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Maneesh Bhandari on the business of buying and selling businesses | GrowthPal
172 Plays1 year ago
Dive into the evolving landscape of mergers and acquisitions in this episode. Maneesh talks about GrowthPal's journey of disrupting the business of buying and selling companies with its premium discovery service, featuring a unique blend of subscription and commission charges. He shares the driving forces behind company acquisitions and discusses buyer-seller relationship dynamics. From debunking myths to drawing parallels with dating apps, walk into the intriguing world of M&A trends and strategies with Maneesh.
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Read more about GrowthPal:-
1.Startup Mantra: M&A made easy with GrowthPal
2.Startup to Scaleup: Spotlight on GrowthPal that aims to reinvent M&A deal sourcing
3.Lending dominated fintech M&As in 2023 amid increased regulatory scrutiny: GrowthPal study
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Transcript
Introduction & Business Goals
00:00:00
Speaker
Hi, this is Manish Pandari. I'm the founder and CEO at Groupbell Technologies.
00:00:17
Speaker
The traditional Indian businessmen did not build a company with the intention of selling. The goal was to pass on the business to the next generation. But the current generation of businesses are often built with the external capital, and therefore, that objective of passing it on to the next generation is not that dominant.
Business Models & Opportunities
00:00:36
Speaker
Given this kind of a trend, there is a growing opportunity in the business of matching buyers of businesses with sellers of businesses.
00:00:44
Speaker
When you think of businesses who earn by matching demand and supply, then there are two revenue models. One is a discovery model and the other is the middleman model. Take the example of real estate. A property dealer or broker is in the middleman business model and helps ensure the transaction is completed and takes a commission. However, sites like magic bricks housing, no broker, etc. are in the business of enabling discovery. They typically charge some sort of subscription fee or listing fee.
00:01:14
Speaker
Growth Pal is a startup that is disrupting the business of buying and selling companies by offering a premium discovery service to buyers and charging a mix of subscription and commission. In this episode of the Found a Thesis podcast, Manish Pandari breaks down the business model and the journey of building Growth Pal and talks about trends in the mergers and acquisition space.
00:01:46
Speaker
So Manish, what is growth pal? Can you give like an elevator pitch of growth pal?
GrowthPal's Unique Approach
00:01:54
Speaker
Sure. Actually, thanks for having me here. At GrowthPal, we have built an M&A platform for small to mid-sized companies. And essentially, we help both buyers and sellers find each other. And so take a use case of a buyer, say from the US, looking to acquire smaller companies in India.
00:02:18
Speaker
And so we take their requirements, specific use cases. And for those, we find the best targets they should look at. So we are not an investment banker in the sense that we are not driving the entire transaction execution, but we are the sourcing engine. And so today we have created a fairly large set of buyer demand. And now we're starting to work with the sellers as well to help them identify the best buyers.
00:02:53
Speaker
discovery platform essentially, like where buyers can discover sellers, although it's not exactly that self-service where I go and I apply some filters and I can directly, it's not like that e-commerce kind of a search platform. No, it's like you tell us what your need is and we get you the best 20, 30 companies that you should look at and that we do it through the entire data on these companies.
00:03:14
Speaker
Okay, interesting. So you are a...
00:03:23
Speaker
We have a very large data set over 3 million companies in our target markets. And for the buyer's requirements, we would go through that entire universe of data and find the best companies that we feel are fit for the buyer.
00:03:40
Speaker
and at which point we speak with the sell side founders as well because of course their consent is very important. Their intent has to be aligned and only then we share those profiles with the buyer.
00:03:58
Speaker
Okay, so I come from the world of recruitments. My bread and butter comes from running a hiring agency. This sounds a lot like a hiring agency where in my case, my buyer is an employer who wants to hire someone and then we identify talent based on what their requirements are and then we speak to them.
00:04:20
Speaker
And what we do is more like an investment bank where we earn on successful transaction, which means the person joining. And that typically has a much higher fees than only a lead gen. So why are you only doing lead gen? Why not earn through success fees also? Because I'm sure success fees would be like maybe 20x of what a lead gen fees would be.
00:04:44
Speaker
Right, so we do charge a finder's fee because we want to make sure that we are providing the leads which are ultimately close, right?
Revenue Model & Confidentiality
00:04:56
Speaker
So that buyers also have the comfort that these leads are likely to close and therefore our business model is split between a subscription fee and finder's fee.
00:05:08
Speaker
But like interesting you say about recruitment. So it is actually very similar from an actual outcome point of view. But one thing which is very different here is that we are dealing with extremely discreet parties. You know, especially the sellers don't want to give any signal to anybody in the market that they are likely to sell.
00:05:33
Speaker
And for that matter, even buyers don't want their strategy to be publicly available. So how do you make a matchmaking and a very contextual connect happen while being extremely discreet? So that is the nature of the problem. And that's where we have excelled in achieving that while still finding the best target.
00:06:00
Speaker
And what is the, so you said subscription. So it means that someone pays you for a full year, even if they are only doing one transaction a year or how does that subscription work? Yeah, that's right. So generally most clients pay for the year. We have taken like six months subscription as well. But so first of all, the acquisition is an activity which doesn't happen in a day, right?
00:06:28
Speaker
From starting with the defining your strategies, start looking for the right targets, start talking to them and as you talk to them your own strategy gets more refined. Not everybody you talk to even if you like them is not going to necessarily result in a deal happening. So it takes its own time.
