company, not just the investments that you do. You have to bring in professionals, you have to build processes, just how any other... You have to build for scale, actually.
00:16:06
Speaker
to their credit, they understood what I was saying. And then I came in as the co-founder, third co-founder and the operating partner. And they took an investor seat on it. And 20... Both of them were like running individual businesses and this was like a sidekick for them. Yeah, absolutely. So, I mean, just for perspective, Sasha is a part of the Oneida family and he's at the GP of K capital.
00:16:34
Speaker
which is itself a huge name in the startup space on its own. And Prashant Choksi is a part of the Asian paints and Choksi chemicals in real estate. So they have huge, large family businesses. And this, of course, you know, was a that this was more something that they had done out of passion. But they didn't, neither of them had the bandwidth to be able to jump into this full time. And
00:17:01
Speaker
So I jumped into this. I jumped into this full-time 2018. And I think 2018 to 2021, a lot of, so the growth or the name that you see in Mumbai Angels is basically a function of what we managed to create in those three, four years. We managed to create processes. One question before this.
Platform Transformation and Investor Rights
00:17:26
Speaker
Did you have a
00:17:28
Speaker
like a benchmark or a template in mind that, OK, I've seen this organization do this in some other context, and we should try to do it in a similar way. What was the vision that you had in mind, which you would have probably sold to Sasha and Prasanth? I think it was a lot like Angelist. So I really loved the way Angelist
00:17:57
Speaker
has been structured. I just think that, you know, Naval has a fabulous hold on, you know, this space. So that is, that is, that is the way that I actually wanted to look at it, to say, can you actually become, you know, a true platform? Okay, what is for people who don't know what is AngelList? Why are you so inspired by it?
00:18:20
Speaker
So Angel List, see now I look at them as a peer because I think now in India, especially, we are as big or bigger than them. But if you look at them from the international context, I think they've really got this early stage venture investing right. They've put a lot of money behind tech. So I think it is primarily a tech play.
00:18:42
Speaker
you know, where you're being able to. Just describe what is it like, like what, what are the various pieces? So it's a platform where you bring in a large number of investors who are wanting to invest in startups and a large number of curated startups. And the, and the role of the platform, like, you know, any true platform in any other industry would be to be able to provide enough information for each individual investor to take their own call.
00:19:14
Speaker
So it is about saying, and because it is an unlisted space dealing with an asset class where there isn't enough information available, you have to bring in that level of consistency in the information that is out there. So if an individual investor logs in, they should be able to look at various parameters and understand the lingo and make their decision. So for people who are
00:19:41
Speaker
I mean, so I mean, that is what what we have also, you know, now arrived at it is basically the role of any platform in the early stage venture space is to, you know, like I keep saying everywhere that when investing in early stage venture is anyway very risky. Okay, anybody who does this should know that your money can go to zero. That that's the if you should have that appetite to be able to jump into this.
00:20:10
Speaker
Having said that, the role of the platform is to homogenize the information, give as much information that is possible for the individual investor to take a call and more importantly, do the due diligence of the investment before the investment is made and manage the portfolio through and through.
00:20:39
Speaker
So imagine a platform being a fund manager without taking a call on behalf of the investor, but doing everything else. So that is the vision that I started out with. So just a little bit more, I want to zoom in. So essentially, you're saying a platform should do three things, homogenize the information.
00:21:08
Speaker
and then execute the transaction in a way that is friendly for both parties and then manage the portfolio. Yes, and due diligence is a huge part, huge, huge part. That is the pre-investment piece. So due diligence would lead to the homogenization of information? No, homogenization is before.
00:21:33
Speaker
Okay. So like, just as a, just to give you a context of what I'm talking about in terms of numbers, like say, for example, look at us today, you know, we see about 500 deals a month. Okay. We curate only 20 of that to our investors. So 20 of those have gone through due diligence or have gone through homogenization? Homogenization. Okay.
00:21:57
Speaker
So there's still no, so there is, there is an internal due diligence and there's an external due diligence. So the homogenization is actually also internal due diligence, you know, where we are saying claims, if some, if the founder is making claims, are they validated? Have we spoken to people? Have we done, you know, just basic checks that is homogenized. And then of course, putting the information out, which is readable for everybody.
00:22:25
Speaker
So it's a curated homogeneous pipe, let's just say. Got it. Then when people actually say, yes, I'm interested. So assuming, you know, we are raising a crore and 20 people put five lakhs each. Okay. Then the role of due diligence comes in where we will actually go deep in as much as possible in a startup phase to say, yes, we think this is a clean investment to go into.
00:22:54
Speaker
We are still not saying it won't fail. That's the nature of what you're doing. But you try and take the risk away of everything else except the business. So that's the second bucket. And then, of course, is managing the portfolio right till the exit. I mean, I don't know what is the depth in which we can go on these conversations.
00:23:19
Speaker
For anybody who's actually wanting to talk to investors and looking at it, see, I see a lot of focus just on valuation. Valuation is just one part of the deal structuring. The primary deal structuring is actually around rights.
00:23:40
Speaker
So we are known in the market for actually the way that we stitch the deals, the depth in which we actually look at these rights and information, et cetera. And then when the next round investments happen, our job as a platform is actually to represent the investors and stand there and make sure that our rights are protected.
00:24:06
Speaker
So in my head, and as how we function, we are very clear. Our primary customer is the investor. The startup is a partner or a product or the issuer. Amazing. That's amazing insight. I want to zoom in on each of these steps that we spoke about. So let's start with homogenization.
