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Enabling Inclusive Innovation | Gireendra Kasmalkar @ Ideas To Impacts
129 Plays3 years ago
In the past two decades, India has grown to be one of the top countries contributing to the global IT industry. The youth who migrated to these large IT hubs have been a vital driver of this growth.
But this, for the longest time, has been the most uneven form of growth.
In this edition of Founder Thesis, Akshay Datt speaks with Gireendra Kasmalkar, Founder and CMD, Ideas To Impacts Innovations Pvt. Ltd., who is on a mission to ‘Distribute The Future Evenly’. He is also the Lead Investor and Managing Partner at Pentathlon Ventures, a Pune-based VC fund.
Much before COVID struck and companies realized that employees could work from smaller cities and remote locations, Gireendra started Ideas to Impacts (I2I) in 2015 to offer cutting-edge tech services from smaller towns in India. And today, this ‘small-town’ model is proving to be the next step in Indian offshoring.
On the VC front, with Pentathlon Ventures, Gireendra has funded and supported numerous early-stage B2B Tech start-ups.
Tune in to this episode to hear Gireendra speak about how I2I is empowering small-town talent to participate and contribute to the global tech economy.
What you must not miss!
- The ‘Work from Hometown’ model
- The cost benefits and social impact of operating from smaller cities
- Gireendra’s Investment Thesis
If you wish to contact Gireendra, please feel free to drop an email at giri@pentathlon.vc and Gireendra.Kasmalkar@ideastoimpacts.com.
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Transcript
Introduction to Girindra Kasmalkar and Ideas2Impacts
00:00:01
Speaker
Take a minute, I'm dead. You know what I'm talking about. This is Aurob. And you are listening to the Founder Thesis Podcast. We meet some of the most celebrated sort of founders in the country. And we want to learn how to build a unicorn. Hi, I'm Girindra Kasmarkar.
00:00:29
Speaker
I'm the founder and CEO of Ideas2Impacts, and I'm also the lead investor and managing partner at Pentathlon Ventures, an early stage VC out of Pune.
00:00:41
Speaker
A lot of my guests are young 20 something entrepreneurs who started working on an idea in college or soon after college. And today run businesses worth millions or tens or even hundreds of millions of dollars.
Girindra Kasmalkar's Entrepreneurial Journey
00:00:54
Speaker
Compared to that today, I'm talking to a founder who's going to be 60 years old soon. And he became a founder way back in the 90s. That was an era when the word startup had not been coined. People did not.
00:01:11
Speaker
start a startup. They started a business and that is what he did. And his journey mirrors the journey of India in which he built a global software services business, which was eventually acquired by a global MNC. And now he wears the VC hat.
00:01:31
Speaker
This episode features the journey of Girindra Kasmalkar, a serial entrepreneur who is now wearing the VC hat and helping young founders to build the next generation of disruptive startups. Here's Girindra talking about his three decade long journey.
00:01:50
Speaker
So in 2016, when you finally exited, so you sold off your remaining stake to them. Correct. That's right. So then what did you decide to do next then? Because now you're starting from a position of strength, where you already have capital. So Akshay, the thing that was topmost of my mind then, that what will I do with my time after I stop this activity? And how old were you when you got that exit in 2016?
00:02:15
Speaker
So 2016, I was exactly 50 years, right from 92 February. And in fact, before that, when I joined TCS, this whole journey, I had no gaps whatsoever. So, you know, I came from the US. Next Monday, I was on a job. Even before I left my first job at TCS, I thought of doing my next journey.
Founding of Ideas2Impacts and the Smart Town Model
00:02:34
Speaker
And then that became that, you know, working with partners that became very soft.
00:02:38
Speaker
and that became SQS. So I've not taken any breaks. I've been working 24 by 7, you can imagine. So the biggest thing on my mind, yes, I have now these resources with me and a lot of the things can I do, but I was the biggest question in my mind was, what will I do with my time? And so even before I'd left SQS, keeping in line with what I've done on my career, even before I'd left SQS, I had started on the new thing that I wanted to do and that is ideas to impact.
00:03:04
Speaker
this new IP company that had started. And the trigger actually came from my working desk itself, which is that I could find it among this 1000 people that we had. More than 500 people came from outside of Pune. They were not Pune natives, they came from smaller towns from Maharashtra and all over India. The number may be larger, certainly not less than 500, it could be even larger. And I figured that in 2015-16 timeframe,
00:03:28
Speaker
The reason why this happened earlier, infrastructure, you know, the metros had the infrastructure, the small atoms didn't have the infrastructure. This was not true anymore in 2015-16. Yes, because of GEO. GEO had come in by that time. GEO came a little bit later.
00:03:43
Speaker
But geochem, I think, 2018 or something. But even internet was very much there. Tata was there. Everybody provided the internet physical fiber. Everything was there. Electricity, you used to have generators in Pune also, so it's no different. You needed generators there also. So that was a trigger for me to think that now may be the right time for the jobs to be taken to the smaller towns rather than the kids to be brought to the metros for the IT jobs. That was a theme for ideas to impact.
00:04:12
Speaker
That's what exactly we set out to do. Luckily for me, I got immediate traction from two large companies for this idea. One was a local automobile manufacturer for whom we started some of their work, and one was a large multinational. That was an even bigger validation. These guys, a product company, were never given any work outside of their building.
