Transcript
Speaker: In gaming, do Indians pay? Is gaming a big opportunity in India? Yes, I heard every version of Indians don't pay, the strategy won't work, sector focused strategies ah don't lead to exits, there was no talent, India's a Dow farm, India's about a billion and a half in terms of revenue paid by consumers towards gaming.
Speaker: Gaming accounts are nearly 40% of that revenue. but We have a very large gamer pool, it's about 550 million gamers. Saloni Sehgal is the founder of Lumikai, a VC fund that invests in gaming and interactive media opportunities out of India. In this episode, she breaks down why this is such a hard category to crack, her take on what's coming next, and the playbooks for hyperscaling. Startups don't fail in neat PowerPoint ways. You know, they fail in messy ways. They fail slowly. They fail emotionally, operationally, legally, financially. Knowing when to play versus knowing when to take your chips off the table, it's a skill. Greatest of misleading if you look at Rapido.
Speaker: Saloni, you run Lumikai Fund. Welcome to the Founder Thesis Podcast. ah Let me kind of put you on the spot and ask you to do like a reverse pitch. Why are you qualified to be a VC?
Speaker: That's a great, great question, opening question. I think for those who can't, those who can, they build, but those who can't, they invest. So I guess that's why I am a VC. Thank you for your support.
Speaker: like Amazing, amazing, amazing. Okay. ah But still, um it's the the fact that you are able to tell people, give me $40 million. dollars Your fund one, I believe, was $40 million. dollars And ah give me $40 million dollars and I'll invest it in startups in India in a space which traditionally has not seen too much funding. like Like there is obviously something behind how you managed to pull that off. I'd love to learn a bit about that journey.
Speaker: Yeah, sure. um Well, we're now investing through fund ah fund two and collectively, you know, AUM is a little bit north of 100 million across both funds. um Yeah, I guess you can say a large part of it was also luck.
Speaker: ah you know happened to be a coming back to the India market at the right time, um especially for the thesis that I was looking to pursue.
Speaker: ah But yeah, it wasn't an easy sell because on one side, you know everything that could go wrong in terms of market timing did because you know came back to India 2019, launched Lomika in 2020. Sorry, I want you to go back a little more, like came back from where? What had you done before? i was So I grew up in India, but I spent a considerable part of my career in Europe. So I spent about 12 years in Europe. So prior to launching Lumikai, I used to be with another fund in the UK, which was also investing in in pretty much the same asset class, interactive media, gaming, digital platforms. But like looking at the global markets, particularly North America and Europe, I'd also built a company in Europe before. So I was an entrepreneur and before that, spent time in investment banking, private equity. Was it Morgan Stanley? Was it Barclays? Ended up seeing about $10 billion M&A deals.
Speaker: and used to cover a lot of, I'd say, consumer tech. So really got an understanding of what was happening in the global markets. Moved back to India in 2019, launched Lumikai in 2020. The thesis behind coming back to India was very much to set up a fund or set up an investing vehicle in the sector that I had experience in. So I only understood this one sector because that's all I'd done for pretty much all my all my professional years.
Speaker: And, you know, 2020 set out to launch the fund. So I'll talk a little bit about the thesis. But, you know, the journey of setting up the fund wasn't very straightforward because a it was a sector focused thesis.
Speaker: Second, it was just bang in the middle of COVID. So you really couldn't raise any money through roadshows. We were literally having to pitch the fund on Zoom.
Speaker: um It was very difficult to build new relationships. So the only relationships that I could tap into were existing um LP connections. And it wasn't the easiest ride ah for us because also it coincided with the prohibition on Chinese capital as well.
Speaker: So, you know a lot of things kind of came together and you know very, very lucky that you know we but I was able to pull off a fundraise in in the middle of you know a terrible, terrible time. But at the same time, it, oh I guess, coincided with the rise of the thesis that we had.
Speaker: you know which was interactive media, gaming, digital platforms. Because when I was incepting the fund, I heard every version of Indians don't pay, the strategy won't work, sector-focused strategies don't lead to exits, there was no talent, India's a Dow farm. So I heard every version of this from from literally every corner of the world.
Speaker: And that was largely the consensus. But I had spent time looking at the Chinese market and had seen the evolution of that market from 2007 to 2013, had the benefit of looking at what had happened in the Nordic market from 2010 to 2015, and of course now the Turkey market.
Speaker: So I didn't quite prescribe to the same version. And you know my view was that India never lacked consumers, especially not for digital products.
Speaker: And that was a basic premise of the investment thesis that I had. But too many people looked at India and saw a very mass market but low value consumer base.
Speaker: And there were inherent beliefs, I guess, I had at that point of time, which now, thankfully, also, as I mentioned, luck has it, has proven those beliefs out. But I would say there was a lot of of uncertainty.
Speaker: in terms of the strategy when when ah we launched Lubekai. How has... ah ah ah So the space that you're operating in how do you define that space? Like the kind of companies that you invest in?
Speaker: So, you know, we look at what we call essentially interactive media. Right. And within that, people kind of look at us and say, oh, but you're a gaming fund. And I can understand that. Right. Gaming is the most visible layer.
Speaker: But ultimately, if you just go deep down, you will actually see that consumer behavior in India is shifting. we're shifting from passive media to more participatory media, right? If we were to look at the evolution of the media entertainment bucket, we have old media and new media. Old media is what we call television, print, cinema, out-of-home media.
Speaker: But new media, which is the more interesting part, which is where we as a fund operate in, it's essentially digital media, social media, animation VFX, games, audio, streaming, eSports, that in itself is about a $13.8 billion dollars market bucket, right?
Speaker: That is the sector or investment map landscape that we look at. um Because the way consumers are using new media today is very different from that of our generation or even our parents' generation.
Speaker: right So I personally don't view gaming or live social streaming or animation or VR or micro dramas or Astro as disconnected markets.
Speaker: I view them as different expressions of the same shift, that media is becoming more interactive, it is more visual, it is more immersive, it is more interest-led, and people are spending money on where the intent lies. And that's, in a nutshell, what we invest.
Speaker: Does ah adding a like button to a video make it interactive media? like where Where's the where's a line between media versus interactive media? So I think it is ah we've you know and we've published a recent research report um where we've essentially described what makes it interactive in that sense, that it has to be immersive.
Speaker: It has to be interactive, that it has to be some interaction to it and it needs to be participatory. So you could go and watch a movie. It is immersive, but it is not participatory. You cannot change the outcome of the movie simply because you are watching it.
Speaker: You have no agency in where the story lies. Or you could be watching, let's say, television, but it's a linear format. right You are sitting and consuming it. It is what you know in in entertainment parlance is called lean back entertainment.
Speaker: Essentially, when entertainment becomes lean forward, it is participatory. That's when it essentially becomes interactive. So, my original question, adding a like button makes it interactive? Like, would Instagram Reels be interactive media?
Speaker: It is, right? Because not only are you consuming Reels, you're also shooting them, right? You're participating. hu as right You are being able to create your own content. Instagram in itself is UGC. It's user generated content.
Speaker: you are determining the consumption of what you want. You can choose whether you want to see Akshay's reels or whether you want to see Saloni's reels. The user is in the driving seat of that experience.
Speaker: okay you One can say the algorithm is in the driving seat of the experience, but but the platform in itself gives you a fair amount of agency in what you want to consume or what you can consume.
Speaker: So the I'm just rounding up the $14 billion ah ah market size for interactive media. It includes like both subscriber money and advertising money? or like How is that calculated?