00:24:34
Speaker
Does that mean, for example, you will say that, OK, this is a total addressable market. So the total addressable market becomes a standard field for every startup. Or would you do something like a discounted cash flow? I doubt that would really be relevant for early stage investing. But so what happens in homogenization? Yeah, so very interesting question. It has a long-winded answer. So we do two things over here. One is through technology.
00:25:04
Speaker
And the one is the other is through a 20 member strong team. So what I mean by technology is that we have what we would like to call just the version one of an algorithm in place. It's just version one. I actually think there will be version thousand of it. This is the first step that a founder goes through.
00:25:28
Speaker
where we actually ask them a series of questions. Okay. And basis, uh, the backend algorithm that we run. And right now it's a very rule-based algorithm over a period of time. I think it will also be, you know, through as we get more data and it could, it will also throw up outputs on data.
00:25:46
Speaker
But basically we look at and we have divided into some seven, eight different sectors on what parameters are when I'm saying homogenization, the parameters for SaaS will very differ a lot from what will be a consumer or say a deep space tech. So I can't just say these are the eight. But I can say this industry has these 10. Then I try to bring a score which is
00:26:12
Speaker
you know, internally, we look at saying it has to be a 700 out of 1000. Otherwise, this doesn't go through the gate. When it goes through the gate, and that's the first voice, it's not the last voice, the first voice, then our team of 20 people, okay, they are going to start looking at the, so let's look at 500, say all say 700, 7000 score actually will come to only about 50.
00:26:40
Speaker
450 don't even clear it. How is this scoring done? Just as a rough example or something. So it's an algorithm. Like I said, it's about 100 different parameters. And there is an hour, hour and a half call between the founder and one of our team members. And they will ask you questions and they will input answers. And then the odds score is done automatically. So the person who's asking question doesn't know how the algorithm works.
00:27:10
Speaker
But very top level understand, like, for example, the score would be low if there is a solo co-founder or the score would be low if it's a, let's say, whatever. I mean, you might have some insight. Yeah, let's just say this, that score will be low if you're a D2C company and you haven't sold anything as yet. Okay.
00:27:34
Speaker
Right? And you know, our threshold of what is a good monthly run rate for a D2C company will keep going up and down depending on how the market sentiment is. But on an average, I would say 10 lakhs should be there. Otherwise, you know, what are you doing? So if you say, oh, my monthly run rate is 5 lakhs, your score is lower.
00:27:56
Speaker
you know, if you're not a full time founder, your score is definitely lower, those kinds of things. You know, if you're a SaaS company, we are saying that, okay, have you got your first beta customers? If you are saying I'm a patent company, is your patent filed? Have you got your patent? Are you waiting? You know, so the, the weightage will differ basis, which industry you're in, in these kinds of
00:28:22
Speaker
And also, we keep refining this algorithm, bases our understanding, and also how our portfolio is doing. Remember, we've been in the business for now 15 years. So we have a 250 strong portfolio. So we don't just need to throw intuition at the formula. We have data. So we're being able to throw data.
00:28:47
Speaker
So I think that's how it is. Okay. Very interesting. I understand now why you said there will be a version thousand. Absolutely. Right. Okay. So now this happens, but then see, this is just the machine or this is just technology. Then the human piece comes in, which will bring the 50 down to 20. And this is, you know, where we will actually go out there and say, look, here are five, six rights, which are non-negotiable. Please sign this term sheet.
00:29:17
Speaker
Mr. Founder, if you're not signing this term sheet doesn't matter who you are, we're not taking you ahead. And what are those rights? So, you know, I think those are standard ones, right? Like you, I mean, I think there are about 15 such rights. I don't want to go into all of them.
00:29:33
Speaker
on this thing. But you know, stuff like you have to be full time founder, there will be a founder lock in of, you know, for a period of time that our money is invested in information rights, you know, there are some of some of the ones which are absolutely non negotiable are preemptive rights, anti dilution. What are we
00:29:56
Speaker
You know, I'm pretty sure a lot of people don't understand what these rights are. If you can, I think it would be lovely to just understand what these imply and what is the way. Yeah, I mean, like I said, you know, each one of them actually will take a pretty long discussion. But let me just try and throw some light on this. Preemptive basically is one of the rights that all early stage investors across the globe will fight for.
00:30:23
Speaker
And what does it mean? It basically means that whenever there is a next round of funding, I will have the right to invest more at that valuation to retain my same ownership in the company today. Which means that if today, say assuming I have got 10% of your company, next round, whatever be the valuation,
00:30:53
Speaker
I will have the right to up my investing so that I can retain the 10%. Got it. Okay. And this actually is how wealth is created in the startup space by early stage investors. So anybody who has done this long enough will keep upping their investment in the companies that are being able to raise more money at the higher valuation.
00:31:22
Speaker
because of the preemptive rights. Okay. Okay. Okay. So this would be the difference between getting a, let's say a five X return versus a 50 X return. Yes. And because see, for example, if you have, if you started out with a company at the 10% stake, okay, over a period of time, more rounds have happened and you have not invested more and you become 1%.
00:31:47
Speaker
you will always get what is the share of the company as a return. So there's a huge difference in what is shown in the newspapers versus what investors make at each deal. So at each deal, every guy makes a different return, actually. But if you had 10% at 10 million, which means your share was worth 1 million, and then the company becomes worth 200 million, and you have 1%, you're still doubling your money.