00:06:49
Speaker
And the second part is that most buyers we speak with, they want to keep looking in the market. Even after they make an acquisition, they don't want to stop. Even if they're not ready to do an acquisition right away, they still want to be in the market. They want to know what's happening, find the right candidates.
00:07:12
Speaker
Whereas, this is more for smaller companies. They make to larger companies. They sometimes have multiple acquisition threats going at the same time. They have a full-fledged comp. Yeah, go ahead. Sorry, please finish your...
00:07:28
Speaker
No, so they have full-fledged cop dev teams where they can handle more than one acquisition at a time. And even when one acquisition is going through the due diligence and final lawyers getting the documentation done, they could still be looking at leads for other requirements.
00:07:50
Speaker
your fees is the same irrespective of how much work whether it's a company which has a cop dev team which is doing multiple acquisitions in a year or if it's a company which is doing one acquisition a year how do you how do you align
00:08:06
Speaker
your efforts with what you are paid. So very interesting. So the subscription is, it's higher if there are multiple requirements that we are working on, multiple in panel. So number of our clients have anywhere from three to five requirements at a given point in time.
00:08:29
Speaker
Right. And then the another dimension is that they may do multiple of the same requirement. Right. But so we do have a variation in the subscription fees. But the finders fee, which we charge once the deal closes, that is dependent on the size of the transaction. So, you know, both ways it kind of justifies the effort. I understood. So it's like,
00:08:57
Speaker
If you have one deal open, there will be like a base subscription for one deal open at a given point of time. And if companies want more than one deal open together, then they have to go for a higher tier subscription or something like that. They can have multiple deals open for the same requirement.
00:09:18
Speaker
But sometimes they have, you know, let's take an example of say an IT services company. They may say that, you know, I want a company for cloud migration.
00:09:32
Speaker
And at the same time, they're also looking at a high-end data science company. And they may say that, oh, and by the way, I also want a Salesforce company. Now, these are three different requirements. And we can service all three in parallel.
Global Reach & Client Management
00:09:49
Speaker
And each one of them can have multiple leads because we don't know which one they're going to likely pursue. So we will share a handful of good targets that we believe for each other requirement. And then as their management talks to them, they start deciding which ones to pursue. Okay. And what would the subscription range from like a broad range like from this to this annual?
00:10:19
Speaker
Since we have subscription, we are charging to the buyers. It ranges from $24,000 to $36,000 a year, so about $2,000 to $3,000 a month.
00:10:34
Speaker
Why do you give the numbers in dollars? Are you a US focused company or like what is your... We have global customers. So today we have, so we actually generated good amount of buyer interest. So we have buyers from, of course, India, but US, Germany, UK, Netherlands, Singapore. So dollars is kind of the commonly understood currency.
00:11:00
Speaker
And these are all buyers who want to acquire companies in India or are you like a global platform? We are a global platform. However, all of these geographies they are looking to buy in India as well. However, recently, in the last nine months, we have closed two transactions where both the buyers and sellers are in the US.
00:11:24
Speaker
Yeah. Okay. Okay. Okay. Interesting. Okay. You know, because I'm from a somewhat related field of recruitment, so a couple of challenges which we face come to my mind, you know, often there are like unrealistic expectations or the client may say, I want to acquire a company like this for
00:11:44
Speaker
between 30 to 50 million dollars and you would feel that okay this valuation is unrealistic and you will never find someone and yet you cannot say no because you're charging a subscription so how do you then manage these cases where you have to service them and yet their ask is unreasonable.
00:12:04
Speaker
Amazing question and I'm kind of intrigued that this is there in the recruitment as well. Actually, you'll be surprised how you can find similar things in very different domains.
00:12:24
Speaker
So we actually tackle this in the sales process itself. So before we actually take on a client, generally in the first call itself or definitely in the second call, we ask them their expectations. How are they seeing the valuation or what is their acquisition budget versus the revenue that they're looking for, the acquiring company.
00:12:51
Speaker
And in that conversation, it's a very kind of an open conversation. And we tell them what we think, that what is likely to happen. And if you feel that the buyer is kind of way off the what we see in the market, we do not take those plans. Because in this case, when we are talking to a sell side company,
00:13:16
Speaker
There's no guarantee that the current buyer that we are suggesting for them is likely to close the transaction. So we don't want to also kill their relationships with the potential sellers even if you're not charging them, right? So we have to be very realistic with respect to and respectful to, you know, you don't have to go to somebody.
00:13:36
Speaker
who is perhaps expecting a $100 value as per the market. And we tell them that, hey, no, you're worth only $10. That is not how this should happen. So we educate the buyers. Some buyers are very mature. Some we have to educate. Most of them do listen. In fact, those who are not very experienced, they do ask us that, what is the
00:14:02
Speaker
you know, what is expected. Once in a while, we find cases where they're just very unrealistic and they seem very aggressive. And we tell them that, sorry, it's unlikely that this will work.
Data-Driven Sourcing & Team Dynamics
00:14:16
Speaker
Okay, got it. And what do you charge on success, your finders fees? So there are also, you know, some nuances there, but generally speaking around 1% of the transaction value.
00:14:31
Speaker
And how does it compare to what an investment bank charges? An investment bank would also do something similar, except they would do the whole nine yards of sourcing till closing. Correct. I'll qualify that. So the investment bankers generally, depending on the size and geography, it's 3% to 4%.
00:14:54
Speaker
if the transaction sizes are very large, it sometimes can go down to 2% and if they are too small, they can go as high as 5%. Now, with respect to what we do versus what investment bankers do, so what we do, we already talked about, we are best at sourcing the right targets.