00:04:36
Speaker
you know, gave work to us in Rajguru Nagar, which is where we started the first center. You don't know Rajguru Nagar, I'm pretty sure. No, I don't know Rajguru Nagar. It's a Taluka place, about 50 kilometers on the Pune Nashik Road. And that's where we started our first center. And these were the two Markey customers that we got to start with.
00:04:53
Speaker
So I knew that I was on to something good. Your basic thesis was that it is not necessary for people to migrate to cities and we can build businesses where the talent is and if the talent is outside cities then let's build businesses outside cities. So were you thinking of this in terms of like remote working or were you thinking of it in terms of
00:05:14
Speaker
mini development centers we were talking about physical office for me the centers there and that's what we did in rajguru nagar because see people like the large customer that we're talking to they will not give you work from you know now of course in covid things have changed but at that time you need it i mean if you go into a rajguru nagar office the infra is exactly what you'll get in your pony office because otherwise these large customers won't come
00:05:37
Speaker
So in fact, we have a lot of learning on this that has happened over the next four or five years. And I'll talk about that. But that was indeed the thinking that you form good offices there and higher local talent there. I mean, ultimately, actually, these were the same guys you are going to get otherwise in Pune. If you're higher than Pune, the guys are going to come from there only. So you're talking about the same guys. But would these smaller locations have enough talent for a big center? Like, you know, if you wanted a 100% center, would that be possible?
00:06:06
Speaker
Initially, we thought we would go to Taluka places and that's why Rajguru Nagar. But now we have also realized that we need to be in district places which are of course non-metros because there are good colleges there and they can be a hub for the remaining area. So also the thinking has evolved. So now we are in Ambar Nagar for example, Ratnagiri and these are kind of district places.
00:06:25
Speaker
The problem is the same. Those kids, whether they are in Rajagurunagar or Ahmedabad, they still have to come to Pule for jobs. That was the problem was the same. But if you go to the larger place, you get good engineering colleges, you get the talent there. So of course, no diligence that you will find the right talent. So that's where the evolution of the model happened. One thing we realized was that you'll get only juniors and freshers in these small towns. The seniors people have already migrated. So what we set up was what we call our
00:06:53
Speaker
So this model we call the smart tone model by the way and we have a smart tone pyramid where just like in the offshore business you had an onsite offshore pyramid a few people on site and rest of the people offshore. We have an onsite metro and small tone pyramid in our model which means that yes some people have to be onsite. The seniors who have already migrated to metros will be in our Pune office here.
00:07:13
Speaker
So they will be the senior left and then the freshers and juniors you hire in these smaller towns.
Challenges and Benefits of Local Talent Utilization
00:07:19
Speaker
So that makes the model work. Now, why do these seniors join us in Pune? I mean, we have multiple practices now. So one of the things we, the evolution was we realized that even if you had to have jobs in the smaller towns, if they have to be sustainable,
00:07:32
Speaker
You have to be on the cutting edge. You cannot be just doing legacy jobs. So today, if you look at it, we have IoT, AI, ML, digital, all these kind of practices. So of course, you need seniors who are experienced in these areas, who lead these practices. And how do you do that? You know, how do you have the attract the seniors of IoT and AI, ML kind of spaces? So the leads that we have are actually people who have worked with the Infosys of the Cognizant of the world.
00:07:57
Speaker
So they have 15-20 years of experience. They have their global delivery experience. That's how the model works. So that operational pyramid is a very big factor in making this model work. Then they take the onus of front-ending the customers on the one end, and also recruiting, training, and building the delivery team on the smart on the other end. So that's our smart town model. Of course, you're right.
00:08:18
Speaker
We have to take a lot of effort on the training and onboarding of these kids out of these colleges. And that onus is definitely upon us. And that's nothing different. I mean, IT industry has always done that. When we were starting testing business, we used to train all the people, right? The testing, training came, business came and started
00:08:36
Speaker
We were the ones who were initially training people. Same thing here. So we got to test, train the kids who are going to join a particular project. So there is training. Now we are even thinking we'll start this process in the fourth year of college itself, and then do the onboarding. So that operational model part, the infra part, and the training onboarding part, these are the key things that we have got right, which helps us work that. Typically, what was the size of one development center in a tier two location? Like what headcount?
00:09:04
Speaker
So our Rajguru Nagar center has about 45-50 was the headcount and has now grown because of some new projects. However, we also did one thing in the initial stages that we would not start a practice or a center without having business in hand.
00:09:20
Speaker
So it was not like you're setting up centers, they're hiring 100 people and then going to look out for business. So, for example, the Ambar Nagar Center got started because our customer sitting in Boston wanted us to be in Ambar Nagar, it was his native place. So we had a project in hand and we could start that for them. See, this is how the pull has started rather than I deciding that we sit in Rajguru Nagar. There are customers, there are our practitioners who want to start in Dure for example, because that's his hometown.
00:09:47
Speaker
We have our customers. See, for what is the work for these guys, he's still sitting in Boston. He doesn't have to come to Amadnagar to get some work done out of there, but he gives us some work and we get it done out of Amadnagar.