00:32:18
Speaker
No, so you're not there to double your money, no, Akshay. You are actually there to find a way to make it 100X. Right. Okay.
Investor Rights and Deal Structuring
00:32:30
Speaker
Got it. And also what happens is that in the subsequent rounds, say for example, like in your same example, at the next round, I could have three choices. I could have a choice that I will just stay invested.
00:32:48
Speaker
There are a lot of people, so there are no right or wrong strategies. So a lot of early stage investors do that. They say we will not put money in the next round. Whatever investment is there, fine. So like you rightly said, let it become 3x, 4x. I will get that. That's fine. So that's strategy one. Strategy two is to actually exit. So a lot of people actually say the next time a company is getting an exit, I will come out because I'm only a series A investor, for example.
00:33:17
Speaker
and I will redeploy the money elsewhere. I don't think it's a very wise decision, but everybody has their own format. Or there are investors who actually I look at as eternal investors. Eternal investors are people who will say, I will not exit a company till I'm kicked out. And I will do that.
00:33:47
Speaker
by doubling my investing as in when the opportunity comes. So what happens is that, and I have seen that strategy being used by a prolific financial angel investors, right? So I'm talking of, see, there are two types of investors. Sorry, I'm just jumping from topic to topic and let me know if it becomes risky. So there would be these operational hands-on high intensity
00:34:17
Speaker
individual investors who will say, listen, I have a, and they need to have, they necessarily need to have a larger kitty to themselves, say a hundred crores. Okay. I'm just giving a number. They will say, I will put this hundred crores in 15 to 20 companies. I will have a substantial stake and I will actually be, uh, you know, uh, participating in the growth actively. So I don't do, I don't like to use the word mentoring and coaching and all that because I actually think these are
00:34:48
Speaker
completely over abused terms. But if you're actually being able to add value, you know, and I think I'd make introductions and stuff like that. Only two things. Can you bring sales? Actually, three. Can you bring sales? Can you bring money? Can you find the right people?
00:35:03
Speaker
Anything beyond that, my view, you should have the confidence of the founder that they pick up the phone and talk to you, not the other way around. If you are picking up the phone and telling the founder, listen, I think you need a difference in strategy. I think you've got the game wrong. Yeah. So these are the things everything else needs to be a pull from the phone. So that's the active operational investor. That's a different kind of an investor.
00:35:29
Speaker
And then there is a financial investor and we actually deal a lot with financial investors on a platform like ours.
00:35:36
Speaker
There the strategy, and I've seen that strategy work with a lot of people who do this, is where the portfolio will be as large as 100 companies, 200 companies. And you actually put money in 200 companies in the first round, and then you start utilizing the preemptives, you start doubling up on the ones that are doing well. So over a period of time, you will have a concentrated portfolio of say 20 companies that are doing well.
00:36:06
Speaker
150 that are not. But that's you understand that that's the nature of the game. And you are you're going with it. So yeah, so that's okay. Okay. Okay. Amazing. What are the other rights? So this is preemptive. You said anti dilution. So anti dilution is very clear, you know, it is about saying that, if at any point of time,
00:36:30
Speaker
you are raising money at a valuation lower than what we have raised money at. So assuming you have raised money with us at 10 million, basis that I have got a 10% stake in the company. Tomorrow, if you are not being able to raise money at 10 million and you say, oh, my business is faltering and I need to raise money at 8 million.
00:36:54
Speaker
For example, as an investor, you will say that, please, the founder, you will dilute the shares. I will not dilute. This is what happened. I read about something that's likely to happen with pharmacy. Yes, that's right. After they acquired Tyrocare, there was an anti-dilution clause. And the current fundraise is going to be at a much lower valuation. And founders will end up with very tiny stake
00:37:22
Speaker
That's a standard clause actually. I think in this case, it just came out as a point of discussion in the wider space. But yeah, within the industry, I think all founders and all investors fully understand the implication of this clause. So I think that's the other one. Then the other one that we will just not negotiate on is information rights.
00:37:49
Speaker
So what happens is, so there are information rights and then there's something called Affirmative Voting Matters, AVMs. So information rights are saying that, look, you are an unlisted company. You need to have access to your books of accounts at any given point of time.
00:38:08
Speaker
So it's not just saying you gave information to us and on a quarterly basis, you will come in. So that is a given that you will come back on, you see. But I have the right to look at your books at any given point of time. And you cannot block me. That's the one.
00:38:25
Speaker
And then, you know, this sounds very reasonable, right? It's a very reasonable ask. See, I, and then, of course, there's something called affirmative voting rights where, you know, there is a list of things that are there. For example, if you're pivoting the business, you have to take our OK. If there are three founders and one wants to quit, you need to be OK. If you're suddenly creating an ESOP pool,
00:38:51
Speaker
you need to be okay. For sure, anytime you're taking debt and you're taking raising further equity, you have to take an okay from us. So it's a list of what I think what we need to understand. And I think it's the right point for me to highlight over there that, you know, I've actually seen a large number of founders not even being aware of these nuances when they come and talk to us. I think it is so important for
00:39:20
Speaker
founders to understand, look, I think what has started happening now is it is, it has become fashionable to say, I'm raising money. You know, it has become fashionable to say, I'm raising money at this valuation. What we need to understand is that nothing comes for free. So if you are a founder who's raising money, A, please understand the responsibilities that you are signing up for when you do this.