00:15:16
Speaker
Investment bankers are generally not best at sourcing targets because most investment bankers, if I were to pick a number, I would say perhaps as large as 95% or more represent the sellers.
00:15:32
Speaker
So a banker representing let's say two or three sellers at a given point in time, those are the only targets they will take to as many buyers. Now on the buyer side also, it's generally where they know that such and such buyers have perhaps such need.
00:15:51
Speaker
or their analysts can do some Google searches. So it's not very methodical the way we do it through data, where we are scanning the entire universe. And we have our secret sources. We're spending a lot of effort in building both the demand side and the supply side. So we can do effective matchmaking.
00:16:11
Speaker
Now, you can't do that when you are purely working on relationships. The relationships will take you only so far. And today, especially in the tech domains, there are buyers and sellers all over the world, let alone your own city or your own small region.
00:16:32
Speaker
Okay. Okay. Understood. That's an interesting insight. So typically an investment banker is looking for buyers more often than not. And so they would use the networks and whatever to send feelers to multiple potential buyers. Correct. And you're mostly doing the reverse of helping buyers to find the right acquisition targets.
00:16:54
Speaker
Yeah, so we have done mostly the reverse so far, which is they, given a buyer, find the best targets to acquire. But now we are starting the reverse as well. And we see that as even a larger market. But we wanted to first solve the demand side of the problem. OK. And so you said 3 million companies in your database, right?
00:17:23
Speaker
So how did that get built? I'm assuming that would be like a key asset which you have built over the last four odd years. Yeah, so yes and no. Data is like the necessary ingredient. And to be honest, I think there are probably a number of players in the market who have similar kind of data.
00:17:50
Speaker
where our secret sauce is the building the modules, algorithms, mapping the clients, the buyer's requirements to what to look for in a sell side company. And second part is that there are data points which are not available on companies because these are all secondary data that we all are after, right? That's all we can pick up in the market.
00:18:15
Speaker
or from the internet. So how do you derive certain numbers or certain parameters which are not available online? So we build a lot of models to do that. And lastly, because we are a very discrete platform. So even when we show the targets to buyers, these are shown on a blind basis.
00:18:38
Speaker
So even after we have spoken with the sell side founder and they think that this opportunity is very interesting and we take them to the buyer, buyer still doesn't know who the seller is.
00:18:50
Speaker
They will see like this is the turnover. This is the areas in which they operate. These are the markets where they are operating. This is the employee headcount, things like that. Absolutely. So we call it a blind profile, right? So that's what they see. Only when they show serious interest that yes, now we want to get on a call with this company. That's when we tell both the parties who each other is, right? Which is your way of maintaining confidentiality.
00:19:19
Speaker
Absolutely. And because we do that, the sell side also tells us enough information about them because without that positioning them to the buyer is not optimal. Whereas you'll find there are plenty of other platforms out there in the market who have a lot more data than us from the number of companies. But it's a very general...
00:19:44
Speaker
Right, that there are traction, VCCI, TV inside, there are lots of platforms globally. But they are general purpose platforms, right? They're servicing lots of different needs and they are as good as public because anybody who subscribes to them can search through all of the company's data, right? We don't sell data. Even our own clients, when they have subscriptions, they cannot see any company on our platform.
00:20:08
Speaker
It's only what we want to show them. And that too, through a blind profile initially, and only when both parties are given a consent, then we share the name.
00:20:20
Speaker
Okay, interesting. Tell me the journey of building this. I'm still curious to learn how that 3 million companies database gets built. And while you are saying that it's easily available, but for an outsider, it sounds like a massive number.
00:20:40
Speaker
Yeah, so actually there are a lot of techniques to go and scrape data. And there are a lot of platforms that provide APIs. There are platforms where data is available, where you can go and give me some examples.
00:20:57
Speaker
like a zoom in for those kind of which sell the copy data to sales people. Absolutely. We have pulled from I think more than 60 different data sources. And in some cases, we even take paid subscription. But we are very clear that we'll never sell data.
00:21:17
Speaker
So, the data is very safe with us and even the sources from where we are taking the data, there is no threat to them because we are not competing with them. We are not packaging and selling this data. We are only deriving insights to get to an outcome which is for M&A.
00:21:36
Speaker
So besides these platforms which sell data, what are the other sources? Is there like a MCA, like these company filings? Correct. Those are available? Yes, but MCA is only in India.
00:21:55
Speaker
Most of the countries don't have an MCA equivalency. You can't just go and get company financials there. And for that matter, even MCA would have a slightly stale data because it's last year's audited numbers. So it won't have the current numbers.
00:22:13
Speaker
Every private limited company in India will have to file with MCA last year's audited data. So that data for India you can get from MCA. Absolutely. And there are some data providers who do a good job of aggregating data from MCA so we can subscribe to them and take it from there rather than we putting in an effort to duplicate that effort. Okay, got it. And for outside India, what do you do?
00:22:42
Speaker
So there are different platforms. And then they, like I said earlier, that certain parameters are not available. So for example, in certain markets, revenue number is not available. So we have built techniques to predict that number, basis certain other variables. So that's where. Like headcount or something like that. So I can't talk about that here. But there are a lot of others.
00:23:11
Speaker
Again, it's not just about one data point, the number of data points where we have tried to create proxies. Initially, it's about signal, which is looking at enough data points to get that signal that is this company-like effect.