00:10:00
Speaker
So that is how the models work for them. In Ratnagiri, there was already a small IT company there and we partnered with them. So we are giving them work, we are conducting training with them. So there are variations. So these are all pools that are happening either from people there or from customer or from the practice heads, which is why how the centers are happening and they grow. So from that perspective, there is no critical mass or anything like that. We can start slow. That is also, by the way, another reason for moving from Taluka places to district places because
00:10:28
Speaker
you know in rajguru nagar you can have at the most hundred people but in a district place you can have 500 people and then you can go to really better larger places and we are you know scouting places like even bhuvneeshwar and you know those kind of places where you can go into thousands also depending on the customer the size is determined you know so some large customers won't go below a certain number and so on and so forth so that's how we are doing.
00:10:48
Speaker
So typically each center is dedicated to a project or two projects or something like that? Not necessarily. For example, that's the way it happens. But if it's a large enough center, we could have multiple customers working out of that. We are, in fact, open to models where if the customers want to manage their teams themselves, they can do that. If they want us to do for a few years and then do a BOT and then transfer it to them, we are open for that. See, the ultimate aim is generating employment in these small towns.
00:11:17
Speaker
In a sustainable and scalable kind of way. So we are not a non-profit by the way. It's a for-profit organization and I've never done non-profit so I don't understand that space that much. So this is for-profit. So the model could be anything and so hence there could be multiple customers in one center. Nothing is kind of hard-coded in our model.
00:11:37
Speaker
Right. And this was part of your sales pitch. Like you would tell companies that we are going to execute projects in tier two locations. Absolutely. That has been the key. I mean, the foreign customers sometimes don't care as much, but Indian customers do definitely appreciate that. And we have seen that the customers that have been with us the longest, now those initial two customer talked about are still with us. Are the customers whom we talked about this model? Ultimately, the delivery has to happen well.
00:12:06
Speaker
You know, with this model, I mean, of course, the cost is a door opener because the cost is lower than metros and so on. And clearly there is a social impact as well. If kids live in their small towns rather than coming to metros, there is a benefit on both the sides. Right. I mean, clearly their life is better there. And here also the congestion will not be that much. However, just as an offshoring today, you don't sell offshoring on cost. Nobody sells offshoring on cost. That's a given of the model. Everybody understands that the cost will be lower.
00:12:33
Speaker
You sell on capability. You sell on capability. What can you do better? Same thing here in this model. I tell my team all the time that this cost benefit, the social impact is a given of the model. That is not going to sell to get business. Ultimately, you have to deliver better. And actually, we have found reasons why work could happen better in this model as opposed to the old traditional offsharing model of doing it from the metros. Number one,
00:12:56
Speaker
The hunger simply put the hunger of the people there, you know, they are looking to do well in the job You know imagine I mean this guy is out of college We have hired and now they are touching the SAP of one of the largest customers. That's very aspirational It's a very interesting story the work that we the work that this customer Transferred to us the original vendor was doing it from Pune Okay, and these were all SAP trained guys and all these well qualified guys
00:13:23
Speaker
And for them, it was a stopgap. They were just trying to do it, you know, as a first job and they were trying to move to the other. Whereas now you have people who are actually aspiring to do that. So if you have that right fit between the skill and the requirement, you are actually likely to do the job better. Right. So that's one part of it. And then there are some physical, logistical reasons like you would imagine my office was in an SCZ here in Pune and my commute was like more than one hour on an average one and a half hours one way and then another one and a half hour back.
00:13:53
Speaker
The commute in this smaller town is five minutes. Attrition.
00:13:57
Speaker
I mean, attrition is order of magnitude different in metros and in non-metros. I mean, today, especially when you see the resourcing problems and the no shows and all, I don't know if you're aware of all of that. It's crazy, completely crazy. I think average IP, like these bellwether companies have about 30% attrition. Can you imagine what does it mean to have 30% attrition in a 50,000 people company, for example? I mean, that's crazy, right? So we do believe, and that's true of any good solution.
00:14:24
Speaker
What number do you see like compared to that 30% that they have? Lower single digit in the small towns. So it's order of magnitude lower attrition in smaller towns as competitive. So I do believe this and I remember this Richard Feynman was a
00:14:38
Speaker
physicist, Nobel Prize Laureate, he had said that if you find a solution to a problem, it just doesn't solve that one problem, it solves another three, four problems. Of course, he was talking about physics. But even in this model, if you find a solution, it should solve some three, four other things also. So hopefully, if this model solves the problem of the resourcing that is happening in the metros, then it's really the right solution.
00:15:01
Speaker
Right. Why did you decide to do another services business in 2016 when you were, you know, looking to start the next thing? I think already that unicorn as a buzzword had come in. India probably had had a few unicorns by that time. So why didn't you think of like a product company and you know, like that route instead of going back to another services business? Okay, a good, very good question. And see, I'm a very big believer of adjacency.
00:15:30
Speaker
So I know there are people who can jump into completely different businesses and great success in that. I think that if you get into an adjacent space, then you can leverage whatever you have done in the past quite well. And of course, there has to be something new. I couldn't build another testing company, for example. The smart term model was a new thing in this. So IT was the common part, but the smart term model was a new thing. And it was a definite solution for a problem. So that adjacency was very important.
