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Building next-gen consumer brands | Prath Ventures
19 Plays5 months ago
The consumer landscape in India has dramatically evolved with the rise of e-commerce and a digital-savvy Gen Z cohort, shaping new consumer behaviors. Discover how Piyush transitioned from an Equity Research Analyst to founding Prath Ventures, an early-stage VC fund renowned for nurturing over 20 consumer brands, many of which have successfully gone public. Learn all about making informed investment decisions, understanding the nuances between PE and VC, identifying the right time for companies to go public, why private equity delivers exceptional returns, and crafting a rewarding career in the PE/VC industry.
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Transcript
Introduction and Career Beginnings
00:00:00
Speaker
Hi everyone, this is Piyush. I'm the founder and managing partner of BreathVentures, which is an early stage consumer fund.
00:00:19
Speaker
So Piyush, you are so from the same school as me and that's how we got connected. Tell me what you did once you were like passing out from MDI. Let's start your story from there. Yeah, so ah I spent ah most of my time at MDI thinking about my first finance job. i was oh so-called I had a finance career. I was the secretary of the finance club. I was teaching finance to most of my batch mates and the junior batch as well. I think at that point of time, private equity venture capital was very nascent.
00:00:59
Speaker
and banking was actually, even private banking was, ah was evolving and the names like ICICI and at that one time UTI and HDFC these were kind of big names and they used to come to campus and I think that was my dream job and then I came to know about First Global which was an equity research firm which was to come. It was the first year that they were coming to our campus and I set my sights on it. It was a very interesting campus. so ah You know how it is, campus. When I was so in the interview, I was told I've been selected by two other firms, and if you don't get this, don't convert. It was global, you have to come out and you have to choose one or the other two. And I was sure I didn't want the other two. And the interview was going well. I don't think it was going rocking, but i Shankar, who was the founder of First Global, I was sending shit inside and Shankar said, what is it? And I told him what it was, and I said, this is what I want to do.
00:01:52
Speaker
he said, you have the job. And that's how I find my first job at First Global. And ah so it is why I think first job at First Global, I think I could not have asked for a better start.
Career Transitions and Growth
00:02:04
Speaker
It was a great ah ground for learning the basics of expertise. Coincidentally, I started as a consumer analyst, and I'm now running a consumer fund. So yeah, in between did a lot of stuff. but What was ah First Global? It was a public market investor. But first of all, what was it stop working for? I was a research analyst there and my job was a consumer research analyst. As a research analyst, it was my job to cover the consumer sector and keep meeting those needs and give recommendations to investors.
00:02:40
Speaker
correct guard it okay okay okay That's how it started and I think I i had a lovely time there. The head of research used to be Devina who was so i meant the bug gold mela she was a tough taskmaster but learned a lot from them. A lot of basics of finance which I agree should be taught in b-schools or somewhere else was taught to me in the job. and the Through that, I think I spent about a year and a half there. First Global ran into some trouble at that point of time, and I had to kind of change jobs so immediately, and this was the time I got married as well. While First Global was not paying salaries for a few months, I moved to Ex-Im Bank of India. It was a very short stint, spending less than a year there. I think only one item is, this is not a cultural match for me.
00:03:29
Speaker
But again, I had a great time there. The executive director there, Sridhar, took a liking and he took me to projects that he was working on. It was does great working with them. Super learning early on in your career, ah working straight with the executive director and and there were three, four different bread projects he was working on. We would make sure that I was occupied to ah enough on those. want the then moved to ILFS. That's where I spent three, four years. And we were doing a bunch of stuff there. ILFS was on the financial services side. It used to be oh kind of
00:04:10
Speaker
an NBFC, which was lending, so we used to manage a book about 10,000 crores, we used to do investment banking for our clients, we used to raise equity for them, and also we used to do prop investing equity as well, so we did a lot of that. That's where he used to be the CEO of a natural services business. He was so starting up this fund, Tano Capital. and by then I had spent having raised equity for some of our clients. I was really enamored by the private equity board and he said I'm starting this private equity fund and they would you want to join? And I said yes. I don't think it took more than a few seconds for me to say yes and this was early 2006 and I spent most of my career there. I spent a good 17 years there and that's where I would say me as a professional got shaped and so
00:05:01
Speaker
So after that long journey of 17 years and we can go into it.