00:23:36
Speaker
Once we determine that it's a likely fit, then we are likely to go and talk to that sell side founder and in which case we'll get a lot more recent and a lot more complete data. We don't show them a lot of noise. We do our diligence before we go to the buyer saying, hey, this is a very, very interesting fit for you.
00:23:59
Speaker
Okay, understood. So your team of analysts are essentially screening through your database to identify fits and then doing conversations with companies that are potentially fits and trying to get the additional data to qualify them or disqualify them as the case may be.
00:24:21
Speaker
So there are largely two kinds of people we have. One are the technologists who are building all this platform and building all the tools and the secret sauce to do all the screening. The second set of people are the very trained M&A analysts. It's not just searching through the platform. It is first mapping the buyer's requirements onto
00:24:49
Speaker
certain objectives and certain data points and the models. And then looking at the platform to see which are the companies that fit that. And then they are very trained to talk to the sell side founders. And like I tell all our stakeholders and especially our employees that this is not a banker talking to another partner.
00:25:16
Speaker
like the terms used in the banking and the legal world. This is almost like a founder talking to a founder. So you have to respect the founders who have built a company.
00:25:32
Speaker
and they may or may not want to sell it. They may or may not want to sell it right now. So you have to respect all that, right? And you have to then talk to them, identify what is it that they want to do. And if they do have interest in exploring, then we have to help them also position.
00:25:52
Speaker
both sides buyer and seller its positioning. In fact, we tell our buyer clients, this may be very interesting for you to hear that we need to sell you to the sellers. Why should seller founder who has spent the last four or five or 10 years building something, this is their baby, why should they sell it to you and then spend the next one, two or three years with you?
00:26:19
Speaker
Right. And just because you are a big company, sometimes it actually could be negative in their head. So we really have to, so these analysts, they really have to understand both sides really well and articulate the synergies and then get them together. They have to bridge the trust gap, basically. Correct. How do you build this team of analysts? Do you, is there specific
00:26:49
Speaker
hiring philosophy you're following? Is there a way in which you are making them go through some sort of a training process? Because this team is your revenue generation function is this team only, right? Because their success determines how much revenue you generate.
Scalability & Product Development
00:27:06
Speaker
Yeah, absolutely. That is extremely key. That is the, you know, that's what we are. So of course, technology is what we are, you know, standing on, but it's these analysts who make a shine. So I think in general, my philosophy has been all throughout my 30-odd year career. And I will talk about if you are interested in my journey. But I always look for hunger.
00:27:35
Speaker
that, you know, who's got the hunger to do this. And one of the things that I've been talking very, very, kind of, I'm very vocal in our all hands, which we do every Tuesdays, that every single person in the company has to be very well aligned with our vision.
00:27:57
Speaker
And we do only one thing, which is make the M&A happen, the sourcing. So every analyst has to be very, very aligned with that, has to be driven by that. We exist for that. So that hunger needs to be there that I'm going to do this. I'm going to find that needle in the haystack. And I'll make this an acquisition happen. And it's a great feeling. Yeah, hunger is...
00:28:27
Speaker
There's no shortage of people with hunger in India. That's not enough to build your team on. So capability plus hunger is still unique. You don't find it so much out there. What do you think we saw as capability?
00:28:51
Speaker
Okay. So capabilities side, you know, so a lot of these people have some sort of a finance background. Okay. Some of them come from engineering side or other disciplines as well, but they have shown their, you know, their hunger and interest in the finance side, the numbers. They should know how to read a balance sheet. Is that like, absolutely.
00:29:16
Speaker
Okay, absolutely. Right. Now, sometimes you'll find some, you know, so yeah, people who come from become an MBA or CA kind of background, they have that expertise. But we also have people who from other disciplines, and these are people who have shown their
00:29:33
Speaker
hunger by spending time in the looking at these companies or maybe even equity markets. And there's one kid in our team who was spending a lot of time looking at the Bitcoins. And so we don't do anything with that. But some of those things show us that they're not just telling that they are hungry about this domain, but they have made efforts outside of their core domain to learn things.
00:30:02
Speaker
Okay. Okay. Understood. So understanding of finance ability to read balance sheet plus hunger. Yes. And maybe like you would need persuasive communication skills also, right? That's true. And if I could judge empathy for entrepreneurs or founders, I think that would be my very important figure as well.
00:30:31
Speaker
Though, yeah, that's hard to judge. Yeah. And once they are hired, then how do you bring them up to speed? Retrain them. Okay.
00:30:40
Speaker
And they work in teams, so we are, you know, whether you like it or not, we are not a remote company. Every single person comes to office five days a week. And so we work in teams and so these people can learn from other people who have been doing this. All of them can come and talk to any one of us. I sit.
00:31:04
Speaker
with them, not in a separate cabin or anything. So we're all very accessible. So there's a lot of training. There's a lot of hand-holding. I myself talk to a lot of sell side founders to give them comfort, to answer a lot of their anxiety. A lot of founders are very anxious. They build a lot of anxiety. They don't know. This is the first time they're considering to sell. And what's your headcount now?
00:31:35
Speaker
So we're about 35 people. Okay. And what will you close this year at like revenue wise? What do you project? We should be hitting just about a million dollars. Okay. Okay. So your revenue per employee number is really high.
00:31:56
Speaker
like with 35 people. I think our goal is to be higher than that. In all honesty, I think a good kind of SaaS model kind of companies should get to at least $50,000 per employee. So we're hoping that by maybe summer of this year, we start to get close to that number. OK. Interesting.
00:32:25
Speaker
Why don't you remove the service element of it and make it more SaaS kind of a product because right now it's a very concierge service which you're offering to understand what they need and then do the connections and all.