Speaker: Yeah, it includes microtransactions. So what we call in-app purchases, it includes virtual gifting, tipping, it includes ad-based monetization, and it includes subscriptions, and it includes UPI. So your subscriptions could also be through digital wallets, it could be through credit cards, and it could be essentially UPI. So it covers all of that.
Speaker: Okay. Seems small, 14 billion. Out of comparison to I mean, like, ah let's say a fund which is a D2C fund, which would have a much larger opportunity, TAM, that they would be chasing, purely from that perspective, possibly even, say, compared to a China.
Speaker: How has China evolved? Like, what would be the size of this in China? Well, it's unfair to compare both where the state of the market is today in India to, let's say, either China or even D2C, right? D2C, for example, by the way, even I will say that D2C prior to 2018 wasn't even a word.
Speaker: There was a very large consumer population. I guess, cohort or consumer ah goods industry, which was called FMCD. But B2C, for example, wasn't really a word or it wasn't even part of a vernacular or vocabulary. right It essentially got incubated um and was became investable because of certain funds, whether it was Fireside, which you know essentially was also pioneering this as an asset class. Then later on, there were other funds which emerged in the space.
Speaker: right But you have to also bear in mind that consumer or consumption has always existed in terms of physical goods for the last three decades. If one was to make that comparison to say interactive media, well, that wasn't inherently possible because neither the hardware, nor the infrastructure, nor the payments layers actually existed pre-2017, 2018.
Speaker: If one was to look at the digital journey of an Indian It started when, let's say, Reliance Geo slashed data rates by 90% in 2016-2017.
Speaker: That's when data became affordable. that's when smart And over the next few years, smartphones became cheaper. Hardware became more versatile in terms of being able to in allow various kinds of experiences on the palm of your hand. And then 2019-2020, UPI happened and digital payments took off.
Speaker: So if you are to look at it from that perspective, then it's just about a five year old industry, really. And it's already, you know, $14 billion. dollars So that's when I asked you, what what are you comparing it to? Because there is no fair comparison.
Speaker: In China, they've had this industry for the last two decades. like China in 2007 was where India was in, let's say, 20 years. 2018, 2019 in terms of smartphone usage, in terms of, you know, essentially digital payments coverage, in terms of um people adopting digital formats, whether it's gaming, whether it's, ah you know, streaming.
Speaker: So I would say it would be unfair for us to cast a comparison to something like FMCG or let's say a market or a draw parallel to a market like China.
Speaker: You said that ah you know you had some inherent beliefs in 2020 when you started. I'm just wondering, these inherent beliefs, were they related to what you just told me in terms of the GEO movement, the UPI movement, all of this coming together, and this is the time for interactive media? or like What were those inherent beliefs which got proven out?
Speaker: Yeah, a lot of it were pretty, you know, some some stuff that I've already outlined. I think, ah you know, one was, of course, saw smartphone consumption, data usage, just culture converge in a manner that was very similar to what was happening in the global markets.
Speaker: Also, India was not a walled garden, right? It wasn't like China in the sense that we could see early markers of this trend because people were consuming content, which was largely international.
Speaker: So there were a few beliefs alongside the ones that I've just stated, right? The first belief was that India would eventually also learn to move from imported content to locally resonant mobile first formats, because our first primary medium of interaction is always a mobile phone and mobile phone started to become very cheap.
Speaker: And because the hardware was so was becoming so good that it meant that those experiences now could be on your mobile. The reason why content would be imported, ah way we would move away from imported content was because I had seen the cycle in, let's say, television as well as cinema.
Speaker: Like if you remember growing up, I guess when we probably be closer to age, but growing up, You know, we saw Doordarshan, but then when satellite happened, so basically infrastructure changed.
Speaker: The first content that came in was imported content, right? It happened. So we started seeing Bolden the Beautiful, Santa Barbara, Beverly Hills 902, 1002.
Speaker: you know, ah those shows got exposed to a lot of American content. It took five, six years for Balaji to happen, for SL to happen, for Z to happen. So Hum Panch came, Kassauti Zindake came much later, but then locally resonant television happened.
Speaker: And now we are a market which consumes international content, but also has a very large mass market. So I believe that that would happen in games and interactive media.
Speaker: The second big belief was that Indian consumers would pay once friction dropped. So, you know, once there would be payment rails, the hypothesis at that point of time was credit card penetration would increase.
Speaker: Of course, even so something better happened with UPI. Right. So better product design, monetization like layers got payment rails got laid, which was actually even more beneficial.
Speaker: So. The hypothesis was that the there was a I guess, it was not ah as much about an innate unwillingness to spend, but there was an inability to spend.
Speaker: So, you know, that was the second belief that has now proven itself out. And I think the third belief, which is the more fundamental belief, was that this required specialist capital.
Speaker: that deep sector for focus helps spot, I guess, nuances that generalists may miss. So, you know, i like to say it's better to be early, but not the only, because if you're the only, you have to ask yourself why.
Speaker: So I do believe, though, in as a VC strategy, you have to invest just a little bit before the evidence becomes obvious, right? If it is obvious, then you're probably too late.
Speaker: And again, you know, something that I guess all three beliefs have now shown themselves and we also see this in our portfolio as well. So I guess those were the three beliefs that, you know, had that led me to build the fund.
Speaker: And ah the capital you raised for fund one essentially was on the back of being able to convince global LPs about these beliefs. Yes and no. I think a large part would ah was also personal, just credibility, track record. These were relationships that I'd built over the course of the last decade of being in the global markets, building those relationships. Our capital largely comes from strategic corporates from Japan, from South Korea, from Europe, US. So these are folks who had seen me in the ecosystem for a long time. But also, yes, the attractiveness of the India market did help.
Speaker: And I would say that at that point of time, it was still an experiment for some of these LPs, right? they were of They shared the view and the thesis and they felt like India's interesting.
Speaker: But um it was a market where people felt that, okay, we need to have our foot in the door, but it still needed to prove itself. So it wasn't like it required, like we were also, I'd say, you know, fun one for us was our product market fit.
Speaker: These are what, like game studios, your LPs? A combination of large media conglomerates. So across across the board, ah very large media conglomerates, some gaming companies. For example? like um Like Crafton, for example, isnt is an LP without Crafton's a Korean conglomerate, but they're a large gaming company. They have a large games team. Now they're diversifying.
Speaker: Mixi, for example, again, large Japanese conglomerate. Sega Sammy. Sega is obviously a household name. And we have you know several several others as well. We've also got some large institutional investors out of Europe, some from the Middle East as well. So it's a combination of, I'd say, capital, but it's essentially institutional capital. We didn't raise much individual capital or retail retail money. In fund one, we have maybe two individuals.
Speaker: ah Fund two, we have maybe about three or four individuals. It's mostly institutional. Okay, okay, okay. You mentioned that the the ban on Chinese money in India was a problem. ah Like you were expecting Chinese institutional investors to also be interested in India?
Speaker: At that point of time, yeah, I'd say 2018 2020, we'd seen a lot of... Like an ancient term. Yeah, a lot of the Chinese investors were very active in the India market. They were obviously you know actively investing in the startup ecosystem. They were investing in funds at that point of time. you know ah had um you know Had known the China ecosystem, of course, it's very hard to be in this sector and not be familiar with what was happening in the China and build inroads there. So yes, there were ah you know that was definitely a...
Speaker: I'd say capital pool for us, which I was unable to tap into. And then, you know, 2020, the press note three came out. And that obviously made it very difficult to raise china almost impossible to raise money from China. Is ah China a good market to look at and predict what will happen in India?