Tano Capital and Market Dynamics
00:05:05
Speaker
I have a couple of questions on the Tano capital. So whom did you raise funds from?
00:05:13
Speaker
So Tano Capital was oh actually the original founder was the champion called Chuck Johnson. He's from the family which owns Franklin Templeton worldwide and he was he was he had set up Tano Capital to do an alternate platform ah while there was a bit of family money on so that ah we also raised money from and from institutional investors mostly outside India. ah that so days from ah from us from europe and from ho kong region but but with i mean and We did two funds and both were family money the plus investors in the shop.
00:05:50
Speaker
And how much was the total amount raised? So we managed about $210 million dollars across two funds. all this This was $8 million. We are used to talking $1 million. dollars But yeah the funds the first one, $100 million, dollars was $400 in size. And in terms of what we got, deployable money. And the second fund, $110 million, was more than $600. So it was... so so we managed this money for
00:06:22
Speaker
but doesn't really do when i left we practically kind of done with that we had existed most of our investments just go to the achieve what what kind of coffee for you So it was quite very interesting I think 2006 actually there was so much of excitement around India and we feel that today there is excitement in students around India. It's nothing compared to what it was in 2006-07. India was believed to kind of really follow the China growth path. We believed most of the projections by
00:06:52
Speaker
leading economists or all equity research analysts were 8 to 10% GDP growth rates. And each sector was kind of showing on Excel sheets, linear growth rates going unbelievably high. So I think somewhere we got swayed by that. And first one was kind of all over the place. We did almost everything. We said, India, you're playing the India growth story. And hence that growth story plays across industrials, infrastructure, consumer, health care, natural services. And we did a bit of all of that. and not soon after 2006 2008 and 9 happened and ah there was our the bubble that got burst and especially around infra and industrials we saw a lot of pain in the portfolio some of the industrial companies did well but infra companies which had taken 30 40 40 percent of the capital of the fund
00:07:40
Speaker
did not return anything at all. The balance of the fund did well. or We were able to, in context 2006 was a bad venture because of these same reasons. People got excited and did investments all over the place, but the we returned to our kind of capital to our investors and on returns and I think that is something that took a lot of effort to do. Not something on an absolute basis you're proud of but when you see where your peers ended up with, this was a decent outcome. Also it was ah ah it was a huge learning for us as an investment team. So as an investment team when we had come together, we were a lot, of we were five of us, we were there, Chuck who was based out of the US and there were four of us here.
00:08:22
Speaker
And while we had all been around equities before he was the CEO of ILFS, he used to create ILFS private equity arm. We see private equity arm for seven, eight years as a CEO. But other than him, no one was a full time private equity professional. you And I think we made a lot of fus or first time foreign mistakes. And by the time we started thinking about our second fund, and I think market was kind of well really oh they give us an opportunity for the second fund despite us our second course did not do it, doing very well. And second fund was a very cohesive strategy of saying that, okay, ah where is it that oh markets are ready for institutional money? Because opportunities can be there across and opportunities are both cyclical and structural. Where is the India structural opportunity? Where does it lie? And which pockets of those are ready for institutional money? And we decided three broad sectors, consumer financial services and healthcare pharma.
Investment Strategies and Comparisons
00:09:21
Speaker
And we wrote out the thesis around these three and 95% of the fund got deployed across these three sectors. And just, I think that, and because I think we learned from a lot of our mistakes from our first fund, second fund did far better and we had successes across all of these sectors. And so, private equity means you would have a significant stake, even a majority ownership, and you would be operationally hands-on in making sure that the business is delivering outcome.
00:09:56
Speaker
so actually ah Several questions here, let me take first is so substantial stakes. Yes, almost everywhere we had stakes ranging from 15 to 30%. So by virtue of that, ah they we would be having a lot of rights. And these were substantial stakes. So promoters would respect you. A lot of it would not just be driven by what your rights were. It was a natural respect. Somebody owning 25, 30% of your company oh would kind of get that. ah We did not do majority transactions. I think we had it. The highest stake was about 40% plus in the company. We were not majority investors, but at the same time, you're very appreciably handled.