00:39:50
Speaker
That's at the basic minimum. The worrying thing that I'm seeing, I think I'm seeing this over the last year or so, is that founders don't understand, like while they have signed it in the letter, they are not following it in the spirit.
Transparency and Due Diligence
00:40:10
Speaker
And that is creating, so of course at the larger companies, I don't want to name companies, but
00:40:18
Speaker
you're seeing corporate governance issues, which are getting splashed in the newspapers. And a lot of times you'll find that it's not a question of right or wrong. It's a question of nuances in the documentation. What is happening is that a lot of that is trickling right down to the early stage level where we operate. And our investors in B,
00:40:43
Speaker
has started asking a lot tougher questions at that stage. On A, what's your corporate governance? B, do you actually understand what it means to raise money? And C, are you up to actually complying with all of it? My fear is Akshay, if we don't do this, and it's a good time right now to do this, because of course, there is a flux in the industry. There is a slowdown in funding, et cetera. Not at our level, but in the next levels. This is the right time to take a pause.
00:41:13
Speaker
and put those structural things in place. Absolutely critical. Yeah. Okay. Very interesting. Got it. Okay. So this is a post homogenization. You have these rights of investors and we covered a few of them, which you get them to sign off on. Then what's the next step? They have to accept.
00:41:36
Speaker
So they've accepted and then of course, we will look at claim validation. We're saying that if the founder said, listen, I have these five customers, we will talk to the customers. We'll try and do virtual site visits. We'll try to do real site visits. We'll do product sampling. We will look at the financials. We'll look at the cap table. We'll look at the structuring. A lot of first level checks to say, basically saying,
00:42:06
Speaker
even before we bring it to our investors, and even before we do a deep dive in due diligence, is this company looking more or less okay to be able to be produced to our investors. So that is the homogenization part. Then what happens then says, I mean, I've said 20, 20 have so 500 to 20 have come, then what we do is that, you know, through our various mediums that we speak to our investors, we have an app,
00:42:34
Speaker
We run a WhatsApp group. We do mailers. We actually do physical showcases. We do virtual showcases. We do what is called a deep dive with the founders, et cetera. We basically try and get the founder in front of the investors in as many ways that we can in putting the information out in a way that the investor has started expecting from us.
00:43:04
Speaker
So, imagine if there were 20 founders, they will have one pitch deck, each will look different. There is no way that we will go and change the pitch deck for each founder. Our synthesis and summary of it and analysis of it looks the same. So, the investor gets that one-pager saying, okay, here are the 10 things, you know, same. Now, that happens. Post that is when people will say, yes, we are interested in investing.
00:43:32
Speaker
So this is the homogenization, showcasing, book building, done. Now assuming we've got the, so we were trying to raise two crores, two crores have been verbally or written, committed. Now we will do the due diligence. This is when we bring external third-party partners who will do legal, financial, secretarial, they will do background checks. That itself takes a couple of weeks.
00:44:01
Speaker
So then what will happen is that this is, so. What, for an early stage startup, what is left after you already done your internal duties? What is it that this external partner does? Like a check if there are any cases against the founders or the company? And also see at that level, till that level, no, we've actually not gone and said, has this guy done all the filings with MCA?
00:44:26
Speaker
have all the secretarial things been done. Compliances, legal, other books of accounts in order. We would not have actually looked at it, almost think of it like an audit.
00:44:37
Speaker
We've not got an audit type of a lens on numbers. Actually looking at invoices, looking at almost all the revenues real. Yeah, exactly. And then doing cases like everything. Then the third party partner will give us a due diligence report, which will come to us.
00:45:02
Speaker
Then there is a back and forth between us and the founder on, say, questions that have been raised by the third party partner. And they say, you know, we are not comfortable with this or these things need answers, etc. Then the founder answers it, etc. Now there is this decision point that we have as Mumbai individuals to say, yes, we are comfortable with the due diligence outcome, or we are not.
00:45:26
Speaker
If we are not, we will drop the deal irrespective of the amount that has been committed. And we do that regularly. So what is the percentage? Not too high of the numbers, because I mean, I would say committed in this thing, say about 2 to 3%, but we will do it. We will do it. And we are very clear that, you know,
00:45:51
Speaker
We are not going to invest in hurry and then manage it in pain over the next four, five years. We've seen this so many times over and over again, Akshay, that I think it's better to drop a deal at the beginning than just say, oh, money's coming in. Because like I said, our primary client is the investor. We are answerable to them because it's their money. So we are a money manager. We are a wealth manager.
00:46:19
Speaker
So, so we will say, okay, this is
Transition to Fund Structure
00:46:22
Speaker
done. So once the due diligence is over is we say, okay, now we are doing the deal.
00:46:28
Speaker
That again, post that also takes a couple of weeks because then you do the fine tuning of the shareholding agreement. So, you know, we've said that, look, here are 10 things that are non-negotiable, but the shareholder agreement is actually 80 page document. You know, so you will go back for bank. It's a legal document like any other. And then you will close it, et cetera. And now, because, you know, it goes through the fund process, then of course, you know, we will go back to our LPs. They will say yes or no. And then that whole thing happens.
00:46:58
Speaker
investment done. So that's the second part, due diligence and investment. Then is when you will actually start working, you know, I will not say that we are operational partners. So I'm not saying we will actually start working with the companies. We are managing the information for our investors and timely intervention whenever we see something is not doing right.