Speaker: um Yes and no. I would say directionally, yes, you could look at the market and you could formulate ah a kind of get a directional sense of, you know, because they are really are trendsetters. They do adopt technology very well. They are very experimental.
Speaker: Those are quite similar to what I see in the India market and the Indian consumer, but which but not with speed. Because the speed at which you see companies scale revenue, the the the speed at which they I guess, adopt new technology that is still different from the India market. I would say there is there is that inherent ah difference. But yes, directionally, you could look at the China market and you could say that, OK, you know, there is there are similarities and there are dissimilarities as well. So one has to have context.
Speaker: And, you know, you if you've gone to China, you probably know what I'm talking about. If you've been in the market, you've kind of seen the way the companies build. You've seen the audience. You've seen kind of what resonates.
Speaker: And there's no surprise, right? Like if you see micro drama started in China. ah They're phenomenon which started in China three years ago. AI Companions is something China was building two years ago.
Speaker: AI-led animation is something which is now ah commonplace in China. The way they integrate game mechanics and digital platforms, you know what we're seeing now being done in in Indian platforms, that is very China first. So there is, I'd say, a lot to learn from that market.
Speaker: Okay, i I would love to, ah you know, most people listening to this podcast would not have visibility into the tech scene in China. I would love to get a little more details on some of the things that you're seeing in China, which India is also going on the same path and where China is differing. ah I feel like a lot of my audience may not also be aware of micro dramas as a category, or you mentioned game mechanics in digital media. ah Can you break down some of these trends which we have taken up from China? ah ah That would be quite fascinating.
Speaker: Yeah, sure. Look, micro dramas is this new phenomenon, um which has really, I guess, taken the world by storm. I wouldn't say now it's just India. It's so it's a global phenomenon where, you know, if you were to really have an analogy to what micro dramas are, I would kind of say, OK, look,
Speaker: Look at what TikTok did to social media. To some extent, you know you had these long session lens in social media. you know TikTok essentially converted them into reels. It became very short, snackable, easy to scroll experience.
Speaker: And what hypercasual games did to casual games, which again were short, snackable moments where you could just play a game to fit into your day. ah Microdramas has done that to content and OTT.
Speaker: So micro dramas are essentially about a 60 to 90 minute series, which is essentially sliced into one minute clips, which people are essentially spending anywhere from 60 to 90 minutes and burning through like you know multiple series in a single setting.
Speaker: So it's very high frequency, high velocity, I guess, content watching. So it's it's OTT on steroids, which is essentially micro dramas. And this was...
Speaker: Incepted in China about four years ago, three, four years ago, when we really saw this take off. And currently there are about three to four very large players in China. So it's Hongo, which is a large, ah ahol it's it's essentially a large ah Chinese platform, Quashow, and then you've got Tencent, right? Hongo is ByteDance's micro drama platform. okay and these platforms have a just...
Speaker: incredible reach, incredible revenue, and just incredible velocity with which they are showcasing, you know, essentially content. um The age group, which is consumer micro dramas is anywhere between the ages, you know, starting as young as, let's say, 17, 18, going up into mid 40s.
Speaker: And there are almost 50 to 60 kind of um the content genres within this. So horror, romance, thriller, corporate espionage, dramas, action, mythology. um So essentially, you know imagine...
Speaker: you know, the the universe of content. And essentially, you'd see micro dramas around that, um which are being built in the Chinese market. Which is an Indian company that's doing this well?
Speaker: Like, which would be the leading Indian company in micro dramas? Yeah, we have a company in our platform, ah sorry, in our portfolio called StoryTV. So we have a company ah called Elo Elo, which was essentially a live streaming, social streaming platform, which we backed back in 2021. And they have now built a microdrama platform called StoryTV, which is now the world's second most downloaded microdrama app in the world.
Speaker: And you know these guys are just doing incredible ah just incredible traction. They have now, you know they release release about 100 micro dramas a month. They have 100 million users and they just see an incredible amount of traction on their micro drama platform.
Speaker: And what is the monetization percentage 100 million users? like I'm assuming it would be like a freemium model, right? Or is it ad-supported? it's a supported subscription. Actually, in ah in china so I'll give you the Chinese version of it. so china In China, it's a hybrid. So you have it's ad-supported as well as subscription-based.
Speaker: um In India, it is also, you know, microtransaction based. So you can buy episodes, but also you can pay a subscription. So it's very similar to how Indians consume OTT, which is essentially subscription length. In China, though, there are there is like there is almost commerce also, which is now being tacked on. So commerce has become a ah important revenue stream starting about maybe about six months ago.
Speaker: ago where they've also launched commerce links with with Chinese micro dramas. But the scale of this is is incredible. Hongo, which is the largest, has about 250, nearly 250 monthly active users on their platform.
Speaker: Right. And, the you know, people ah people are just spending anywhere between 60 to 120 minutes a day on this platform. And we see very similar usage trends even in the India market.
Speaker: What does 60 to 120 minutes mean to a VC? that Is this like better than Instagram or what what like contextualize that number? It's it's actually phenomenal. Not all platforms obviously have that.
Speaker: Not all platforms achieve that. But the platforms that we see had in our portfolio are being able to achieve it because... Also, StoryTV has done ah partnerships with Balaji, with Z Media, with Applause Entertainment, where they're essentially, you know, taking premium storytelling and converting them into micro dramas. also doing partnerships with their actors and their their catalog as well. And they're converting that into micro dramas because that' seen that's essentially the way people are consuming content now.
Speaker: So, you know, yes, we see that. And that is that is incredible. like And there very, very few consumer platforms which can command that level of attention, right, in in today's day and age. So 60 minute plus would be like a top five percentile kind of a platform.
Speaker: Okay. Okay. Very interesting. Okay. I love that breakdown. ah What about some of the other stuff you mentioned? Like you said, ah game mechanics and digital media, you said AI companions. ah Can you also similarly do some sort of ah analysis on these? Yeah, so you know in ah in China, for example, we're seeing AI companions, AI tutors, um AI girlfriends, of course, you know that is there is ah there is a big wave of that.
Speaker: And that happened about two, three years ago. So essentially, what we learned from the AI companion market in China was that while there was a great novelty appeal,
Speaker: ah The monetization and long term retention for those apps was starting to fade until there was a specific utility towards that companion. So that allowed us to build a thesis on the fact that, you know, in India, ah what is a utility for an Indian consumer? And we backed a company called Ask My Guru, which is essentially you know, it's spiritual tech, faith tech devotional platform. um You know, they started off with astrology, but they're also now moving into all other Vedic shastras. So they want to get into Ayurveda, etc. So you have a daily companion, which is based on a guru avatar.
Speaker: So the guru avatar will, you know, tell you, you know, what is essentially it gets into it's it you interact with the guru avatar basis on okay but where is my career you come with a problem where's my career going to go you know when am I going to get married there's a lot of curiosity on what what I was in my past life you know essentially because India is very religious based it is very faith based there is need for that kind of AI companion to be able to guide you on your day-to-day oh journey, I guess. And, you know, Asmaik Guru essentially caters to those secrets that you're coming to us with a problem and essentially Guru avatar is available to you for helping you with that problem. And again, this is monetized via microtransactions as well as subscriptions. So you have the optionality of both.