00:10:36
Speaker
So I think that's where I i personally learned the most. From very early on, I started getting involved in the companies and it truly helped. I think Dynamo as a platform allowed me do to really come into my own in this way. the more I got involved in the operations of the company and their strategies and getting involved not just on a very strategic level but our operating level to try and understand what works, what doesn't work. There were certain areas over a period of time where we started working very deeply with them and our ability to understand what works, what doesn't work and hence our investment thesis, our selection also improved a lot with that.
00:11:15
Speaker
Right from first fund, there were several companies, that and there was a company which we had invested in, which made acquisition monthly, which was where 90% of the capital total deployed was in that company in Italy. and I started traveling to Italy very often. It used to be a very alternate month. and oh it was There was so much to learn. They've had a four people management team. This was a company of about 30 odd million euros size and four management and rest was not management stuff. There was a one man one person financing.
00:11:50
Speaker
but they ah we use We always think about Europeans as someone who do not work hard and they would work only from that 930 to 601. They could not be called, they could not be told anything but they were so efficient during that period. ah I and just the respect for that efficiency of what they brought to the table and learning from those as to what what is it that we do. We we as Indians provide ourselves working 16 hours, 18 hours a day and still we you see you have 10 people in the department and the output is not something to be proud of. So that so the learning journey of being operate operationally involved in modern companies started very early for me and that really shaped me as an investor. I started
00:12:35
Speaker
So a lot of those companies where, let's say, when I started out, when I joined Hickel and called them in that journey, I was a junior. So you you could call me an associate, manager, whatever. I was the junior person on that. But by the time Fun2 had happened, I was leading deals. I was partner on that thing. I was was getting on board, even as the junior person, which allowed me to kind of start developing those relationships with founders. and over a period of time. Really, I think that's something that I enjoyed doing the most. ah Some of these journeys have been phenomenal, being part of a company when you when you invest in that and you see it do well, then you exit, and then it continues to do well. The joy of that, I think, is something that that makes or defines you as an investor.
00:13:19
Speaker
Okay, what is the difference between a PE and a VC? Because VC is also often owned between 15 to 30% stake what you were owning as a PE. oh What is the difference here? Sure, so I'll tell you the difference between PE and n VC and also maybe later we'll bring in how Prather is different because we think you're slightly different from what a PE does and what a VC does as well while we are a early stage VC fund. So a private equity equityy fund ah is so ah something which invests larger larger um amounts of money in slightly mature companies.
00:13:54
Speaker
So you are building a portfolio of companies, you are providing growth capital or you could also be doing ah buyout deals and hence owning large stakes of the company but you are actually investing growth capital. Everything is very well said, you come across a company which has reached let's say 100 to 500 crores in size, profitable, growing and there are identified levels of growth. and you invest behind that. so So the underlying thesis is that almost all your companies will do well. It is a matter of how much, so they would you would have underwritten at the time of ah investment 25 to 30% kind of returns in each of those companies. Some of them will deliver 5 to 10%, some of them might overdeliver and go beyond that 30%.
00:14:39
Speaker
but usually you will not see that ah those companies become zero. That's the core thesis of private equity. Having said that, mostly if you see private equity funds also, their returns still seem to be slightly concentrated, not very concentrated, but or let's say they have a portfolio of 10 companies that are four to five will be delivering it a percent of the return. While you will not have a lot of them become zero, but if the fund is delivering five X or or four X or five X, then 80% of that would have come from or four or five companies to play the side of the portfolio. Whereas a venture capital is very different in nature. The venture capital is investing in or young companies. They could be large in size, but these are newer. These are bet on evolving markets or evolving technologies. And hence, per se, that is a high risk. oh The bet on companies becoming very large.