00:32:46
Speaker
Would there be a bigger opportunity if you were to make it more of a product or is this a bigger opportunity of this concierge offering? No, absolutely. You're absolutely right. I think there's a huge, huge global market out there with both buy side and sell side. And so we are on to the product journey.
00:33:09
Speaker
But at the same time, I've always believed in that you really have to study the problem very, very well. It's almost like you have to do PhD in the problem, and then right solutions will ultimately merge. So we have taken a lot of effort in spending time with the buyers, sellers, the whole sourcing. And I think we understand it probably now better than most people.
00:33:35
Speaker
and that's how we can build the right product. The product is being built which in the past our team has used to service the clients. I think March and we will
00:33:50
Speaker
bring out the product offering where buyers will be able to do it completely on their own without necessarily engaging our team. And soon after that, we would do the reverse to the sell side companies. That's the only way to scale. And there is a very large, in fact, there are a number of buyers who have asked us in the last few months, and some of those you are not able to take because
00:34:16
Speaker
We did not have the completely self-service SaaS product. So that is in the works. Another month and a half, we will be in the market.
00:34:30
Speaker
I mean, one of the reasons why a buyer would come to you instead of attraction is probably you would have better data, right? Because you would talk to the founder and get the data. Whereas traction data is whatever is publicly available, like through filings, et cetera. If you were to make it a product, how would you cover that universe of three billion companies in terms of ensuring that you have that kind of quality data for all of them?
00:34:59
Speaker
Correct. So two ways. One is that on the product itself, there will be so much intelligence to find the very contextual kind of fit and also bringing out a lot of synergies between a pair, which is a given buyer and a given seller. This is not like one to thousands. It's one to one. The second part is that like I keep talking about the reverse, which is
00:35:26
Speaker
doing this for the cell side. And I believe, like I keep saying, that is even a larger opportunity. And through that, we will have a lot more cell side engaging with us. And that is what will make the data a lot more contextual than just picking up the secondary data.
00:35:46
Speaker
If companies start logging on and updating their profile, then that's the dream. I mean, that's the reason why someone would pay money to LinkedIn because the job seekers are updating their profile there. Correct. The reason we haven't done it and the reason I think this would be more unique in the market that will keep it extremely discreet.
00:36:10
Speaker
So and that's why it's taking longer to build and so keep it discrete yet get the enough signals from both sides to suggest to both parties that hey here are the best fit and that there is a likely interest here. So that solving that intent issue is very critical here.
00:36:32
Speaker
Okay. Okay. So it'll be like a company would get a notification that you have received one interest and if they also respond kind of like a dating app, like both parties swipe right. Only then the details are revealed that the communication starts. Okay.
00:36:50
Speaker
Absolutely interesting you say that in fact we have always looked at what we are doing closer to say a dating world but it was when I was speaking with you recently you brought out the recruitment side and said yeah that is also you know a very analogous to what we are doing. Interesting, interesting. How big is this market that you are building for?
00:37:14
Speaker
Market just gets bigger and bigger. So from our estimates, just the sourcing side of things, from a revenue numbers part of you, it's easily over $30 billion market, just the sourcing part.
00:37:30
Speaker
Okay. And think about it like if somebody is looking to spend 10, 20, $50 million in acquisitions, would they spend at least one or 2% of that to ensure that they get the best targets and get a lot many number of targets and much, much faster than they otherwise can? I think that's like an over-earner.
00:37:59
Speaker
The another thing is, I think there is a big myth in the industry that only large companies do acquisitions because that's what media covers.
00:38:10
Speaker
Would you believe if I were to tell you that out of the about 80 some clients that we have service so far, three are just series eight companies, but these are buyers. They are paying a subscription to find, you know, sell side companies to acquire. They are paying us to actively find them, right? It's not just a passive thing. So I think it's a very, very large market.
00:38:38
Speaker
venture-funded companies, bootstrap companies, public companies. And like I said, these five geographies I talked about, they're all looking at buying in India as well, in addition to doing their own geographies.
Market Shifts & Entrepreneurial Insights
00:38:53
Speaker
So this cross-border acquisitions, I think we're just scratching the surface. I think that's going to be huge.
00:39:02
Speaker
I guess traditional Indian businesses are not really, like M&A is not really like a very routine thing as much as it is for businesses in the West, right? Do you see that changing? That mindset? Absolutely. It's already changing and we have a client. In fact, I'll tell you the best examples are probably in the consumer world. Just yesterday being a Sunday, I spoke to the
00:39:30
Speaker
one of the founders of a masala company. It's a food company, they sell masala. And this is about, I think 600 crores revenue company. And in my notes, I think I have at least five areas they mentioned they are looking.
00:39:54
Speaker
and they can go up to 40 to 50 crores in one acquisition. These are as traditional, this is a third generation family business. It's no longer just the tech companies, global companies, I think just anybody and everybody
00:40:15
Speaker
You need to have a currency, you either need to have cash on the balance sheet or you need to be able to raise a reasonable amount of debt or your equity needs to be a currency that people are willing to take. So you need to have something to be able to make it attractive for the seller but otherwise I think it's a much, much larger market than most people think.
00:40:41
Speaker
What are the reasons for companies to acquire? What would make a company want to acquire? One obvious thing with cross-border M&A is you want to enter a new market. Besides that, what are the other reasons why companies acquire it? Yeah, so new geography, new vertical, expanding in your own value chain. Then getting into adjacent areas. A couple of years back, almost all the payment companies wanted to get into lending.