00:15:57
Speaker
I will come to the other part of the product part where we have started a fund and you know I'll talk about that where it's a venture capital fund it builds product companies and so on so I definitely felt that
00:16:07
Speaker
There I would better off playing the role of helping the new youngsters build companies rather than being an operator myself. So that was the thing. So in there also there is an adjacency that we remain with tech because I knew tech, the B2B tech that too. I mean, because my background was in B2B, the adjacency was B2B tech, but then we are doing startup there. Fund was a new part there.
00:16:30
Speaker
And in the services part, the small term model was a new part. The services was the cold part. Got it.
Impact of COVID-19 on Work Models
00:16:36
Speaker
Okay. So let's talk about COVID. How did COVID change your business model? Like, for example, the way Zoho now talks about people working from villages, PR remote, no need to come to office. Are you looking at something similar or, you know, what has been COVID impact on ideas to impact? I will talk about the COVID impact on ideas to impacts, which was very, very interesting. Last year was, you know, kind of flat.
00:16:59
Speaker
And this year the growth has started happening again and last year also initially people thought that there will be a lot of problems and done but otherwise actually it companies should not complain at all as compared to know the other sectors that have suffered so much into that so what interestingly what we thought was
00:17:17
Speaker
that whatever we were trying to convince people of for the last three, four years automatically happened because of COVID. I mean, people were working from home, but that homes were not in Pune. They were gone to the native places. So we actually coined a different term for our smart-town model, which is work from hometown model. So you go to your hometown and you work from there.
00:17:37
Speaker
And another, some new models that we are now thinking of is that, for example, one IT company CEO met me and in a large company, a public listed company, they have their offices in Pune and Bangalore, large offices. He told me, I had no idea that 200 of my people were working from Kolhapur and they were just working from their homes in Kolhapur. So now he said, I'm for sure not going to build another big center of mine, either in Pune or Bangalore or anywhere.
00:18:04
Speaker
But if you have your center in Kolhapur, I'll definitely take 200 seats there. So these are the kind of new models that are now coming, which is what we are calling work from hometown model. And so now we don't have to convince people that this remote working, people working from their hometowns will work or not. That has started happening.
00:18:20
Speaker
But our model is also about validation. See what happened actually in the first year. Everybody thought that this was going great. Productive was fantastic. People were stretching themselves and they were working from home. People were happy. Companies were happy. But these were people who were already working with you in your company for some time. You knew them. Then they went to their native places and then started working from them.
00:18:39
Speaker
Now one year down the line, what happens when you have to hire freshers? What happens then? So that is a challenge most of the companies are facing and there our work from hometown model, where for example, this 200 people setup is already there. So now you can hire freshers there.
00:18:54
Speaker
That also solved the problem of poor power, poor internet, family members building around, all of those. If you have a nice infrastructure provided in that particular town. So that's our road from home town modern. So to tell you the truth, I mean, we thought that this would be a great opportunity for us. And now the series has started. In fact, I got a lot of interest from various people and one of them senior guy who was the head of Amdocs in India.
00:19:21
Speaker
You've heard of M. Docs, right? Yes, yes, yes. He was the head of M. Docs, he was the global board member of M. Docs. And he was my customer, so I knew him very well. His name is Anshu Kaur.
00:19:30
Speaker
So we were in touch. Anshu contacted me last year saying, boss, this your model has to get a big boost in this. So I said, boss, that's what I'm telling people. Just as in 2000, Y2K was the one that gave a big boost to Indian offshoring in the next decade. It was there earlier also. But the mindsets changed after Y2K. People came to know that, yes, things can happen from India. I said, that same thing is going to happen for our model in 2020. So we got into discussion. And now, as we speak, Anshu has actually joined Ideas2Impacts as the group CEO.
00:20:01
Speaker
He's invested in us, he's both of us on the director board. Whole focus is on how we can scale this up. So either with completely new businesses like this WFHT model or expanding the current businesses and we are getting traction, lot of hard work to do. So that's what we are seeing the impact of COVID on our ideas to impact business. What is the size of the business? Give me some numbers.
00:20:22
Speaker
So we are about 150 odd people right now. So that's the size of the company at the moment. And how many centers? So we have Rajgurnagar, Ahmednagar and Ratnagiri which are active and we are talking to somebody in Solapur and other people. We have done some small work in Solapur already so that could get started. And like I said, we are already started some 20 cities all over India.
00:20:47
Speaker
and so that we have already struck some partnerships with real estate players, educational institutions, training organizations in places like Bhumneshwar for example. So the idea is if some large company comes to us saying that we are doing this and we have ready-made package to offer them that we can set it up for you and we can do a BOT for you in these kind of cities and then you can run your business from there.
00:21:07
Speaker
So that's what we are looking at. So like say a TCS could come to you and say I want to have five centers in small towns and you could like do a BOT model for TCSN.
00:21:20
Speaker
Absolutely. I mean, some of the larger companies may have their own setups to do this kind of scouting, but there are some, they're slightly, TCS is absolutely the top company. TCS has already announced that 75% of the people are going to work from home and so on. But there are middle-tier companies who could definitely not have the bandwidth to do this. So for them, we could do that complete setup part, consulting part, setup part, and even the BOT part.