00:15:35
Speaker
ah so if if somebody or So early stage investors, when e-commerce started, somebody invested in Flipkart. And there is not much to see around you. There is a belief that there is e-commerce which has happened in different parts of the world. And e-commerce solves for India like nothing else has solved. Organized retail for India was not as big as solved. That's why it never became very large. Whereas e-commerce solves a lot of issues which are inherent in India, related between Fry and others. And hence, you are taking that call coming in very early. and hence you build a portfolio of these oh ah these companies a lot of them will not do very well because by its very nature a lot of them will take those risks which will not rectify but the ones which do will be will be huge will have
00:16:18
Speaker
a lot of those, a lot of venture funds will have 100x in that portfolio in and hence the way the portfolio stacks up is very different. The kind of risk that take is very different. ah Eventually, I think both of both are underwriting to deliver returns of about 4x or 5x or at the fund level. Basically, finding founders who are great, I think India and as a market is a lot founder driven. You need to find the right guys, they are running the businesses. It's um it's far more difficult to run businesses in India. And hence those buyouts while it started to happen, it's still very early. So mostly you're backing the right founders and taking a call on markets. These are the two broad things that investors are doing, which is being done by both P and VC guys. Just different disc appetites and hence the return profiles are a little different.
00:17:11
Speaker
Okay, I understood. PE typically is not looking at a 100x return ah because the business is already mature. Yes. While going in, it's not ah you can't see a 100x return, but you do get 100x. It might not happen, also it does not happen in your timeframes, but outcomes of companies, there are lot of PE funded companies which have delivered 100x from the date of entry of the private equity fund. but Because these are mature companies, they will become 100x over a period of time, which will be longer than the lifetime of the
Insights on Successful Investments
00:17:44
Speaker
fund. So one such case for us was Safari Industries. Safari was an investment by Tano. It's a very interesting story. For us as a fund, ah we had spent time on another ah brand in the travel space, and we really liked that, and we wanted to do that deal. Then we lost the deal to a peer who was willing to pay more than 2x evaluation.
00:18:06
Speaker
So we had done a lot of work, we we had an investment thesis which was ready but unfortunately nobody was taking our money and then on rebound we met Sudhir who had just or acquired Safai and I think we were so happy that the other deal did not happen because instantly we loved him. ah so did so ah had acquired Safari as a brand, but before that he was the professional CEO of VIP. He had spent 25 years already in a good space. He had a great aristocrat and then VIP and created a lot of value for shareholders. ah so And also made a lot of money for himself personally. And then he got a chance to acquire a brand which was Stagnant. So Safari before he acquired it was completely Stagnant for
00:18:48
Speaker
years. It was listed for some strange reason when then. ah It was 60, 70 crores every year for the previous decade. And he acquired it within a year. oh When we're talking to him within a year, you're taking the 60 crores, 150 crores. He was working that magical. Understanding the space, attacking the low, hanging fruits, and he was doing that. And we thought that there was no one in India who understood the space better than him. He was a great founder. and we backed him and we came in when the business was 150 crores in size. ah We came in at a 200 crore valuation and that business is more than 10,000 crores in valuation of now. It's grown phenomenally and it's been less than a decade. It's grown phenomenally. It is 1300 crores in sales, 170 crore in Pat in the last three and 12 months. So something that you and Tano obviously kept on
00:19:41
Speaker
Exiting through this period being a private equity fund and we completely exited also two and a half years back Several other investors came on board made money for me personally. ah I was very closely in involved with Sudhir It's now I think nine years that I've been on the board of the company ah big I saw as close as possible how to build a consumer business in India Because what he bought was just a brand and sale and super brand which had existed for 40 years. But there was hardly anything in the company. No people, products were oh completely irrelevant. Maybe it was in the 90s relevance of products. Distribution channels were not very developed, supply chain was irrelevant. All of that got done.
00:20:20
Speaker
and not got done at one go because when you're at 150 crores you prepare for the next ah growth of 2x to 2.5x from there and then you keep on building from there. So it's been, and while all of this was happening, there was a lot which was happening in the in the category, the consumer revolution that was happening. So it was a phenomenal journey. I continue to be on the board there now as an independent director, despite our professional association getting on over long back. But I think these are the stories which kind of make you believe in the India consumer story even more. And I think there are many more of these that are likely to happen.
00:20:57
Speaker
Okay, interesting. You said that your experience of being hands-on operationally, we he says it taught you what works, what doesn't work and therefore making better investment decisions. ah So can you share what you are understood about what works in India, what doesn't work? housevis back so i I think eventually what we are taking a call on is a market ah that that is there is an addressable market in India ah which would grow at a certain percentage. And then we are taking a call on a team to say that is there a way that this team can not just grow at the market base but outshine that growth and take a larger share of that market.