00:47:24
Speaker
Okay, so that process depending on so unfortunately for company has to diet dies within the first three to four years or a year. The ones that do well, they of course stay on longer. So we've actually seen so like, for example, in Moby, which is our first unicorn, that investment was done way back in 2007. purple, which was which is the second unicorn is in 2011. So it takes that much time for
00:47:54
Speaker
company. And I would think that there are at least 20 to 30 companies in line in our portfolio, who which are doing really well. So that's again, you know, the number is anywhere between 10 to 15% of your portfolio, which are doing which are going to give us these super normal returns over the entire year.
00:48:16
Speaker
So your role at this stage is providing quarterly updates to the investors? No, of course we are. So we actually do a monthly touch point with the founders, which is a monthly this thing. And then, of course, there's a quarterly. You have to do a call with us. You come on this thing.
00:48:42
Speaker
Like I mentioned till about last year, we were still doing the direct on the cap table. So there the investor is more engaged because they are on the cap table primarily. And now of course we do this via our angel fund. So now we do the calls, we will be involved. So then we become like any other fund. We will give quarterly updates to our investors on a, almost like saying, okay, here is your portfolio. This is how it's doing, et cetera.
00:49:12
Speaker
Okay. Help me understand that transition from each angel investor coming on the capital to only one single entry in the capital. Why did you want to change it and how, like, how is it structured now, like, you know, from a technical point of view? Yeah, absolutely. So look, I think the several names on the capital structure is not sustainable only.
00:49:41
Speaker
Because what happens is that, so when we were doing several names on the cap table, we were basically, our investors were not paying us per deal. They were paying a membership fee, which was the same whether you did
00:49:59
Speaker
20 deals with us a year or zero. So you paid an annual fee and you... You didn't charge like a assets under management kind of a model. No, nothing, nothing. So this was an earlier format, I'm talking of the refund. And we used to charge the founders a 5% fee, which was 3% in cash into in equity. So we were... This is one time when the deal is done.
00:50:25
Speaker
Yes, one time the deal is done. So let's say for example, if you're raising a crore, the investor for that crore pays nothing to us. And the founder was paying five, five lakhs of which three was in cash, and two was equity worth two lakhs in that thing. Okay. So that was how it was being done. Now,
00:50:47
Speaker
So I've actually been a part of this conversation with Sebi on the Angel Fund, et cetera, way back, I think 2018 onwards is when these conversations started, 1780. Now, Sebi is very clear that
00:51:05
Speaker
Platforms which are doing direct on the cap table are actually not under any jurisdiction in the country. So Sebi says, I will not monitor you. RBI says, I will not monitor you, which means that at any given point of time, they can just come back and say what you're doing is illegal. So Sebi said, so it was driven from Sebi saying, you guys need to get inside a fund structure.
00:51:31
Speaker
However, you cannot do a fund structure in angel funding or early stage venture funding because the primary nature of investing is individual investors taking their own call. You can't take that away and say it's a blind poll. Then I'm just one more fund as the rest, 730 funds in the country.
00:51:54
Speaker
So, what is this Angel Fund structure? It's a very innovative structure that Cebi has come up with and it has, you know, some of these, they are in some format or the others are there in all other countries, you know, which is a basically it's a deal by deal investing. So, instead of looking at it as Angel or not Angel, the term to use is deal by deal investing.
00:52:14
Speaker
So, how this is structured is it is structured in its shape and format it is like any other fund in the country. So, you register it with SEBI like say for example, we have a 1000 crore fund registered with SEBI which has a life of 22 years.
00:52:33
Speaker
However, the similarity between any other fund and this actually starts reducing from this point onwards. So, primarily what happens is that in any other fund, the fund manager would have the ability to deploy the 1000 crore, this is their processes and their calls. Here, what we were doing earlier of 500 to 20 remains the same. Even 20 to getting people to invest remains the same.
00:53:01
Speaker
People will choose, we will show the same information, etc, etc. The point where somebody says, yes, I'm interested is when it changes. Where earlier, we would say, okay, 20 of you, you've said five lakhs each, okay, please become, we will facilitate, you will become names on the cap table directly.
00:53:22
Speaker
Now, they become LPs with us in our fund, and we allocate units for that specific investment to only these 20 people. And what has changed in our revenue model is that now we don't charge the founders anything. So we are now actually the cheapest in the market today, where our cost to founders is zero.
00:53:46
Speaker
So we don't charge anything to the founders. To our investors, we charge a one-time 2% fee to get the transaction done. And then when there is profits, we will first return their capital. So if say for example, somebody is invested a crore in a certain company with us. And at the end of say five years, that company returns to them one crore, say two crores.
00:54:14
Speaker
So they will first get their 1 crore back and of the profit that is being made, which is 1 crore, we will keep 10% and the investor gets 90. So it's a 90-10. 10% sounds low, right? The industry norm is 20%. It's all over the place.
00:54:36
Speaker
this is called carry right like this is carry I think it is all over the place you know so what's happening is that see
00:54:47
Speaker
I think that's something that we didn't mention earlier. We are now part of 361. We got acquired last year. So we now have the ability to be able to set terms and processes that can sustain the long term in the industry. What we saw is that there's this full range. Somebody's charging 20, somebody's charging 2.