Transition to Venture Capital
00:21:45
Speaker
Now, tell me about wearing the VC hat. Like what made you want to wear the VC hat and become a VC? So when I was exiting out of SQS, I was already mentoring startups and that had started. So Puli has a very strong type chapter. We have a nurture program and started doing that. But one observation, one realization I had
00:22:07
Speaker
that while there was a lot of energy and enthusiasm and savvy among the entrepreneurs in Pune, because it's an education town, it's always been an automobile town, it's now an IT hub. So there was a lot of talent, not a single fund out of Pune. All the funds were in Delhi, Bangalore, and Mumbai. And I felt that needed to be corrected. So like I said, at the exit now, and while it started, I just impact, I thought that we should start a fund, which is headquartered in Pune,
00:22:36
Speaker
and B2B tech, B2B focused, because if you're talking about 16 timeframe, everything was B2C in India. So that was the thinking that, you know, you had to have B2B. But of course I had no background in a fund in my earlier company. I had not even taken investment. So I was not even on the other side of the table. It was a services business. I just grown 100% owned it myself and so on. So no background.
00:23:00
Speaker
So that's what proved to be a little hard to crack. So it took me a few years to get the fund off the ground. However, the biggest support that we got was from the Pune ecosystem itself. So today I got six partners, you know, four of them are exactly like my background, that they grew their company out of Pune globally, exited, and they also wanted to start a Pune based fund and we joined hands and we started the fund together. So last December, we actually got oversubscribed.
00:23:30
Speaker
So, it's a small fund. It's a 10 million USD fund. But we got oversubscribed last December. We closed the fund rate. Of course, we had announced the first close earlier. We had done some investment. But most of the investments have come in this year. Could you explain this basic stuff? What does it mean to be oversubscribed? And how does the fund work? So, first of all, it is a properly SEBI-registered AIF category 1 fund. SEBI has this AIF category 1, category 2, and category 3. We have category 1 fund. So, this is SEBI categorization.
00:23:58
Speaker
And even within AF category one, there are VC funds and angel funds, and they have their different norms. So for example, for VC fund, the minimum ticket size for an investor is 1 crore. For angel, it is 25 lakhs. We had a fund which initially when we started, 10 million was actually 65 crores, or 65 crores was our with a green shoe option, as they call it, that is you can go up to 100 crores.
00:24:22
Speaker
and we closed it around 77 crores or something like that. This is money in the bank or this is? This is commitment. It's a binding commitment. What will we do keeping the money in the bank? We have to give return to that money, right? So it makes sense to get the money only when we have the investment opportunity.
00:24:37
Speaker
not before that so we have brought on schedule your rough schedule is given already but we then also based on the companies that go through our investment committee there is a process so i'll talk about that then so on the fund structure part that is what it is there is a fund we have an investment manager which is the pentathlon ventures we are six of us are partners there five of us are with an entrepreneurial background and sixth one
00:25:00
Speaker
did have an investment background because everybody has to have an investment background. There would be some investment by the partners also like of this total 10 million that I was exactly going to come to that and that's where our uniqueness is typically managing partners doing this but very little.
00:25:16
Speaker
Whereas in our fund, about 25% was invested by the general managing partners ourselves. Because we are dual roles, actually. We play the investors as well as the managing partners. And this was important because it was our first fund. So you couldn't have worse in the game. So that's how we did it. And then, of course, we got C2B investing in us. Most of our investors are actually first generation entrepreneurs from Pune. So that was the validation of our Pune theory.
00:25:45
Speaker
Of course, then it is very interesting. I talked about the smart-town model in the ideas to impacts because Pune was, for IT, it was a big metro. And then we went to all these Rajguru Nagas and Amban Nagas. But in the fund, Pune was that small town. It was not Mumbai, Delhi, Bangalore. And that's exactly what we did in Pune. In fact, I also went to the Surats and the Nagpus and Hubris to see if we can get investors from there. And we did finally manage to get Hubri angels.
00:26:13
Speaker
a team of Fubri businessmen, entrepreneurs, they got together, found an LLP and invested. So apart from that, everybody else is from Pune. We do have one from the US and one corporate from South America. But most of the investors are from Pune and these two first generation entrepreneurs.
Investment Strategy and Challenges in B2B Tech
00:26:31
Speaker
So we actually call our fund for entrepreneurs, buy entrepreneurs kind of a fund. And that was our intention also.
00:26:38
Speaker
that it should not be just money. Hopefully, the experience that we have had of scaling companies, even outside India, the market access, the investor access, we could bring to the startups. So that's what we have been able to do. So one question here. Do people invest in funds at this stage? This is essentially like more of an angel fund, right?
00:27:02
Speaker
It's a VC fund. It's a VC fund. So do people invest in VC funds for a return or for giving back? I think, you know, return is a definition. I will never say that, you know, the return is not of interest because it's ultimately a financial investment. But like you, I think what you're hinting at is that a lot of angels invest out of interest and they don't care too much about the returns. And that's what I liked about doing a VC fund.
00:27:30
Speaker
It's almost like you have customers in the investors. You're committing a return to them.
00:27:34
Speaker
So that, I like the discipline. Just as you would be very disciplined in servicing your customers on the services business, you should have that same discipline and to be able to give that return to the investor. So I don't think that we treat them at all as people who have just been angels. For an HNI considering putting his money into different places. So VC as an asset class gives what kind of return? Certainly it has to give much more returns than a mutual fund.