00:21:43
Speaker
And to be able to do that, I think oh team founding team is the most important. So in private equity world, it was a team, and we see it's mostly just the founders, at least the state where we are coming at, at Prat, it's just the two or three founders were there. And ah while there is a team, that's not really what you can take a call on. oh but in private equity stages, you are able to take, you have CXOs, you will have five or seven people that you can see beyond beyond the promoter and the right word for private equity world is promoter or founder. So yeah so you would ah ah so you and but you have to assess the team's capability to be able to
00:22:26
Speaker
to be able to deliver what they what they're saying. and it oh What we saw, at least for private equity, was that newer for private equity to take a call on markets, new markets, like really merging, was more difficult than taking a share of a larger market because of just ah Getting the timing right on when the new market will see the J curve happen, when that adoption will happen at the consumer level is always very difficult to do. And you might not be able to kind of do that in in your timeframe. So we had an investor in the company, in a smart card.
00:23:03
Speaker
ah printing company in 2008 and while at that point of time it was fairly obvious that's that's where the market will go to oh card so it was a play on several things on the way the market was going from moving to plastic printing from from paper and the all all the cards that we using from but converting from dumb cards to becoming smart cards and But it didn't happen in the time frame that one is expected, that is expected by a private equity fund. And hence, a huge impact. A smart card, you mean like a card with RFID? With a chip, yes. Which it could happen. Yeah, this was 2008. This is still... Unlock a door or something like that. Okay. Correct. Or for payments, right? Oh, I see. Okay. So earlier we used to have magnetic stripe based cards mostly. And then you had chip based cards and cards started getting more and more smarter.
00:23:57
Speaker
okay okay okay and so Sorry, yeah, ah to to finish your story about this business. Right. So because of us being too early ah in that, it was not a great outcome for us, whereas the technology is fairly what we see today. There are several guys who have more than $100 million dollar businesses doing that doing that same business which we had invested in. but A lot of that growth came 2015 and beyond and it truly kind of picked up pace after that. And hence, private equity is you are basically taking a large addressable market and your ah you are saying that this is a team which can deliver. And your assessment on those on the skill sets which matter in terms of each category is different, each industry is different. You try to assess
00:24:48
Speaker
what are the skill sets which are really important to build in this industry and that's what you do as a investor in both whether it's a private equity or venture.
Evaluating Founders' Traits
00:24:59
Speaker
In venture just because you are taking more bets on early you are able to play both the new emerging trends as well because If you are going to take 30 beds or 50 beds in those early merging technologies, some of them will emerge faster than the others and will deliver those results. What clearly matters is the quality of the team. We actually, over a period of time, started putting a framework to it as to how do you evaluate. It's difficult to kind of
00:25:30
Speaker
oh practice it on a daily basis. But what we do is that when you're reviewing companies and you're trying to be inculcate as a system at Pratasway, that you can't come back and say that the founder was good. because people, the analysts or the associate will go and meet somebody and they'll say, it was a great fund. Your grade is different from my grade. What you understand is, so we've put down ah lots of trades, personality trades or things that we think are important in terms of developing the business ah and said, okay, but if you're going to say good, you have to say on these some of these parameters. It's not that
00:26:09
Speaker
You use all 40 parameters to evaluate everybody. But if somebody's good, he's good because he's demonstrating some of these over-index on some of these parameters. And so you say, no, he was not up to it. Why was he, where was he lacking in this? So all of that is happening because of the years that we are spending meeting these companies and seeing how these founders have turned out, how those stories have turned out. My life, I've made more than 4,000 promoters, founders, and it's something that ah truly builds intuitive understanding i oh of a person and saying that, okay, I believe that this is a person who we believe can do it. But we have gone beyond saying that it's not just the intuitive or the gut that we're relying on. ah We put that down in a framework and evaluate that and say that, okay, this is a founder that is worth battle because it demonstrates these personality traits.