00:55:13
Speaker
you know, then somebody is charging 15 but sharing five with somebody else all over and then they're doing deal by deal and this and that. We said no, this is not how we will function. We will set the industry standard to say 210, which means that
00:55:32
Speaker
As compared to peers, we would sometimes make lower in one company and higher in one, but the idea is to be able to do this on a homogeneous, standardized way.
00:55:49
Speaker
So what happens is that some deals sometimes we might look more expensive, like I mentioned, because some other guy will say, oh, we are charging only 2% on this. But on an overall basis, we are now the cheapest and the most transparent in the industry. Sorry, OK. Do you have a thesis on why 10%?
00:56:16
Speaker
That 10% is the best rate for early stage investing. Like I said, we did a lot of thinking around this, Akshay. So what happens is that a lot of guys, they are actually charging 20%, but they are sharing almost up to 15% with an external partner.
00:56:38
Speaker
People who are recommending the deal, like who are doing deals for sale. Not just recommending, but somebody who's running with the deal. So you could just come in and say, look, I'm the deal lead. I found the deal. I will run it. I'm responsible. So the platform actually gets only 5%. It just looks like
00:56:56
Speaker
you're charging 20, but you're missing, then, you know, then there is this whole thing where the same platform will say, oh, if it's done by a third person, it's 20. This deal, however, we're doing on our own, so it's 5%. So I said, it doesn't make sense, you know, like, I should not be asking an investor to choose a company
00:57:21
Speaker
where on an upfront basis, this looks cheaper than the other one. I'm not asking them to choose a cheaper one. I'm asking them to choose the best one. So the best way to do that is to take the pricing decision away, deal by deal. And if I had put it at 20%, I would have been the most expensive in the market. And I don't want to play this game of 5% to 20% deal by deal. I said, let's go standard.
00:57:50
Speaker
average 10%. And our back math says, you know, whether you were doing this deal by deal, or you did a 10, you will make the same money if the quality of the deals were same between us and appear.
00:58:03
Speaker
You spoke of that there are two types of funds, a deal by deal fund and a regular fund. A regular fund is also, you use the term blind pool for it. So which means that for a regular fund, they go and sell the team and the track record to investors and say, we will
00:58:20
Speaker
handle your money. So it's almost like selling a wealth management service. And the investor commits, let's say, okay, I commit 100 crores, so that 100 crores is committed, and then the investor has no say in where it is invested. Not really, not really, Akshay. So, so we actually have two funds, even today. So we actually speak, so we have an angel fund, which is a deal by deal, and we have a blind pool. Now let's just understand what are we doing in this.
00:58:50
Speaker
So I think the deal by deal angel fund we discussed in detail. So that contours are more or less clear. What we see is as investors stay with us and they do this, assuming they've been with us for a year, year and a half and they've invested in 20 companies. Until and unless they are actually spending say 30% of their time on this asset class, this starts becoming overwhelming.
00:59:18
Speaker
Imagine if you had to look at four different deals or four different sectors every week, you know, you would have to do this full time, right? So a lot of investors actually come back to us and they say, look, can you give us a mechanism? Whereas where we invest in all deals that are closing on your platform. So it almost becomes like an index product, which is what our CAT 1
00:59:42
Speaker
regular blind pool is there today also. So we talk about both these funds to all our investors simultaneously. So it is up to you, what do you want to choose? So you will say, I will either want to choose everything on my own, so it's an angel fund, or make it an index where everything that closes with you on the angel fund, I will get a buy off. So that is how our CAT-1 is structured.
01:00:08
Speaker
Then of course, there are a lot of other CAT1s, a lot of funds and not just, I'm actually using a wrong term, CAT1 is just a class of funds, but any blind pool fund that is there across the world, it is basically you commit a certain amount of money and then the GP and the team takes call on it. Then, yeah, absolutely. And the money you commit doesn't have to be given upfront, right? There's a draw.
01:00:33
Speaker
Yeah, there's a drawdown schedule, like say, for example, for us, in our regular blind pool, we are saying 30% needs to be, you know, will be drawn down on day one. And the minimum ticket size over there by law is a crore.
Fund Life Cycle and Future Plans
01:00:50
Speaker
So if you will commit, so if you'll say I'll do the minimum, so it's a crore, so you will give a 30 lakhs upfront. And then we have the right to call for it.
01:01:00
Speaker
over a period of time and we actually give a range, you know, because we also don't know. So we say, okay, next 12 to 18 months, we could call and it could be further also. So your blind pool fund, what is the, like, what is the size of it? Like how many crores? That's a smaller fund. So it's a 300 crore fund. So the mechanism over there is that we're saying, if I'm going to close a crore
01:01:26
Speaker
On the platform, I will put 25 lakhs more from the CAT 1 into it. So it's a 25% of the amount being raised. So it needs that much lesser money. Got it. Interesting. Your primary fund, the deal by deal fund is the thousand crore fund. Yes, that's correct.
01:01:47
Speaker
Why is there a number here of thousand crores? Because you may not, people are choosing. So I don't understand why you call it a thousand crore. But what is that? So you're absolutely right. So actually, when you file for a fund license with SEBI, you have to file with a certain number in mind. So that's a, it's a structure that is out there. Now,
01:02:13
Speaker
this money as opposed to say in the blind pool where I will actually draw down money here my goal is to say how much can I deploy year on year so for example if this year if I can deploy 200 crores out of that next year 300 crores so like say for example I think this thousand crores will actually get exhausted I have a life of a 22 year on the fund but my view is we will actually exhausted within four to five years max
01:02:43
Speaker
You know, and we will, we will, so that thousand crore will get deployed over, you know, I would say about 500 companies over the next four to five years. That's the math. And then you actually let those companies grow to their potential for the next 16 to 18 years. That's the journey that you'll have. Once this thousand crore is deployed, then you can't participate in follow on fundraisers.