00:41:10
Speaker
So that's not in their own value chain, but in the adjacent areas.
00:41:16
Speaker
Right? So people want to acquire good teams or new capabilities. Like in IT services, they're always, yeah, so Equihire is there, but a lot of times capability acquisition is a lot more than Equihire. Like there are IT services companies willing to do 10, 20, $30 million acquisition just purely to acquire capabilities in a new area or to build a new practice.
00:41:45
Speaker
Sometimes it's to acquire a new segment of customers that I've been targeting only enterprise customers. Now I want to get into the next year customers or more SMB, but in the same domain. So there are lots of different reasons people acquire. But this is very, very good point Akshay. The M&A is not just about
00:42:10
Speaker
which company is looking in what geography it is, what is their motivation, right? If they want to acquire it for an adjacent area versus same value chain versus a new geography versus a good team, the lens that we are going to apply is completely different.
00:42:26
Speaker
And therefore, what we are going to look for in those companies is completely different. And that's what makes our platform very unique, that we are extremely contextual and lots of nuances of it. Understood. How did you discover this market of M&A? What is the reason why you are the founder of GrowthPal?
00:42:54
Speaker
Yeah. Yeah. So that is, uh, I feel very excited to talk about it. So, um, so I became an entrepreneur the first time in 1998, the, the whole internet was taking off. How old were you then?
00:43:10
Speaker
I was 27 years old. I was in the US. I had just gotten my green card and I was in the thick of internet world but in the financial services. You were working for Citibank at that time. I was working for Citibank. I set up the first internet gateway, the email gateway for Citibank globally in 1994.
00:43:33
Speaker
So I was in the middle of all the emerging technologies, all the new stuff. So I became an entrepreneur and then decided to sell it in about 10 years. What was it?
00:43:51
Speaker
It was actually very similar to what ADHAR is, or the UID. So this was in the Identity and Access Management domain, which is generally put in the cybersecurity as a larger domain. And so while I learned a lot while building that business. This was like what, say, an Okta does, like a secure sign-on. Absolutely. Absolutely. Absolutely.
00:44:16
Speaker
So interestingly, I built the industry's first single sign-on product at Citibank back in 1994-95. Why is this such a big deal? Like, you know, why is Optus such a big deal or why is single sign-on such a big deal? Just help me understand. So it's actually a lot more than single sign-on, but in the digital world, your identity is everything.
00:44:40
Speaker
Right? So to first ensuring that you say who you are, so to authenticating you, then to deciding what is it you can do. Right? And especially when you're doing a lot of transactions, it becomes extremely important. Like today, you can transfer. Like as individuals, we would transfer through UPI, 100 rupees, 1,000 rupees, 10,000 rupees.
00:45:06
Speaker
These corporates and banks, they transfer hundreds of millions of dollars in a fraction of a second just because somebody is claiming who they are and they have got the authorization or the access rights to do those things. So there's a lot of other things that go on there, but it is a big thing. It's going to become even bigger.
00:45:31
Speaker
But my learnings came actually when I was selling the company. So the good thing is that we got... This was a B2B SaaS kind of a play you were selling to other... Actually, it was not a SaaS. We did build a product, but then we had a product and services model.
00:45:55
Speaker
So most of the clients were on the services business model. There were few on the pure product business model.
00:46:04
Speaker
You would manage the sign-on and access control and authorization for your clients. Right. So when we sold, we had actually interestingly, we had five buyers who had made offers and they range from the services companies to the big four to the publicly listed product companies in the US.
00:46:30
Speaker
And that was a good part. The learning part for me was that I learned things that we thought would get us to maximize the value. What are the things which buyers were valuing on?
00:46:47
Speaker
Right. Give me an example. What do you mean by this? Yeah. So, you know, we had built a lot of IP. We had great logos and we had lots of great clients, but smaller revenue from all of those. Whereas most buyers valued us on EBITDA.
00:47:06
Speaker
Right. So that was a rude awakening that, okay, this is how the valuation happens. Right. And I bet I essentially your profit. So you were focused on high quality clients and high quality technology, but they were just looking at profit into certain multiples.
00:47:24
Speaker
Correct. Now they became interested in us because we were very IP driven and we had great clients. But when it came to the number, the valuation, there was less, very less weight given to those and more of the hardcore profitability. And so yeah, and had we known, so I had another partner Robert, had we known this
00:47:49
Speaker
even like 12 months before or 18 months before, we probably would have done things slightly differently and then would have optimized the outcome better. But this is a very common thing I hear from sell side founders that when they come to the table,
00:48:05
Speaker
what they're thinking the value should be is not how buyers are valuing. So understanding how buyers look at you. And I don't want to give your audience a wrong impression that you criticize everything. Again, I talked about the different lengths you apply depending on what the objective is and what type of targets you're looking at.
00:48:28
Speaker
Depending on that, you look at different ways to value. But you as a sell side company, what you're doing and understanding who you are likely to be attractive to and how they're going to value you is something that you should try and understand. It'll make your ultimately the outcome better.
00:48:50
Speaker
So anyway, so I sold that business in early 2008 and then I moved to India to Pune in 2009 and became a very active investor. So for about seven years, I was very, very active as an angel as well as a couple of big C's. But one of the things that kept hitting me was that where are the exits?
00:49:19
Speaker
Right. In those days, like 2010 through probably 15, the fundraise used to be extremely difficult, but more and more investors were jumping into the Indian ecosystem. And if the funding ecosystem was getting better and better, today, it's very thriving in India.