00:27:00
Speaker
what What are the traits? What what are are the factors in that framework? It might be proprietary, but you could give us a hint. There is a lot which goes into it. So it's not one or two. And like I said, it's not a checklist of things in terms of people need to have everything. But this is kind of just works as or as something which helps us as a guidance as to, okay, is this something so something that we really look for, let's say in prat because we are investing in consumer companies, is ah consumer orientation, putting consumer first in your in your thinking. just Is there an understanding of what consumer need are you solving? And hence, why why do people buy your product and your reason to exist?
00:27:46
Speaker
So while it's so basic, but we see a lot of the laura the founders being so focused on just every day, this channel and my product, just putting consumer first is something that that we see daily, but we think it's a great trait in founders. passion for the category. It's very difficult being a founder. It's every day is ups and downs. If you're not passionate about the category, your reason to exist in the category has to be very clear. Why are you building in that category? Which drives the passion in that? So without that, I think it would be very difficult for people to sustain for long periods of time.
00:28:25
Speaker
you will be able to get somewhere but then you will call into question why are we why are you doing this because it's today at least last year has not been easy being an early stage founder. oh Resilience, growth mindset, oh approach of partnership. And this is not just approach of partnership with, let's say, us, which we want to kind of have with them. But approach of partnership is to be everything. How do they approach team building? Do they the approach team is as part of somebody that they're growing and somebody will become oh um their shareholders in the long term? Are they OK to kind of ah do they think about ESOPs? Are they ah thinking about wealth creation for people who have joined them early?
00:29:07
Speaker
oh domain knowledge, how how do they think about that category because I think what is underappreciated most for a lot of founders and also investors is each category is so different from the other. And people hear about growth stories, people get inspired by growth stories and try to replicate in a different category. And just doesn't work because what works in each category, the consumers, why you consume in category, why we buy bread versus why we price buy, uh, let's say a fan or why we buy a travel good or why, uh, or a car.
00:29:42
Speaker
so what goes into the decision making is so different and replicating of one versus the other is just does not. So there has to be a clear domain knowledge ah which is demonstrated is do they come with some bit of grind in the past. So this is also something I think is different for for us versus what we see in a lot of others because we are not you're not in the business of backing tech entrepreneurs. Pandiva businesses are very different from tech businesses alone and tech businesses get, so your profile in terms of education, IITs will get funded right out of college. They demonstrate a lot of those skills which are required for maybe building tech businesses. Whereas, Pandiva businesses needs
00:30:31
Speaker
if you have not worked and understood what it means to build a brand and it could be maybe you were you you were a founder and you have you've had a few journey as founders or you worked in a company and ah you have in some consumer product category which has prepared you for this but unlike if you've not done that I think people underestimate but to the challenges of building distribution, whether it's online or offline, building a brand. It's not just just getting a product ready and going to the market. And because your product is superior, just superior product just doesn't cut it. There is just so much more that needs to be done. So I could go on. There are so many things which go into this strategic thinking ah while we are not investing in tech businesses, but they need to be tech savvy today.
00:31:18
Speaker
businesses are being built digital, right? So you need to be savvy enough. You need to understand all the tools, not just understand, but know it better than your peers, how to use those tools to develop the business. So yeah, there is, like because it it's a lot of things which go into it, but Some of them are just over indexed on one so much that you just feel that, uh, just this will take them there because a lot of the other things can either be hired for, or you can, uh, most of the cases we have co-founders. So co-founders also, it's so important to understand that it can't be just there together, just for economic per se. There has to be chemistry. There has to be history between them. There has to be a common shared passion for the category and some bit of complimentary skill sets.
Founding Prat and Strategic Approach
00:32:07
Speaker
I think complementary skill sets is is important, but sometimes we see both of them kind of having similar skill sets, but just kind of chemistry and shared passion for the category kind of takes them there. But if if there are more than one people, I think their ability to kind of do the various things which are required, oh initially just product channel, ah consumer focus, and thinking on the brand broad vision, what are you solving?
00:32:32
Speaker
I think most of the people can fail to answer this question as to why do people buy their products? What is their reason to exist? Forget about the right to win. ah Reason to exist is something that is very important that people should know. so okay okay interesting interesting so pat You know, as a PE guy who's starting a VC fund, ah is I mean, it's not something which I've seen very often. Like, I've seen the reverse of a VC yeah in getting into the PE space. So what would you want to do a like a VC fund next?