01:03:11
Speaker
I will have to, so there are two parts there. Those follow on fund raises are part of this only. Yeah. So follow on fund raises, there is a cap by law that in a single fund, I can only deploy maximum 10 crores in a certain company. So I could do four rounds, but I can only deploy 10 crores in a certain company.
01:03:35
Speaker
So I can do follow ons for sure. Within this fund, I have a thousand crore plus 200 crores green shoe option, which means I can choose to do it or not choose to do it. But how I see this panning out is in say about three, four years time, I will launch another fund. Another fund for like, say, for example, this, I actually think this is like a testing round for us, right? We'll see how, how are these thousand crores operating?
01:04:04
Speaker
Then our next fund can be for 5,000 crores or 10,000 crores depending on our read on is there that market size or you can actually do a 99 year fund for 10,000 crores. You know what I'm saying? So, a lot of structures possible.
01:04:24
Speaker
And what does this 21 years imply that you have to return the money within 21 years? Yes, yes. So the life, so because the fund structure, by structure, it's not an eternal structure. So a company, for example, it's an eternal structure.
Acquisition by 361 and Strategic Positioning
01:04:40
Speaker
A fund comes with an end life in which is defined. So in this case, it is 22 years.
01:04:48
Speaker
What happens if you don't get exits? Although it's a very large period, but I mean, hypothetically. It's a valid question. Forget about us. All funds face this challenge all the time across the world. So like, say, for example, here is 22. There are funds which are in the listed space or where the life is only four years, five years. Late stage private equity maximum will be seven to eight years, 10 years.
01:05:17
Speaker
It doesn't go beyond that. So you will have to sell. So a lot of times when, say, for example, you see large funds actually exiting a company at a haircut, chances are they're doing it because their fund is coming to the end of its life. Got it. Got it. Or they could sell it to the next fund. Like you invest it from fund one, then you sell it to fund two. You can't do that.
01:05:46
Speaker
Because see, then it's a conflict of interest. It's a conflict of interest and you're basically even if a single LP is missing or added to the other one, then the value gets transferred.
01:06:03
Speaker
So I think there are some minimal amount that you can transfer. But otherwise, it's a conduit of interest. You have to be very, very careful on where is the value getting transferred, to whom. It's not just, say for example, think of it this way, 1,000 crores, Mumbai Angel Fund. At one point of time, there will be 1,000 LPs whose money will be deployed, or more than 1,000 actually.
01:06:32
Speaker
I cannot transfer money from here to there. It is their money that gets. OK. So you said you've been acquired by 361. What does that mean? So we got acquired. So we were three of us who were co-founders and owners of Mobile Engines. And now 361 has acquired us. And Mobile is like a private, limited entity? Yes. It's a private, limited entity, which has got acquired by 361. So it's like an exit in any other company.
01:07:02
Speaker
So like for example, we have three founders, we've taken an exit and I continue to lead my angels as a part of 361. So now, 361 is like a 100% owner of Mumbai Angels. Yeah, I think it's a 91. So there's still some residual state left. But yeah, for all practical purposes, it's a thing and 361, you know, as you might be aware, it's a listed entity.
01:07:31
Speaker
What is 361? So 361 is the erstwhile IFL. So there are two IFLs. So there's IFL securities and there was IFL wealth and asset management. So we've got acquired by the IFL wealth and asset management company, which actually manages wealth worth $41 billion.
01:07:53
Speaker
And it is the largest private wealth manager, private asset manager in the country. And it's a listed entity. So we are now a company within a company. And they look at us as another asset class that they can offer to their... H&I wealth management space.
01:08:22
Speaker
Yes, yes, absolutely. So it is almost all big names in the country would be clients of 360. And what do you do when you're doing wealth management for H&I? This is not the same as, let's say, putting money of people into mutual funds. No, it is a full. So the wealth management, this company has two divisions. One is wealth, second is asset. Wealth is where you're actually sitting with somebody who says, listen, I have a thousand crores to deploy.
01:08:51
Speaker
How can you structure it for me? So they have the whole bouquet of assets. They will do the asset allocation. They will manage it for you. And so that is the wealth piece of it. And they will learn commissions. Yeah, so it's like any. Yeah, yeah, yeah. So it's a product sale and managing. So it's a relationship. Like a financial advisor earns commission on mutual fund sales. They would have that, but very crude analogy.
01:09:21
Speaker
But because they would be doing a lot more, they would be selling them debt and maybe direct equity investments. And managing it fully. So what you're talking of is the top 0.1% of the country banking on 361 to manage the bank. So they have, I think,
01:09:43
Speaker
7000 families. This will be structured as a PMS like a portfolio management service. Different things. So the wealth piece is a different piece where you the iron will go and they don't really need to sell 361 products, they will sell all the entire gamut. If you say that look, I want to invest in real estate, they will have the ability to get you to buy real estate. It's that whole full wealth. So wealth management is an industry
01:10:12
Speaker
And then there is the asset management part of it, which is where they have their own mutual funds. They have large private equity funds they have. So we manage, I think within the 361 thing about 25,000 crores.