00:49:43
Speaker
However, the exit ecosystem was extremely weak or almost nonexistent.
00:49:50
Speaker
So 2015, I started experimenting with this. In those days, I was spending a good amount of time with IAM and Devats, their venture arm, which used to be called CIA. Now it's called IMA Ventures. Almost two years, I worked full-time with them. Was that like an incubator for student-run ventures?
00:50:16
Speaker
No, it wasn't for students. It was for the startups in the country. It was the largest incubator for startups in India. What does an incubator do? It gives you like office space and access to a certain suite of services in exchange for equity.
00:50:32
Speaker
Actually, in this case, it was not so much about giving space or taking equity. It was about providing the support system needed to, whether it's from finding your, getting your pitch ready and positioning in the market to helping you with your first fundraise. We used to have access to a lot of funds where we would write the first check.
00:50:57
Speaker
to even helping them finding co-founders, helping them with go-to-market. So there were a lot of things that, you know, that IMA Ventures provides. So we were doing all of that.
00:51:12
Speaker
I decided to do my first experiment with this company matchmaking and pick five large corporates here in Pune. And for each one of them, we picked up their objectives and found the right companies, got them, got some outcomes there. So that was my first conviction on that, yes. Which year was this, when you ran this experiment? 2015, one of five.
00:51:42
Speaker
And since then, I've been on this journey. So it's now almost getting nine years that I've been on this problem. Then I decided to also learn how does a buyer look at things, right? Because I had built a company, sold a company.
00:51:59
Speaker
invested in companies, been on the board of companies, and then sold them to other buyers. But I had never been on the buyer side. So I spent a year working with persistent systems on the M&A side to look at, OK, now being on the buy side, how do you source companies? How do you do the valuations? How do you pitch to the board?
00:52:24
Speaker
And it was very interesting that as an M&A team, how we are looking at the sell side targets, then when we go and talk to the business sponsor, how they look at it, then when we make a pitch to the CEO, how does the CEO look at it? And sometimes all of these parties are aligned and gung ho. But when you go and make a pitch to the board, board shuts it down.
00:52:49
Speaker
shoots it down, right? So that was great learning to know, you know, buy side is not like one person. It's number of stakeholders. And immediately after that, then I started Groupbell in early 2020. Persistent is an IT services company in Pune? That's right.
Sector Focus & Strategic Partnerships
00:53:08
Speaker
That's right. OK. So you were, which is why a lot of your examples were coming about IT services also. OK. Understood. OK.
00:53:18
Speaker
So what is, you know, you said that M&A is a 32 billion dollar opportunity. Though that's a bit like me saying that recruitment is a 40 billion market. And after that, there are so many players that there will be like payroll businesses and there will be like job portals and there will be agencies and there will be third party staffing businesses and so on and so forth. So what is the, how big can growth pile get?
00:53:49
Speaker
Like what do you have as like a five-year roadmap for you? Correct. So that's what my seed investor has asked me a few times. And so the five-year goal really is that can we build a product-led company?
00:54:06
Speaker
which can get us to $100 million revenue. That is the dream. That's what we're after. Now, obviously, it has to be in a large market. Otherwise, you can't get to those kind of numbers.
00:54:21
Speaker
And interesting that you mentioned about the IT services, actually today our focus is any tech product domain, so any SaaS company, any FinTech or any IT services. These are the three primary sectors and the fourth sector where we are also big is consumer. And consumer will be more selective, more kind of new age offerings, more
00:54:48
Speaker
people who are also going online and very marketing driven. But these are the... D2C businesses. D2C, we've had great success. If I just for one D2C client we did, we closed seven transactions in 15 months. That's kind of unheard of. Yeah.
00:55:06
Speaker
So this 100 million is also largely, we're saying that these four sectors is where we would keep focused, but we'll increase the geographies and the different size of customers. For example, there is huge demand in manufacturing as well, but we are not touching it at the moment.
00:55:26
Speaker
Okay. Who would your customer base be for when you're at 100 billion? Like, so right now it's 100% revenue from buyers. How would that change? I think it would be predominant, not predominant, but I would say it would be perhaps at least 50, if not maybe more like 60% from sellers because I think they need a lot more help and
00:55:55
Speaker
And there, it's not just about selling. See, selling is more of an evolution, but in my opinion, every company of any size should always look for strategic partners. And in my mind, definition of a strategic partner is that companies with whom you can go to market with.
00:56:14
Speaker
So generally speaking, they are larger than you who have more access to market than you. They are in geographies and in the type of clients where you want to get to, but you offer something which is complimentary to them and it makes them more competitive. Microsoft can open the eyes.
00:56:32
Speaker
Absolutely but if you are a very small startup out of India then those may be too large a company but then there are plenty of series B, series C, series D level companies who you could partner with where with your product if they can be more competitive in the market they will take you to market right.
00:56:52
Speaker
And you expand your market with that. In my experience in those 10 years during I was running my venture, I was there for 16 years, but my learnings in the venture world were more for the 10 years. I saw that almost 50% of the acquisitions happened by the strategic partner.
00:57:12
Speaker
because they already were working with you in the market. They saw how their customers looked at your product. They saw how their product integrated with yours. They became comfortable with you as a founder, your team. So it's very natural for them to, and if your product fits into their product roadmap, it's very natural for them to make an offer to you. And because the risk is lower for them, because they already know a lot of things about you.