00:28:00
Speaker
you know if you're getting mutual fund 15% and so on it should be getting higher than that. We are of course not allowed to even commit a number but it has to be higher than the mutual fund.
00:28:10
Speaker
You are right that it was very hard when we started this fund to get to talk to investors and get their interest very, very hard. Especially a lot of people said, why are you doing B2B? You should do B2C. A lot of people said, why are you in Pune? The Delhi guy, if he went to material would say, why would you start in Delhi? Bangalore guy would say, why don't you start in Bangalore? So all of these challenges were there. Luckily for us, B2B has become quite hot.
00:28:34
Speaker
startup ecosystem as such has grown in leaps and bounds. So the number of unicorns have gone exponential, but even more important than that, people have now started seeing exits, you know, you've seen Zomato, you've seen Freshdesk, that has changed things, Flipkart also was there. So that has changed the mindset. So I do believe that, you know, while the initial wave of the startup ecosystem in India, I'm talking about 15, 20 years back, which is more of
00:29:00
Speaker
What had worked in the u.s will definitely work in india because we had large populations if there was amazon there there'd be a cut here then if there was uber there had been ola here lot of the money also came in from outside india.
00:29:11
Speaker
When we started raising funds, there were not too many funds who were raised out of Indian money. Most of the money came from outside. We were one of the early funds, and now there are, now there are. But not too many funds were raised domestic money, and that was a challenge in the big phase. And plus, we didn't have any track record. So entrepreneurs believed in us rather than the financial investors. However, now, with these kind of exits happening, with these kind of stories that are getting published, I do see a lot of
00:29:37
Speaker
traction and already our investors are saying, when are you raising your next fund, we would like to invest in. We are also at a stage where our first round of investments will be over by next month. So we are planning to do some 20 plus investments. We are already at 15, 16. It will be done. And so we are also starting to think about that. And then again, we will definitely reach out to outside India investors, for sure.
00:30:02
Speaker
Metro investors and also to non-metro investors because there is opportunity all along. I think that Indian money will see more and more presence in the startup ecosystem. So typically the way VCs work is you have a fund 1, fund 2, fund 3 and each fund invests in X number of companies and then whatever return comes it goes back to the people who invested in that fund.
00:30:24
Speaker
Yes, yes, correct. So I believe recently I was reading that Sequoia has kind of done an disruption of this traditional VC model. What is that about? So Sequoia's thinking was this, that because fund is a life,
00:30:38
Speaker
Every fund is a life. Our life is six plus one plus one years. And we also feel this constraint. So what does this mean? What does the life mean here? In six years, you have to close the fund. Even if your startup has not got an exit, you have to find a buyer for that stake. So that is the pressure. And then you could talk to the investor and extend it by that. So that six plus one plus one means that you can increase it by one year at a time for two times. So you can go up to eight years with the permission of the investors.
00:31:04
Speaker
you know, at the end of it, if you still have not got an exit, you could distribute the units or something, but there is that pressure that you need to find your exits in that period of time. So we are also thinking on next fund with, you know, much larger funding and also longer life for exactly that kind of a reason that we should be able to see what happens is and I was coming to a Sequoia question. They found that, you know, after they exited,
00:31:26
Speaker
Their companies increased in valuation much more after that. So if that stayed for one more year, they could have got much better returns. And we also, like I said, would face the same thing because we have to exit because of our life, if not nothing else.
00:31:39
Speaker
So that's why Sequoia has formed a fund which is ongoing. People invest in that and then through individual vehicles out of that fund, they will invest in at different stages and they can now invest in public companies also.
Innovations in Fund Management and Investment Approaches
00:31:52
Speaker
So they no longer have a life assets. They can continue to invest for as long as and if somebody wants the money back, then they will redeem it. Yeah, so the investors will say, I want to enter here, I want to exit here, but the fund itself remains. So it's almost like a mutual fund kind of a structure then.
00:32:07
Speaker
Correct. And they want to also invest in public company, all of that. In our case also, for the future of the fund, I am thinking, we are thinking a little bit like that, is this investment manager company, a very strong investment manager company, it will invest in fund one, fund two, fund three, you know, whatever, and you could have your areas of focus and so on. But if you build a strong company, which is strong processes, strong structure, and by strong processes, I don't mean delays.
00:32:30
Speaker
You could have processes to do it faster. But that's what really... See what happens Akshay, this is my theory that when something is new, any space, when something is new, it is always art in the beginning. There are some artists who are really good in that space and then these individuals make their name in that.
00:32:48
Speaker
But I mean, we would see that in testing also, you know, there is some really good testers who do testing. But as a business, what you want to do is set that as an organization. If you give work to this organization, good testing will happen no matter which. So kind of changing that art to a science. And with our background of building organizations, we really feel that we could build a strong organization.
00:33:09
Speaker
That would be an investment manager organization. And yes, you know, the funds will still have lives because SEBI would require that. But that investment manager is what we want to really build, that pentathlon ventures that we want to really build with the same kind of thinking that that will be ongoing. And that will be a really strong organization which will invest in these various funds. What is the investment manager? Like say you have a $10 million fund. The standard is 220 as they call it. So 2% management fee every year.