01:10:28
Speaker
in various funds that are there. So Mumbai Angels now becomes a part of the bouquet that's getting offered. So it's a very good fit. Yeah, so I think that that's what the 361 thing is. Yeah, 361 will take care of your capital needs. Like I was even like thousand dollars is like a drop in the bucket for... No, they will not invest.
01:10:53
Speaker
So as in like selling it to investors and getting you access? Absolutely, absolutely. And what they are doing is actually putting a lot of investments in tech for us. So I actually see us as a D2C tech play, you know, and we had not been managed to put any investment in tech pre the acquisition. Now there will be a lot of investing in tech, people, processes,
01:11:23
Speaker
access to information, SEBI, you know, so that whole, you suddenly jumpstart into what you would have done independently, say five years. Amazing. I think that's what it is. I think it's the first of its kind acquisition in this space globally.
01:11:42
Speaker
So yeah, absolutely. It's highly unusual. You know, so my last question or series of questions to you is advice for founders.
Advice for Early-Stage Founders
01:11:52
Speaker
You know, at the early stage, founders are extremely confused. These are typically people who have very less exposure of how to do fundraise. They've maybe quit a job with a passion for an idea that they want to build. They might have built something. And you know, there are a lot of these preconceived notions on how funding happens because of the headlines you read. Yeah.
01:12:12
Speaker
So can you give a reality check to people? Absolutely. So I think a couple of things. One is don't raise money until you really need it. I think that it will sound very strange coming from me. But please understand that raising external money is like getting into a marriage with an end date. So you actually get into a marriage
01:12:43
Speaker
with a divorce date in place where the investor is saying that I'm coming in, I'm giving you this money. Please tell me when can you give me an exit? And if you don't give me an exit in five years, here are these three, four things that you, so that's, and also when an investor comes in, they are not going to be silent investors. You should only look for somebody who you're okay to be sitting on the same table as you. That is, that is number one.
01:13:13
Speaker
The second one is that before doing your rounds, thankfully today in the Indian ecosystem, we are matured enough, you know, for the last say 15, 20 years, the industry is there. And of course, you have international
01:13:29
Speaker
you know, a lot of data, etc. The founders should do a lot of reading. You should do a lot, don't just blindfold walk into saying I want to raise money, do a lot of reading, you know, listen to podcasts, listen to, you know, speaker conversations, go to various, you know, panel discussions, go to conferences, become smart about like you have to learn this fundraise is an art, it's a craft.
01:13:57
Speaker
and you can't walk into it blindfold. So you have to know what you are doing, right? Second piece. Third is understand it's a sales process. So like with every sales process, your success ratio is going to be 5%, which means irrespective of who you are, you will have to talk to a minimum hundred investors of which only five will actually give you a meeting and of which one will convert.
01:14:27
Speaker
If you are getting tired of it, this won't work. You have to repeat the same thing over and over again, over and over again, and you can't lose patience because every guy is going to ask you as many questions. So here are these three, four things. Fourth is don't walk into fundraise with a valuation in mind. I have seen this happen so often.
01:14:51
Speaker
You're irrespective of where you are, you're like, I can only dilute 10%. It doesn't work like that. You will have to, like I said, before you put a valuation number out, you should have a very strong logic on why you're doing it. And it cannot just be a fictitious Excel sheet which says, today I'm doing two lakhs worth revenue, but guess what? In three years, I'll be doing 100 crores. It could work a couple of years back, today it doesn't, especially today it doesn't.
01:15:18
Speaker
So you don't have a fixed valuation number in mind. Talk to the first five, six investors by saying, listen, I'm open to valuation. You tell me. So you start getting that. It's a price discovery. As you become more established, there is data to show what your valuation could be. At the earliest stage, it's a price discovery. And honestly, the only price that matters is what somebody is willing to give a check for.
01:15:47
Speaker
You know, like somebody, I'm just giving you a, you know, a story or something. Somebody just called me, you know, a week back and saying, look, I'm trying to do this business and I think I'm worth a hundred crores. What do you think? I said, look, what I think doesn't matter. You have to ask me, am I willing to cut a check at a hundred crores valuation? If I say, I think it's a very good thing.
01:16:14
Speaker
And I'm not cutting the check. That means I don't agree to that. And if somebody else is coming and they're willing to cut a check at a 20 crore, that's the valuation. That's the other piece is start raising smaller amounts of money. Take smaller amount, build, then raise, build. I've seen a lot of people saying, oh, I can't start this business till I raise a million dollars. Guess what? Nobody cares.
01:16:44
Speaker
Your business will never take off. Better to work there and raise 50 lakhs, build, do the hard work. So you have to have that tenacity to build this out. And the last bit that I'm going to, I'm actually quite worried about it because I see it, like I was mentioning right in the beginning, corporate governance.
01:17:09
Speaker
Please understand, corporate governance is not just about larger companies and listed entities and this thing. So a lot of us think, oh, you know, a larger listed company should follow rules, but I'm okay to do, you know, shortcuts because I think we have actually got stuck with a very bad term in the Indian market called Jugaar. Jugaar means hustling. It doesn't mean cutting corners. You see,
01:17:38
Speaker
So with Jugad, you will only reach so much. If you're really wanting to become a true, build something of scale that matters, Jugad will not work. You will have to bring in the right processes. And now is the time to do this.
01:18:00
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.