Speaker: And this is also a company which is, you know, very early, but doing doing very well for us at the moment. yeah you You would have probably heard of that. I heard this long back that in content, ABCD is what works. Astrology, Pollywood, Cricket, Devotion. Yeah, we actually expanded that. ah We have that internally as well. It's now gone up to G. So Astrology, Pollywood, Cricket, Devotion, Education, Fandom and and Gaming.
Speaker: Okay. Okay. Amazing. Okay. Okay. ah so So that was ah AI Companions. ah ah What about this game mechanics within social media? I think game mechanics look at what we call systems of play, which is essentially, i guess, anything that you can disrupt by, if you want to target, let's say, actually, you want to target the holy trinity of engagement, retention, and monetization.
Speaker: The best way to do that is to gamify the experience. right And the gamification is not just about, oh, I'll just put a leaderboard or I'll just put a streak. It actually needs to be embedded in the experience to make it more enjoyable, to create a you know product loop which can help a user keep coming back for more. It could be in the way you design. It could be in the UI UX. It could be... building a genuine loyalty loop.
Speaker: That's something that China does very well. And they've done it, you know, even if you look at ByteDance and TikTok, right? The way they kind of made the algorithm algorithm ah so personalized to you, right? The kind of feed that they showed you. Your feed and my feed would be very different probably in ah in a TikTok, right? from From the earlier days. And that's something, you know, they did very well. And they have exported that to the rest of the world as well. And that thinking of,
Speaker: gaming first, which is all about delighting the user, that is now so emerging in digital platforms. Because fundamentally, you know, with games, there is no problem solution.
Speaker: Right. Nobody needs another game in the world. Right. Your biggest competition is boredom. Fundamentally. Right. Anything and everything can distract you from a game. So if you want to really engage the user, you have to respect the user and give them a delightful experience.
Speaker: And that thinking is something that we know we encourage and we want to see in the founders from day one is that do you respect the user enough to give them a good experience? And most people don't respect the user enough. And that is why it shows in the product experience.
Speaker: Interesting. I'll dig a little deeper on this, but first, ah I've used the Temu app here in Japan. I'm recording this remotely from Japan. Oh, okay.
Speaker: Yeah. ah It has that wheel with spins and tells you how much discount you can get. So so that's an example of... Yes. Yeah. Yeah. Yeah. okay Do you do it?
Speaker: ah Yeah, I do. Yeah. And you probably don't even realizell realize consciously that you're doing it. Right. but yeah yeah yeah know You do it, you get a discount, it triggers some dopamine, you feel happy about it Absolutely. We essentially um also crafted this internal framework, which is what we call the dose framework. is essentially good products will trigger one or two neurochemicals in your brain.
Speaker: So dose is essentially what it stands for. So dose is dopamine, so dopamine, oxytocin, serotonin and endorphins. And various mechanics trigger various kinds of, I guess, neurochemicals in your brain.
Speaker: Can you define each of these? what what So, dopamine, yes, that feeling of… Dopamine is achievement. I've won something. ah Oxytocin is a feeling of nurturing and care. So, when I'm kind of putting and organizing things on my Pinterest, I feel, you know, oxytocin.
Speaker: Serotonin is essentially joy. i have unraveled a new experience. I have ah found a new piece of content. It made me sing. It made me smile. And endorphins essentially gives me energy or upskilling or learning.
Speaker: Right. So it typically a great product will trigger two out of these four. An amazing product will trigger all four. How do you, so I'm assuming when someone is pitching to you, you would evaluate their product on this dose framework. Can you like give me some example without necessarily naming names of products which cleared this dose test and which did not clear the dose test? And how were you able to judge that this is not clearing and this is clearing? I think the first insight is honestly speaking to the founder.
Speaker: right If the founder is thinking about this and they understand where their consumer is, who their consumer is, how the consumer consumes the product, that is the first step. Sometimes we speak to founders where I know the founder is actually not able to imagine the user who will consume this product.
Speaker: They don't see the person on the other end or they don't know who the user on the other other end is. That's the first thing. Which is also linked to, you said about respect for users. Respect for users.
Speaker: And to some extent, you know who your user is. That's the first is you don't know. The second is you are mistakenly aware of user who your user is. Sometimes your know founders believe that, oh, my user is some 22-year-old guy sitting in Bangalore.
Speaker: Because that's that's where I'm building and that's my social circle. But actually, what you don't know is that reality could be that a 20 year old, 28 year old woman in Lucknow who has three hours of uninterrupted time and is genuinely willing to pay for something that earns her attention could also be your user. But are you thinking of her?
Speaker: Right. So, you know, that I believe is a very important insight, because only if you're able to know who your user is, will you then be able to craft something and build something for that?
Speaker: So, for example, you know we backed a company called Zoop. these guys are you know We backed them with Peak15. These guys are building a live streaming platform ah for and for social commerce.
Speaker: Now, one would think in India, okay, there was this wave of social commerce startups that came and they went and they died. And you know fundamentally, ah nothing moved in the ecosystem. These guys had a real insight to say that actually in Facebook marketplace, there is a very large thriving community of sellers, largely women based in tier two, tier three cities who are making a genuine living through social commerce. But their biggest problems are the tools that the Facebook marketplace offers. does not unlock for them.
Speaker: They have to stream on multiple devices. They essentially cannot interact with the with the user. The consumer has to ah place an order via WhatsApp. Then if you've got lots of orders, it essentially gets lost in the WhatsApp. So there is no way and a no no comprehensive tech stack which can build all of this together. You can you also have no way when you are selling number of items during a day, like, okay, well, you know, I'm wearing this salwar kameez, but now I'm wearing this topatta. Now I'm, you know, building the these shoes. So they created an AI catalog.
Speaker: So not only now do they provide a live streaming platform, I'd say it's tech stack, which can automate all of this, which enables multicasting. But they also have enabled an AI catalog where as soon as the person says, hey, this is what I'm wearing, you can buy it. It pops up on the screen and you can buy it and you you can put it in your cart and you can buy it. Right.
Speaker: So. Now that is somebody who really had a true insight about who their user is. And I have now built something which has made life easier for this seller. And it has obviously, you know, triggered some chemical, neurochemical in their head, which has enabled them to be on this platform. And, you know, they've now seen almost a 300% growth in terms of sellers on the on the platform, right? who've Who've come on to this a company called Zoop.
Speaker: So I think the very first insight here is that do you know your user? Because only if you know your user, will you be able to craft a product or a tech or an experience which is going to be useful.
Speaker: Amazing. ah Zoop is ah primarily empowering the sellers or are they also trying to acquire buyers that download the Zoop app and buy on it?
Speaker: They're still early in their journey. That is definitely going to be something that they ah work towards. But, you know, primarily if you're building, bringing the sellers, bringing the sellers on is more important because these sellers already have an existing buyer base. Like there are people who log on to Facebook marketplace to see their favorite creator and their seller because they know that, okay, she has actually good stuff. She's going to sell me something interesting. So there are actually people who tune in to the streams of these women ah to see what they have.
Speaker: So Zoop allows them to integrate with Facebook and, you know, so well like multiple areas, the stream goes in. But okay. Okay. You know, I've seen this consistently that ah empowering the entrepreneur is really a massive unlock in India. Like if you look at Rapido,
Speaker: India which decided to empower taxi drivers as entrepreneurs instead of the Uber model or if you look at even Misho, Misho something similar, like empowering the entrepreneurs. That seems to be a pretty strong theme in India. Does that also work in China or is India fundamentally more entrepreneurial, more small entrepreneurs in India, like that market is much larger?