00:33:38
Speaker
and 20% carry. So by carry mean that whatever return comes that is distributed 80% with the investors and 20% with the fund. So that's the success kind of thing. But there's a 2% management fee that happens. And actually speaking for a 10 million fund 2% management fee does nothing.
00:33:55
Speaker
So luckily because of our background in this fund, we're not taking any salaries or anything like that. So that can be managed. But we wanted to learn. And so the fund size was small. 2% management fee for a larger fund could be significant money. So what is your investment thesis as a fund? What kind of companies are you funding? Early stage, bit-to-bit tech is our focus. So like I said, because we want them to benefit out of our background, that happens most in the earlier stage.
00:34:21
Speaker
So we are looking at companies that do have a product, do have revenues. Our ticket size kind of ranges from 100k that is about 75 lakhs to about 350k which is about 2.5 crores. So you're talking about that kind of a stage and so it's kind of seed, three series and then we would like to take them to series A.
00:34:39
Speaker
and we might double down and invest in series A but for sure series B we will not invest, series C we will get our exit probably. We would like to lead initially but it's a mix of whether we lead or don't lead but certainly series A onwards we won't be leading you would want somebody else to come again.
00:34:55
Speaker
Now, at that stage, typically, you're looking at founders. And because the product is in place, we have not yet invested in a pre-product. Pre-product we'll never do, but pre-revenue we have started doing. So that lower of that range of the 100k is more towards when you have pre-revenue or no revenue or very little revenue. Whereas the 350k towards you are pretty good. The revenue is still early, but decent revenues where you seem to have got traction.
00:35:21
Speaker
Because we are horizontal, there is no vertical focus. So, you know, we have invested in FinTech, we have invested in marketing tech, we have invested in healthcare. So in healthcare, for example, DeepTech is a company that we invested in. They are AI and radiology, and they are poly-based. In fact, they are also located in our Ideas2Impacts Hub. So I've not talked about Ideas2Impacts Hub, I'll talk about that. So they are also located in our building.
00:35:45
Speaker
Then in FinTech, there is a cross-border remittance company called Fable FinTech. There is an insurance, embedded insurance or bundled insurance company called Discovery. There is a BNPL company called Shopsay, breadth of companies that we have invested in. So what is your screening process? Because I think as founders, it's very hard for founders to understand if they are investable or not.
00:36:07
Speaker
Yeah, I'm not saying that if we don't invest into somebody, that means they're not investable. That's not the case. Just a match of the fit between the thesis and what they're bringing to the table. So if somebody comes in a B2C side, we will not be able to invest, but that doesn't mean they're not investable. Somebody else will be doing that. So what we look at at this very early stage is certainly the founders, number one, what kind of problem that they're solving. That problem should appeal to us. You should feel that, yes, this is indeed a problem that is worth solving and they're solving that.
00:36:35
Speaker
And the solution that they have found is getting, you know, is good enough to get traction and so on. See what happens actually as you know that pivots always happen.
00:36:45
Speaker
So it's going to change. So if you're looking at founders and the space that they are in, then we know that they will figure out. It helps that they have some traction so that we can apply metrics and so on. What do you look at in a founder? Do you look at education pedigree? Education pedigree helps, but that's not at all the only thing that we look at. The best case scenario is, of course, a founder who has already done it once.
00:37:12
Speaker
So some of the very, very early stage that we have done, there is no traction whatsoever, but the founder has done something in the past already, some exit, then that is, I mean, there are a few of them, but a lot of them are founders that we talked to and find out what their dedication is to, because ultimately it's a long journey, tough journey and so on. What we also look at is the mix of the founders.
00:37:35
Speaker
So it's not just one founder. Typically there has to be, you know, the business side. So somebody has to do the sales, the hustle has to be there. Somebody has to take care of the technical side and somebody has to take care of the domain side, especially in the B2B. So we look at that mix that, you know, is that mix going to be there? Is there something in the background that tells us that these guys are, you know, they will not give up. They will, you know, even during the tough times, they will stick to it. So those are the kinds of things. And that's why their background is important.
00:38:06
Speaker
And we do a lot of customer reference calls.
00:38:10
Speaker
So see, we cannot know each one of these spaces. So we do have our experts and we talk to them, but customer reference calls are very good to know that if the problem exists really, and how big the problem is, and whether this solution is something unique, something different that is being offered than by somebody else. So customer reference calls are quite important for us. And then of course, we run the matrix, the numbers, if there are some revenues, then we definitely run the matrix to make sure that the unit of economics is working and so on and so forth.
00:38:38
Speaker
Do you fund businesses which are looking at I will figure out the earning after a couple of years first let's scale like I mean, this is a valid business thesis of companies which first build scale and then figure out monetization. So do you believe in such businesses?
00:38:52
Speaker
Most of them would be B2C, if I'm not mistaken. So they would naturally not be on our radar. However, in B2B, if they are saying that, that would have to be a case where we understand the space really, really well. Then only we can take those kind of bets. If we have to ask people about that, then that might not be the candidate for that. Got it. Okay. And so how has your portfolio done so far? Five of them, and we are just in our second year of investment, five of them are already raising the next round.
00:39:21
Speaker
So, which is really good thing. We were hoping that would happen in the next year, but already in this year, we are seeing some traction and they're raising next round. The plan was that we complete our first round this year and the next two years were for the doubling down. So, that has already started, which is definitely good news. So far, so good, I would say. Let's see how the next couple of years roll out.