00:57:42
Speaker
The chances are they making a higher or more attractive offer are higher, right? And again, this is something I don't see much in India. And I see a lot of founders keep chasing investors, but I don't see enough founders teasing strategic partners. And in some way, I think it has to do with that our market is not as mature.
00:58:09
Speaker
The larger companies are also not so actively looking for complementary partners. I think most people in India think they can do it on their own. Whereas more mature companies globally, from very beginning, they realize that they can't do everything on their own. And they start building this whole partner network and acquisitions is an outcome of a broader partner channels.
00:58:35
Speaker
So you would help companies to pitch themselves to larger companies for a small investment plus go-to-market access? Absolutely, absolutely. In fact, even today, some of our buyer customers, when we bring them the targets for either acquisition or strategic investment, not every one of those that they like, they are going to be actually able to make an investment or acquire. So then they explore partnerships with them.
00:59:03
Speaker
We do charge a partnership fee as well if they do close that. So that is also a very large market which can open up for us.
00:59:12
Speaker
Okay, interesting, interesting. And right now you're not selling to investment bankers, right? They would also be a good market for you because investment bankers are representing sellers, so they would want access to buyers. Absolutely. And what about PE funds? PE funds are essentially buying out businesses. Do you currently sell PE funds? So we started in the last six months.
00:59:41
Speaker
with both selling to investment bankers and private equity. It was more of, we just happened to run into some of these people and they showed a lot of interest. So we got three such clients as of today. And certainly private equity, we see a lot of demand and we'll start now more actively selling to them.
01:00:04
Speaker
Investment bankers, we see as clients, but we also see them as partners because we generally don't do the whole execution of the team. But they're the larger investment banks, they probably won't be excited with doing smaller size transactions, but the boutique bankers, we look for them as partners. The moment we have a buyer interested in a seller and even as early as thinking of considering an offer,
01:00:33
Speaker
We would like to get a banker involved if our buyer client is open to engaging them. If not, the seller should definitely consider engaging somebody. So in that sense, we are very complimentary with the investment bankers. We don't see them as competition.
01:00:55
Speaker
You become a go-to-market channel for boutique investment banks. Absolutely. And would you monetize this because you're bringing them revenues? We'll do revenue share because, again, if we're not getting involved in the transaction execution or negotiation, there's no conflict of interest for us.
Market Acceptance & Closing Remarks
01:01:14
Speaker
Right. Interesting. One last question I wanted to ask you. You said, where are the exits in the Indian ecosystem? Has that changed? Because recently, I've been reading a lot of news and speaking to a lot of people who are saying that, increasingly, foreign investors are pessimistic about India. And this I'm talking about the VC space.
01:01:41
Speaker
Yeah, early stage series A, B. There, increasingly, capital Indian family offices are replacing what used to happen with foreign investors and foreign VCs. So, you know, where do you see that going? Like the market for exits or the exit opportunities for founders, how is that evolving?
01:02:00
Speaker
I think on the acquisition side, it's the reverse. We are seeing so much demand from non-Indian companies to look in the Indian market, especially for tech world. So the SaaS companies and IT services, these two, we see huge, huge demand. Consumer, a lot less likely, it's more domestic to domestic.
01:02:26
Speaker
And even in FinTech, because FinTech is more regulated, we're seeing actually a lot of Indian companies looking for acquisitions in Southeast Asia and other markets. Outside companies looking to acquire in India are lesser as compared to SaaS and other domains. But SaaS and IT services, it's like exploding. Almost everybody we talk to, they want to look at India.
01:02:49
Speaker
Interesting. We are 100 million revenue stage. How much of that revenue will be India-based transactions? How much will be global? What do you estimate? I've not put a number to that. My guess is that that would be smaller. It would be perhaps in the 10 million kind of range. US would be the predominant.
01:03:17
Speaker
Do you have like a direct competitor, someone else who's doing this, like deal sourcing? So we are starting to see now, I don't want to call it, I want to be respectful and not call it noise. There are a few people I see as, if I can be bold and say noise, but I also see a few players starting to look at this seriously.
01:03:44
Speaker
I think in another probably by the end of calendar year 2024 I think we'll see more and more players doing this because I think clients are certainly now talking more openly that this is a need, sourcing is a challenge and so you know earlier there was again a myth okay if you have a cop dev then
01:04:07
Speaker
you don't need the sourcing engine. Today, probably 70% of our clients have a copy of function, and they are actively looking for augmenting themselves with sourcing. At least 50% of our clients subscribe to some data platform like Traction, ECCH, or whatever. And they haven't had success on the acquisition front. It may have served other purposes.
01:04:35
Speaker
So I think people are opening a lot more to this.
01:04:41
Speaker
Late 2020, early 21, when we first started selling, it used to take me a lot of time just to convince them why they even need this. And today it takes like three minutes to make a pitch and they are sold that yes, this is needed. Now let's get down to that, can we service their need and are they willing to pay what we're charging and structuring that, et cetera. So it's two years I've seen a big change. How much of your time do you spend selling?
01:05:12
Speaker
My personal time? Yes. So it used to be probably 30 to 40% at least earlier. Now it's probably down to about maybe 10%. I spend more time on product and talking to the sell side founders and at times even the buy side existing customers to learn what's working, what's not working.
01:05:42
Speaker
And that brings us to the end of this conversation. I want to ask you for a favor now. Did you like listening to the show? I'd love to hear your feedback about it. Do you have your own startup ideas? I'd love to hear them. Do you have questions for any of the guests that you heard about in the show? I'd love to get your questions and pass them on to the guests. Like to be at adatthepodium.in. That's adatthepodium.in.