Speaker: No, actually, I'd say, again, that's a great ah that's a great observation. But actually, live commerce did very well and in in China. right You have very large live commerce players um in China. Douyin, Pinduoduo, of course, these platforms emerged a lot from from live commerce. But similarly, if one was to look at, um let's say, even streaming,
Speaker: Right. Where you essentially the creator economy that ah that saw its genesis also in China, right, where you were essentially right building celebrities out of you know regular people, regular creators who were doing everything from game streaming to actually social streaming to who you know people who were just in general sharing their lives.
Speaker: um I think fundamentally it's about entrepreneurship, but I think there's a bigger trend there. It's also about what I like to call digital decolonization. Right. We have now experienced a decade of, let's say, big tech in India. Right. We have seen Facebook. We have seen Instagram, WhatsApp, etc.
Speaker: But I'd say over the course of the last you know five, six, seven years, there has obviously been this. spirit or surge in nationalism, where there is a greater impetus for your personal identity, your language, your culture, where you don't feel so ashamed about asserting your Indianness.
Speaker: Right. And that to me is, you know, a big shift in terms of mindsets. And I believe it is, you know, digital decolonization. We are decoupling from the rest of the world in terms of saying, hey, now we can define who we are.
Speaker: And China's always had the opportunity to do that because they were a world guard and they had no other exposure. Right. So hence they could be very protective about their cultural identity. And in fact, they could export it.
Speaker: India only did that, let's say, with the likes of Bollywood. But now we are saying, hey, we are no longer just going to import, but we are going to assert who we are. And that has changed.
Speaker: And I believe that is another trend. It's not just about entrepreneurship. Is there a bet you have taken in this digital decolonization, like someone who's India culture first kind of a play?
Speaker: um A lot, ah quite a few of them, about 50% of our portfolio is is this. Elo Elo, which was a live social streaming platform. We backed Loco, which was a game streaming platform that you know got sold. We backed companies which are building Mitko games for the India market. We've also backed companies which are building AI companions and ed tech or for learning, skilling for the India market. Ask My Guru is another one.
Speaker: Zoop, which is live social commerce, is another one. ah So yes, there are, you know, but let's say 50% of the portfolio is India first. Okay. Okay. Got it. ah Tell me about the gaming opportunity. That's one area we've not touched on. You rightly said that the world thinks of India as a DAO farm, and just for my listeners. So DAO is daily active users and in general,
Speaker: ah if you want large number of active users, then you launch your app in India was how people thought of it. In fact, ah Disney got a massive like for their streaming platform. So so a large part of Hotstar's subscriber count was from India, that same Dow Farm Theory. Yeah, yeah.
Speaker: yeah So ah in gaming, do Indians pay? Is gaming a big opportunity in India? Yes, that's the short answer. The long answer is yes, the proof is in the numbers.
Speaker: And, you know, India's about a billion and a half in terms of revenue paid by consumers towards gaming. But I think what's more interesting is that gaming, if you were to look at it from a download perspective, out of the top 25 apps from a download perspective, gaming accounts for just 8% of them.
Speaker: But if you look at top grossing, the top 25 grossing apps, gaming accounts for nearly 40% of that revenue. Right. So gamers actually spend four and a half times more than non-gamers.
Speaker: So, yes, they spend money and they're spending money both from an in-app purchases subscriptions perspective, but also now the The eyeball of an Indian, which is essentially the attention ah which is getting monetized by advertisement, that is also becoming more valuable, right? Because a ECPMs are anywhere between $1 to $2 in India now versus a couple of dollar cents maybe four or five years ago.
Speaker: So yes, and of course, we have a very large gamer pool. It's about 550 million gamers. We see also very high pay and ah paying user conversion. So about 25% of users actually convert and pay in games.
Speaker: And we've been tracking obviously this industry from zero, I'd say, you know, back in 2019, 2020, we started doing this research that we do now. We launch it every year. It's been five years now. And we've been chasing the industry since then.
Speaker: Obviously, there have been big changes in this industry. um But the short answer is is yes, Indian space. ah Talk to me about what you've seen over five years of researching this space. So, of course, you know, there was ah there was an industry called RMG, which is now no longer an industry. Real money gaming. Okay, right. Which was real money gaming.
Speaker: and Did you have exposure in that industry? No, actually, fund two has 0% exposure and fund one had less than 5% exposure. um Was that luck or conscious strategy? No, that was a conscious decision to not participate in RMG. I think the regulatory risk felt very asymmetric to the reward. Also, we launched at a time when I guess um RMG was on its curve, where it had started to become mature as well.
Speaker: So it felt like regulation was coming. And because I had been in the global market, seen what happened in China, in Korea, in Japan, you know, had had that perspective. So there was a, I guess, internal radar which said, okay, but this market will get regulated. The question is when and not if.
Speaker: So we didn't have much exposure. And there was never a premise that we would be doing RMG also when we were making the pitch to LPs. But yeah, RMG was obviously a very dominant part of the market, um especially 2018 onwards, I would say, right? 2019, 2020, COVID saw this big boom of RMG.
Speaker: funds One quick question, sorry. I've never actually participated in Real Money Gaming. How do these companies make money? There is a deposit, so it's cash in, cash out. So depending on the format, there are various formats. There used to be various formats. There used to be fantasy cricket. You could participate in building fantasy teams and then you would essentially wager on which team would win.
Speaker: There is rummy and poker, which are very similar to offline rummy and poker. And then there would be games where you would essentially play, ah which were more casual in nature, like Ludo with real money gaming elements.
Speaker: You would, as a user, put in money in a wallet and that would be your deposit that would constitute your deposit and that deposit would then be distributed across the various games in the platform that you would want to play in you would play those games and in a sense you would either win or lose and if you were to if you would win you had the option to withdraw the money or to reinvest it back into the platform so then that's that's real money gaming in a nutshell it's similar to casinos like you're playing the house you're playing against the house
Speaker: That's a little bit of a controversial question um because your know Various platforms would disagree with the fact that it is not casino-like. There is an element of skill. so that you know There were some games which are will require skill.
Speaker: And there were some games which are ah games of luck or chance. I don't want to get into that debate. I'd rather not. but but But you're playing against the house, essentially. Your counterparty is the... No, you're playing against other players. Depends on the format.
Speaker: in some In some formats, you're playing against other players. In some formats, you're playing against the house. Okay. Okay. Got it. Okay. yeah Sorry. Please continue. yeah We were talking of trends that you observed over the last five years, specifically within Real Money Gaming.
Speaker: I think yeah more recently, of course, you know the RMG market used to contribute about $2 billion dollars to the revenue. So you know gaming with between RMG and let's say what was what is called video games was anywhere between a $3.5 billion dollar market. Can you define video games? what what what are Video games are essentially games which are free to play in nature. There's no cash in cash out. Those are primarily digital entertainment products.
Speaker: ah like ah abdi or something yeah Like a BGMI, which is Battlegrounds Mobile India or a crash or a Free Fire or a Candy Crush or a Temple Run. There, of course, they edit genres. um you know Some are mid-core games, some are casual games. So they're described very differently.
Speaker: ah But yes, free-to-play free to play our video games and now there's a very clear classification. The government calls them online social games. And then real money games had a cash element to it, which is called the you know common nomenclature for that was real money or RMG games.
Speaker: So collectively, the industry was about three and a half billion dollars. um Obviously, now with the ban, two billion dollars of that has been removed. And a billion and a half is essentially what is just the video game of the free-to-play gaming market.