00:33:08
Speaker
but Winding down. yeah So like I was saying, I would want to make a distinction here that Prat is not a typical VC fund. And let me take you through the journey of setting up Prat. So we decided in early 2022 at Tano that we will not do a subsequent fund. And I think of everything that I did at Tano, I genuinely enjoyed my journeys of ah building the consumer processes. ah seeing what really could be done, what kind of outcomes were possible. And I had also started doing a bit of early stage investing personally and mostly all in the consumer space. Whether I was lucky or the time I was right, I was seeing phenomenal traction there as well. And validation of what I was doing through institutional investors coming in, in each of those as companies and kind of going down the right path. So in addition to what my personal experiences were,
00:34:04
Speaker
As an investor you are continuously seeing evolving trends and I saw a change which was happening in India which happens I believe in the evolution of all economies and India was just going through that. I think we are entering the golden era of our economic growth and we have possibly already entered and we are somewhere within that and the next 20 years, 25 years are going to be great for India. or economic growth-wise and consumption-wise. India is a consumption-driven economy today where we are at a per capita of somewhere around two and a half thousand. Over the next 20 years, it's going to be $10,000 plus. And with the disparity, which is said that two and a half thousand today also, there are pockets and you can get into those details that India won, India too, India three-story. The India won clearly is north of $10,000 in per capita income. And all of these, if they quadruple over the next 20 years,
00:34:58
Speaker
As per capita income grows beyond this, a lot of that goes in discretionary spends. Today, of the overall consumer market, 30% is only discretionary spends. As this grows, the opportunity for every discretionary category is humongous. Still, we are at penetration levels in a lot of durables, which is negligible. I think ACs, we are at 5% penetration. it whereas I think China is already at 80% plus. So there is just a long way to go across categories for us in India. Then there was the two, three different modes which were there. So we had seen it was very difficult. So while we had successes in consumer businesses, ah it was very difficult to create consumer business in India. And it was issues were both on the supply and the demand side.
00:35:48
Speaker
ah Supply side, the only way to do it was to kind of have pan-india tradition. The traditional distribution, the general trade, and that was pan-india network creating was jobs of decades. Not something that you could achieve in a few years and hence to build a brand would take decades and kind of just getting that presence. That's why local brands were more regional brands. They would be able to cover a particular state or a particular region and they would kind of grow over there and reach a particular ah size and then be difficult to kind of grow beyond that. And then there was this the taste changing India is such a heterogeneous country, taste change at 300 kilometers. So how do you kind of be be able to provide that in a physical world where you need inventing those spaces, be able to provide that heterogeneity of ah taste and design that you need to provide to people.
00:36:44
Speaker
and Then ah on the demand side, I think India, can and when I was at MBA, we're talking about MBA at the beginning, we used to read about India middle class, 300 million people. I think it was just in the ah strategy books. India middle class at that point of time would have been at best a 20 million or a 30 million now, which was the consuming, which had discretionary spending power. okay see Income and when when does not mean... Discretionary spend is like anything beyond roti kapra mukhand goes into. Absolutely. Absolutely. Discretionary. Okay. Yes. so ah
00:37:23
Speaker
so just having some level of income and we compared with purchasing power parity and that we are purchasing power parity wise we have so much. You need to have money to be able to spend on your wants not just needs and that was I think so small and that was changing. Then digital happened and digital happened which changed the supply side. You did not need oh to be present everywhere physically because you could just list on Amazon and in a minute you are available to pan in here. So that was a big disruptive recording to me. Then on the demand side, changes happened dramatically over the last 20 years. look And it was not just the income impact. I think there is a lot of generational impact also.
00:38:12
Speaker
people who have people who in their 40s today have heard growing up stories about their fathers and grandfathers having seen like real difficulties in poverty in life, right? ah A lot of people in the 40s will have rags to riches stories. People have grown up and have had lower middle class backgrounds and grown up. Whereas today's Gen Z is kind of, a lot of their economic needs are taken care of, right? And hence, the the way they think about the luncheon, the way they think about spending is very different. the So that in addition to the income, this entire change in mindset of the young ah consumer kind of entry.