00:39:41
Speaker
So, you know, one thing which I really want to understand from you sitting in the VC state, you would have a very global understanding of trends because you are talking to some of the most innovative founders out there on a daily basis. So, you know, what do you think are like, if you had to give some broad indications that this is the direction in which the world will move, what do you think those trends are? And therefore, companies which are doing this will scale up faster.
00:40:10
Speaker
Got it. So, first of all, I agree with you that, for example, to do this 15, 16 investments, we have talked to more than 1000 companies, more than 1000 companies. What really keeps us going and excited is the quality of entrepreneurs that we meet. I mean, if I compare myself with, you know, myself of 25, 30 years back to these guys complete, these guys are extremely confident, savvy, and you know, they know what they're talking about, and so on. So it's very, very impressive.
00:40:36
Speaker
So while you have some kind of feel or you're actually learning quite a lot from these people itself. So that's very important. I think in fact, see, we are talking about the future, right? And, you know, whatever your expertise experiences from the past. So the main thing that we have seen or at least I've learned is
00:40:57
Speaker
not go so much by the gut feel. In fact, I try to say that look at the data rather than the gut feel, because gut feel has come from your past. I have done this in the past also. I've always been a person who's not that smart to actually figure out what's going to happen in the future. And that's where if you've just seen, I've just jumped into things to try to do that thing, get the data, and then figure out the way to do it. That's been my instinct.
00:41:21
Speaker
That's what I try to do here as well. Once you dive deeper into that company, you understand that story, try to get as much data as possible because things are going to be different in the future than they have in the past. That's the whole thing that you're betting on. I'm not the type of the investor that within five minutes I know that this is good or something like that.
00:41:42
Speaker
There are some people like that and I admire them, but for me, I have to dive deeper and get the data and then figure out that. Having said that, I mean, some trends are so clear that I don't have to tell them about that. For example, the reason we invest in video, because video as a space in that remote paradigm will work. There's no question. We have done four video investments in various different use cases.
00:42:03
Speaker
There is this creative economy, there is event kind of a thing, so on and so forth. There is one pure tech which is actually expediting the downloads and so on. So all of that we have done in different use cases. So we know that video will work. So that is very easy that you can also say without even having done whatever.
00:42:23
Speaker
So there are mega trends, but when you're coming down to specifically investing in a company, there's a lot of learning that is happening on both from our side at least. And you figure out, you get that conviction, at least I get that conviction after having done on this, yes, this will work, rather than having some preconceived notion that this is going to work and this is not going to work.
00:42:42
Speaker
Okay. But other than video, this was interesting, the idea of video as a trend. Any other trends? What about NFT blockchain? Do you see that as a major trend? So again, blockchain is a technology. And yes, AI, ML is a technology and all of that.
00:43:00
Speaker
However, especially maybe it's a B2B thing or not, but I feel that use cases are much more important for us than the technologies that... So in technology, you see what you said earlier that this technology there, don't worry about revenues, we'll happen two years later and so on. We don't do that. So while we are all technology guys, we come from tech, the use case is really much more important. So we'll not invest in something just because they're doing AI, ML or blockchain or whatever.
00:43:25
Speaker
That's not what we do. We have to see that the use case is something that is solving a real problem and getting traction. When you talk to the customer, we ask one question to get answered is, how quick was the decision from the customer side?
00:43:36
Speaker
to buy that product. That tells you that the real problem and it was a solution that was good enough. Or did it take long? So those kind of things. Right. What are other things, other data points, like one data point you look at is how quick the customer decided. What are the other data points you seek?
00:43:55
Speaker
Okay so I mean some of them are related to the market some of the external areas such as you know the space itself and how good fit the solution is that I talked about that we also look at what the thinking of the founders is.
00:44:10
Speaker
Are they customer oriented? Are they trying to really solve a problem? Or they are, you know, spend like you said, you know, spend and then hopefully the business will come. How confident if you challenge them on this, are they really firm on what they're thinking about? Or, you know, they are not not so sure about that. So because the bet is so much on the founders, you already looked at the at the their backgrounds. But about this particular thing that they're doing, what is their confidence level? Because ultimately, they are going to run the business.
00:44:38
Speaker
So they must have that confidence more than us. So we try to challenge them on what they're thinking on their thesis. So that is another thing. The third thing is the numbers part also. The numbers are important. They may be bad. They may be bad. But are you tracking the right matrix? So one of the things that we end up doing even after our investments is what are the right matrix for this business?
00:45:01
Speaker
What should we track? I mean revenues and all that are fine. They are the ultimate indicators. But there are some preliminary indicators, leading indicators that will lead you to that. In the early stage, that is very important. What are those metrics? And sometimes the founders themselves have that, which is a very good sign.
00:45:19
Speaker
that they know their business and they've been able to figure out the matrix. Sometimes the discussion and it happens later on. So what is leading indicators are to finally get to the revenues and all that is very important. So for example, in this video case, the founder is telling me that video minutes that they have is in matrix. Right, right, right. Those kind of things. Figuring out that part. So I talked about the space, I talked about the founders and about the business itself, what kind of matrix.
00:45:48
Speaker
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