Speaker: And ah within this free-to-play or the video game market, what trends have you seen? Like you mentioned different genres like casual, or I think there's even a hyper-casual and mid-core and then AAA games. These are broadly the categories. Like between these categories, what have you seen evolving in India?
Speaker: I think there have some interesting trends. I think one is the gender parity. So, you know, we've we've obviously looked at... ah the demographics of this industry and the way it's evolved. And consistently over the last two years, I'd say we've seen definitely more gender parity. So about 40% of gamers are women, ah which also very closely correlates with smartphone ownership now, because there is now much more parity in terms of smartphone ownership. The second we've seen is that non-Metro users actually outstrip Metro users.
Speaker: So again, corresponds with smartphone ownership now. ah But 60% of gamers or more than 60% of gamers actually come from non-metro cities as well. And are the spends comparable? oh Spends on ah suspense in metro cities are higher, but ah I wouldn't say that they are far apart.
Speaker: Because if you look at average revenue per paying user on an annual basis for mid-core games, it's $15 versus casual games, which is about $3.
Speaker: But mid-core games are equally played between metro and non-metro cities. So, you know, it's been a bit difficult for me to be able to slice that data point down so accurately.
Speaker: Got it. Okay. Okay. So I'd say that has been a, so demographics have been a very interesting, oh you know, I guess finding for us. The second major finding for us has been that in-app purchases or microtransactions, people spending money on battle passes,
Speaker: or cosmetic items like your avatar, your skins, like the costumes that the that your digital character wears are actually earning money.
Speaker: So the Indian consumer is actually spending for entertainment value, right? This has no gameplay benefit, but it actually is just, I want to buy this item because it makes me look better in a game, right? For some people, it is going to be a little bit difficult to comprehend this. But yes, this is very much a a phenomenon that we've seen.
Speaker: There are... ah it Can you help me understand what is the mid-core category? What does that look like? Mid-core is essentially games which are um longer session lengths, which are a little bit more complex. So think about it. Your Candy Crush, your Subway Surfer.
Speaker: i don't know if you've ever played any of those games, but your Candy Crush and Subway Surfer, these are very simple. My wife used to be addicted to Candy Crush at 1.5. Yeah, that's ah that's the right demographic actually, because 6% of casual gamers locally are women. So, you know, that does fit into that category.
Speaker: um So yes, those are casual games. There are games which you can even play in shorter time spans, ah you know, let's say even, you know, 30 seconds to a minute, two minutes. Those are hyper casual games.
Speaker: And then there are mid core games, which are typically longer session lengths, more immersive, more complicated, which is a Battlegrounds mobile. Cricket or something. thing Yeah, or a, you know, Free Fire or a Clash of Clans. These are very popular mid-core games. So, in definition, the time commitment and the complexity required across these is is different.
Speaker: What comes after mid-core? Yeah, more core games like Call of Duty, Dota. You know, these are games that I'm sure if you've had friends in IITs, they'll tell you that they're very hardcore, you know, game players. These are games which you typically play on a TV screen. On a or a console, yes.
Speaker: Okay, I understood. Okay. ah What about the allied spaces around gaming, like eSports, ah game streaming, fan engagement? ah Are there opportunities in these allied spaces?
Speaker: Look, we you know again, I'd say one has to understand and break down each industry. And you know perhaps that's probably you know quite technical. So I would probably give you just an overview of it.
Speaker: um One has to see where the value creation lies. Like for an e-sports, for example, the and I'll take the example of an e-sports, it depends where in the value chain do you lie.
Speaker: Are you a game which is looking to build a community around itself? So hence, you will have an aports which will e-sport which will be people watching other people play this game.
Speaker: Right. So the value accrues to the person who's built the game, who holds the IP for the game. Then there is an accrued industry around it about the people who host the game, the event organizers, the leagues, the teams, the distribution platforms. So value creation essentially determines whether the business is large, fundable, venture backable. Right. So, yes, there is an allied ecosystem around it.
Speaker: ah But the nuances of each determine where value creation lies. So I can't say it's all equal. But yes, the ah ecosystem around it is also growing.
Speaker: Got it. Okay. um I want to ah throw you a couple of names and ask you if you would have invested in these companies or not purely as a, call it a fun exercise or whatever. I just enjoy doing this. So Prathilipi, I mean, Prathilipi got funding a long time back. And so you you would not have had a chance to invest in it, I'm guessing. ah I don't think they've had any recent fundraisers, but I just want to hear your take on would you have invested in Prathilipi?
Speaker: And why or why not? i' but i i' I'll skip the segment. Honestly, you're going to get me into shock. Come on. This is the the the most fun part of a VC interview is this segment for me personally. you pay Wow, the people who answer these questions are great. I'm glad. Yeah, there are. There are. yeah There are people who answered it. Okay. ah no yeah You don't want to do this at all. I'll tell you which ones I would have invested or not.
Speaker: Okay. Cuckoo FM? We didn't believe... ah it predated us, actually. The fund predated us. ah Didn't believe audio would be a large category and then they pivoted to video and micro dramas and we had StoryTV, so... Okay.
Speaker: Is that a general practice across VC funds that you will not invest in a competitor to a company in your fund? um not Not every fund has that. I would like to believe that we think of it very differently because we're a sector-focused fund.
Speaker: But a lot of generalist funds typically do have competing bets and they don't seem, you know, they don't have qualms about it because they're able to demarket teams and, you know, different partners can lead different companies. In our case, of course, A, we're sector focused. We're a very small fund. So one wouldn't want to take competing bets.
Speaker: Okay. Okay. Okay. so So there's like also advice for a founder that if you're pitching to a VC fund, which is sector focused, check the portfolio first. If they're already funding your competitors and should not approach them. Well, I mean, I wouldn't say don't not approach. I think you probably learn something or not, something or something from us.
Speaker: If we were to approach because we, you know, if we have invested in this, we probably have a... And we'd probably be able to tell you the pitfalls. And of course, if the founder is great and, you know, they're looking at building something differently or adjacent, we would always look at Let me kind of take you back to your own experience as a gaming founder. It's rare to hear a woman as a gaming founder. What led up to it? ah What happened? Tell me that story.
Speaker: Why are you not still running that? I'd love to hear about that. Yeah. um Well, there's not that much of a, you know, I guess, ah long story to it. I mean, even though it was a very long period of, for for me, it felt that it was four, five years of my life. um You know, i was I was tired of investment banking and private equity. This was so during Morgan Stanley's race.
Speaker: Yes. Yeah. I was burnt out. I was looking for something else to do. And I wall used to be a gamer. And, but I never thought i would be a builder. So I was almost an accidental entrepreneur. but What kind of game? on Like casual games? Metcore? What kind?
Speaker: Yeah, casual I used to play a lot of PC games when I used to be young. And so I used to play a lot of, you know, civilization, lot of Mortal Kombat, a lot of Sims. hello And in general, I used to like fantasy worlds. I still like, you know, a lot of some fantasy worlds. I used to immerse myself in sci-fi. I still am. I'm quite quite a nerd in that sense. um do You know, so gaming, it so happened to me.
Speaker: I ended up running Truly Social, which was the business. it was And we ended up raising venture capital for it. What was the the product that you were building truly at Truly Social?
Speaker: It was a narrative-based social world. So it was essentially, if you've ever played a games game called Sims, which was essentially this this world in which you could interact, build. And you know you were part of this world where you could dress your characters up. You could explore a world. You could interact with other characters.
Speaker: Something like Minecraft? No, it was not my Minecraft exactly because mine in Minecraft you can build your own world. This was creating shared world. ah but yeah can it was Yeah, exactly. It was more of a, you know, you had non-player characters where the you could your journey and my journey, could it was non-linear.
Speaker: But as a player, one couldn't, let's say, build within the world. So and Minecraft and Roblox obviously ah were were, you know, very complex, very large scale projects, which also took, you know more than two decades to really take off.
Speaker: So, and this was mobile first, the company that I was looking to build. And yeah we did a bunch of very cool stuff. We had, you know, celebrity integrations. We had influencer integrations. We did collaborations with with brands, raised venture capital. ah the How much did you raise? Yeah.
Speaker: ah Collectively, we had infused about three to four million dollars, a little bit more into the into the business. um And at that point of time, that was 2013 to 2017. Right. This was not.
Speaker: There were no funds investing in this even globally. There was one fund in the world, which was a fund called LVP, which essentially well were my seed investors, which eventually also became a fund that I joined.
Speaker: um But at that point of time, yeah this it was not common to build. The community of game gaming companies worldwide was very, very small.
Speaker: Venture capital to raise financing to build IPs. was very rare. It was largely being funded by strategics, by corporates who would publish your game, do marketing contracts with you. That was the predominant mode of financing, I would say, at that point of time, in that era of of financing.
Speaker: Venture capital in gaming is a very, very new phenomenon, which has probably emerged with full force, I would say, post-2080. So it's a very recent phenomenon.
Speaker: um So, you know, I think it was an incredible journey. It taught me a lot about myself. And I think, you know, Up until my entrepreneurship journey, I had a framework in my mind, which was if you work hard, you will get an out outcome. You know, you go to the right college, you study hard, you land that job, you'll ace your GMAT, you go to business school, you prep early hard, you'll get that in internship and so on and so forth.
Speaker: As an entrepreneur, I realized that you can take all those frameworks, you can roll it up and you toss it in the garbage. And that's when you're a true founder. ah You know I learned a lot about product. I learned a lot about hiring, what it actually costs to build a consumer product when you have very limited runway and very limited resources and no access to capital.
Speaker: um I also learned that startups don't fail in neat PowerPoint ways. You know, they fail in messy ways. They fail slowly. They fail emotionally, operationally, legally, financially. So I think an ah entrepreneurship cured me of very simplistic and very reductive thinking.
Speaker: Right. And I think that has helped me to become an investor today. I don't think I would have been an and investor today had I not been a founder in those years because my journey also happened in such because I built in that sector.
Speaker: I joined a fund which invested in that sector and then I ended up building my own fund in the same sector. So honestly, the genesis of who I am actually started very early from um from that time.
Speaker: Did it die due to lack of funding? Like you weren't able to raise enough? No. It was actually we had two setbacks. The first was we had a very large strategic investor who was doing a financing deal with us and the team changed. And then that strategic essentially or didn't extend us that financing line. It was a large five million dollar line. And at that point of time, was ah it was a big sum.
Speaker: And then we had we and we still progress. We built the business out um and then we had a acquisition offer. which was which we were preparing for and getting ready for. But at the last minute, the board overturned the acquisition offer. And by that time, I was already down to just about two months of of runway, um which was a very hard time because, you know, you can take one setback and you can recover from it. If you take two setbacks very quickly, back to back, um it becomes very hard to bounce back from that, from a business perspective, right? Because also as a founder, you are...
Speaker: trying to build the product and keeping the business running, but you're also trying to meet the requirements of a financing or meet the requirements of going through an acquisition. So, you know, it's very hard to kind of tread the balance between the two.
Speaker: And obviously, it you know, the the second knock was the knock that basically said that, all right, you know, i think this is the end of the road. but But yeah, that was ah that was a very humbling experience.
Speaker: For a long time, it took me... a long time to kind of reconcile to the fact that in the business state, but I didn't fail. right ah it That disassociation was very hard. It took a long time. I think the loss of identity that follows because you're the co-founder and CEO of a business, you're no longer a co-founder and CEO of a business.
Speaker: I think um There were many, there was one episode where an investor had, you know, walked back their commitment with us. Then, of course, the grind of fundraising, the stakeholder management, the, you know, the pressure of losing a financing line, then the pressure and the deep disappointment of an acquisition which didn't go through.
Speaker: I think all of this is this big, it creates a lot of emotional turmoil. And so you, you know, dealt with that. I'm curious and I may be scratching old wounds here, so feel free to ask me to move on. But when you realized you had two months of runway, did you keep fighting or did you start thinking of how do I wind this down?
Speaker: No, I had to be responsible at that point of time also because you know managing a team who were dependent on the business. ah you know I had investors, had a board.
Speaker: if One had to you know look at the writing on the wall and to say, how do I safeguard and protect people? the people who have been with me on this journey for so long. So that was very much responsibility that I had.
Speaker: And I remember the day in which I had to go and tell the team, and we'd been working very hard towards this, I had to go and tell the team that, hey, guys, see you know this is not happening. And by the way, you know we're looking at only two months of runway.
Speaker: And the process of wind down had to be done gracefully, you know, I believe, and also maturely. Right. It would have been very irresponsible to run the business down. We had vendors to pay. We had salaries to pay. We had, um you know, obligations that needed to be taken care of. So i felt that it was time to make that call.
Speaker: um every person in my team, you know, sat with them after that day, you know, drew up resume resumes, made sure all of them got employed before the two-month period. You know, they both everybody got two months notice.
Speaker: All our vendors, all our obligations were essentially sorted. um And that, to me, was the right way to do things, right? I think one has to... ah you know as much as As soul crushing it may have been, it was the right thing to do.
Speaker: And you on even during that time, I remember we did ah I did a debrief, a day's debrief with the team to say, okay, what have we learned? how, how, what were the things we could have done better to not be in this situation? And perhaps, you know, the outcome was that we fought, we did everything that was possible.
Speaker: And though this was, you know, external factors. It was external factors. um But we still did that experience, right? So we walked away with a sense of closure.
Speaker: which I think a lot of people, a lot of founders were closing businesses down. Don't do. Yeah, you you you don't want to give up. It's hard. Like you said, the identity, right? that That is the hardest thing to let go of. Yeah.
Speaker: And there's this great book written by Annie Duke. She's a poker player. It's called Thinking in Bets. late Knowing when to play versus knowing when to take your chips off the table, it's a skill.
Speaker: right And a lot of it gets lost in this you know speak of, oh, keep fighting, keep hustling. like yeah yeah that gri to me that that That grit is so misleading, right? you You don't persist, you don't for tenacity. um But I guess the question is always the opportunity cost and the consequences of your decision. Because if you, let's say, make the decision to keep the company going, when you have limited runway and you reach the end of your runway, there are people whose lives depend on
Speaker: And salaries depend that, you know, households depend on that salary. It's deeply irresponsible to go and say, hey, today I have no more money to pay you. Well, too bad. Figure it out on your own. Right. Because we had we had people who had families, who had young children. you know, i had a person in my team who was expecting a child.
Speaker: it was respectful for them to get the right, you know, for the next, for the next part in their career to be crafted, you know, I had to give them that notice. So I feel like a lot of founders don't think of the impact and consequences of decisions on, let's say, everybody and stakeholders around them.
Speaker: ah Let me come back to Lumikai. ah What stage do you invest in? And what kind of check sizes do you typically write? So we do very early stage investing. We write check sizes as low as about 200K. So we have two strategies. One is what we call Lumikai Pixels, which is essentially um very early stage ah bets where it's you know where we're back backing an uncertain market. ah you know Perhaps there is no TAM. But we think the founders very interesting. And perhaps they aren't quite ready for a conventional venture route.
Speaker: But we are a stepping stone for them to get venture ready. So we have oh a pixel strategy where the check sizes could be as low as 100K going up at about half a million.
Speaker: And then we, of course, have the seed a pool as well, where we write check sizes from five half a million onwards to about $2 million. dollars And then, of course, we will follow on and um I guess also help the company with the with future financing rounds and hiring.
Speaker: um We also work with the company a lot in terms of you know global connections, global networks. Again, best-in-class practices of what's happening in China, what's happening in Korea, what's happening in Japan, because some of these markets have really set the standard for what it means to build best-in-class consumer entertainment experiences or media experiences, or just in general, you know they innovate very fast.
Speaker: as well So that's that's pretty much the strategy for us. You know, ah typically VC funds have like a portfolio strategy in terms of how many bets they will take, how much they will invest in first check, how much for followers. What does that look like for you?
Speaker: For us, we invest we you know we divide our dry powder, I guess, in 60% initial checks and the balance in follow-ons. Of course, you know we like to give founders enough money for 24 months as a seed check. okay We want them to be able to have enough money or what I call enough shots on goal.
Speaker: And those typically work out to be two to three shots on goal. So it means two to three iterations of your product or your tech where you will you know make mistakes, you will experiment, you will fail, and then you will finally build the product which essentially has PMF. So that process in itself, ah in my reckoning, takes about 24 months. So we want to give them enough money for 24 months.
Speaker: But then... After that 24-month period, it does become evident in in terms of whether this company is going to graduate and go into the next round or not. So hence, we're able to calibrate the follow-on funding towards companies which are essentially going to grow further.
Speaker: So the million dollar question is ah who gets funded or rather which startup gets funded? What's your framework for evaluating? Do you look at ah revenue, proof of revenue or do you look at, like like what do you look at when you're evaluating pitches?
Speaker: So, you know, for me, I think, as I mentioned, founder is very important in founding team, right? Ultimately about how they think, what they think, who they're building for, and do they understand basic table stakes of their business? That is very important. And by table stakes, I mean, do you know what best in class metrics look like? What are your benchmarks of retention, engagement, monetization? You may not have them today, but do you know what best in class looks like?
Speaker: Do you know who your user is? Do you know why they will use your product? up And even if it's an entertainment product, do you understand, do you have some unique insight as to why your your product will resonate with your user?
Speaker: And do you think distribution first? Gone are the days where you can think that I will build a product and users will magically come. There is no organic user to be found in the market right now.
Speaker: right It is very, very difficult to get organic users. So if you are going to put oh money at work, I want to understand how you're going to make it work without earning too much.
Speaker: right So capital eff efficiency is also very important. And I think the second part is that, you know, are you thinking monetization first? 85% of our portfolio companies at seed are revenue generating.
Speaker: That is not by accident. That is a design, deliberate design decision in terms of who we back. You need to think of your unit economics, especially if you're building for both, whether you're building an India audience or whether you're building a global audience.
Speaker: in You should build an India first product because you know what If you have a very local insight, the behavior is very culturally specific and the monetization actually fits domestic price points and and payment habits.
Speaker: The mistake founders make while building for Bharat is that they think think of it as a discount version of Metro India. It isn't. late It is a market that rewards products that understand context.
Speaker: So, you know, if you're building an India first product, tell me that these are the things that we understand about the market. The second is if you're building a global first but product, I want to know whether your content infrastructure tooling can travel.
Speaker: Is it at par with that of global West? Or are you super reliant on India's monetization curves or B2B revenue to be able to then depend and get go on the West? I don't believe that necessarily translates.
Speaker: So I'd say there are, you know, these are some more basic frameworks. We, of course, have very detailed frameworks on how we identify founders. We have a 5C framework in terms of traits that we look for in founders. and then how we what What are those 5Cs?
Speaker: We look at character. competence, clarity, commitment, and essentially curiosity. right If you have at least four out of five, we're likely to back.
Speaker: And then we have the way we ask you questions, e etc. is to understand. right If your character is largely a test of integrity and work ethic, commitment is essentially do you understand how long the journey is because it's a very long journey. And um you know, that that there is commitment to the cause and there is commitment to your investors. So understanding that.
Speaker: Then, of course, there is curiosity. Are you aware of the market landscape? Are you aware of what your competitors are doing? Clarity of vision, because you will require that to be able to pitch to your investors, to your team, to rally people to you, to even your customers. So, you know, this is essentially the way we define these ah particular traits. And of course, the way we ask questions is inclined towards helping us answer those questions.
Speaker: ah Do the founders who have these traits tend to be on the younger side or on the slightly more mature side? Actually, the average age of our portfolio is about 30 plus. That's not to be said that we are not. So, for example, the this current deal that we're doing, the founder is 19.
Speaker: um Wow. and but Yeah. and And that's a deal we're going to announce in a couple of months. But what's the building? ah Building names. Without naming names, but like.
Speaker: um Building user-generated games for Roblox. This is a deal that we're currently ah working on. The founder persona for this, we were looking for somebody who is very entrenched in the ecosystem, somebody who has a very sharp understanding of the audience base, has been with the platform.
Speaker: So you know this and this founder has been building on this platform and making money on this platform since he was 14. So, you know, by 19, he's kind of seen how the platform is has shaped ah and been shaped.
Speaker: And, you know, it's ah it's a really fascinating story. Perhaps once we announce the deal, but, you know, this founder is 19. But on average, I'd say our founders are in the mid thirty s Right, right, right. Yeah, I mean, it seemed that these would need to be more mature people who have a revenue first approach, who understand metrics, who have more of a fiduciary mindset, being capital efficient. You know, I discovered age has got nothing to do with it.
Speaker: Sometimes we see, you know, 30, 40 year old founders who are not thinking like that. So I don't believe age has got anything to do with it. And sometimes, you know, we see this 19 year old founder, he is on top of his data, his metrics, he's already making money, run his run his business profitably, very strong commercial acumen.
Speaker: So I don't believe age has got anything to do with that. ah Let me kind of end with this. ah You know, you've been seeing this space evolve over the past five years. What are like the white spaces, the platforms that don't exist yet? Like, like you know, what what's like the next unicorn which could come out from this space? What kind of a platform would it be? Or do you have any sort of a take on that?
Speaker: Yeah, you know, I would absolutely love to see India produce a gaming unicorn, which is building world class IP. um I do believe we will soon see a digital entertainment platform building perhaps micro drama content or social entertainment emerge out of India and it will be a unicorn. I do believe that.
Speaker: I do believe that you know every platform shift, whether it was social media, whether it was video, it created $10, $20 billion, billion. dollar behemoths.
Speaker: write up And I believe that in interactive media, India could lead that charge. And that, I think, is an exciting um i guess outcome for us.
Speaker: And another, um I guess, what excites me is to see animated IP come out of India, which can be world-leading. And I do believe we will see that.
Speaker: What's an example? Have you seen something so far? Animated IP? We're looking at animation and VFX quite closely. Like animation studios. Animation studios. Because actually 60% of global animation work a ha ah happens out of India.
Speaker: Thank you so much for your time, Saloni. It was a real pleasure. yeah Thank you so much, Akhsha, for having me. And, you know, we're color-coordinated. So perhaps this will this is the winning winning formula.