00:38:51
Speaker
there is the impact of social media. I was pre pre-internet like I think first real exposure to an internet has started happening in my college days when I was at say this but today's kids are born in social media right they're exposed to everything the best products and services available in the world. So the aspirations are that much higher, willingness to spend is higher. So this phenomenal change which was happening on both demand and supply side, I think was really exciting to me. And I thought while the early successes which had started too much, So this was 22. So obviously the first wave of internet driven consumer brands had already gone past 500 crores and top line. And you had to see those success stories. But my belief, true belief is there'll be more than 500 brands in India, which will do more than 500 crores in business. And it has to happen today.
00:39:50
Speaker
I grew up in a country which was brand staffed. We are not brand staffed anymore. But today the needs of the consumer, every consumer wants brands which are personalized to them. they They're getting influenced. So another big change was the ATL versus today's the way to create a brand. The only way to create a brand ah in terms of creating mass awareness what to do was to do mass media advertising. Today mass media advertising in a way is dead. you it is You do not need to do mass mass media advertising but the relevance of that to a very large extent is gone away. You do digital performance ads, you do influencer marketing and you're able to reach to your right audience. People who are looking for your product, people who resonate with what you're building. So many changes which were kind of being driven and I was very sure that I wanted to be part of this journey.
00:40:43
Speaker
it And my the success of the early stage en investing that you were seeing, the excitement of early stage investing as well, I think that journey. So in a way, while you were doing later stage investing, a lot of our successes like Safari was 150 crores in size, 200 crores market cap when we came in. Another large success for us at Tano was the Good Clam group where we came in at the business plan stage. We've given him, so it was not our usual style of investing, but business plan stage investing. Shilpa, I told you, was 70 crore in market cap. These were not very large businesses, neither in terms of their size, nor in the enterprise value. And you were taking a call on that market and founder, which is what we do, I'd rather survive. So, 2022, when we started kind of, ah when we decided, no, no and we learned to do a third fund, and I so i was scared that I wanted to build income, so I started talking to a lot of my friends around me.
00:41:34
Speaker
I knew that I wanted to do it with someone that I had known for a long time, somebody who understands investing, who I respect as an investor. So I spoke to these few people around me who had been doing this and oh ah while I spoke with maybe three, four people at length, but so I think My discussion are and right from the beginning ah hardman news by parklin was think we had known each other for a decade. He had had a very similar journey like mine and he was so he he had already exited from multiples. He was at multiples for 10, 11 years before that with ICIC Adventures. We used to lead consumer, consumer deck at multiples. And the reason why he had left multiples was exactly the same. He wanted to invest in early stage.
00:42:20
Speaker
and he was even more prolific investor than me in the early stage. You've done far many more early stage, 21 investments. They were shipping up very well. And so I just felt that there is there was a shared passion for for consumer, for early stage investing. There was this inherent trust that was there and I think that's that's something that is very important in the partnership. And thirdly, I think there was this thing where I felt there is a stage of life which is genuine.
00:42:52
Speaker
There was, it's relevant because I see in founders as well, companies are quite evaluating and was also true for some of the discussion that were happening. Some of the other guys were there. They were not at that stage of life where I felt that they could, they could give it all there, all that they had. So I feel that it's either in your twenties or you know, forties that said thirties, you're kind of busy family building family and all of that it's. why That's your prime period, but it's also a period when then ah you get distracted by ah either you've got an iron, you've got young kids. can't do that 120%, going beyond, because setting up anything, we are founders, we think of ourselves as entrepreneurs. And oh if if we do not go beyond what is required, if we do not have that passion to really drive excellence, then it's just not going to happen.
00:43:46
Speaker
and hence all of these things just stacked up and it was very clear to us that we will build a firm which is a consumer fund. Today we are at a stage because of the size we are investing typically a million dollars in each company and hence these are companies at let's say from 2.5-30 lakhs, 40 lakhs monthly revenues, 2-3-4 crores monthly revenues. And by virtue of that, they're raising, let's say, anywhere between one to three million dollars for the next level of growth. These get market defined by a C, three cities a or cities a. That's the data that we work in. But we do not want to categorize us as any of that. We see ourselves as people who are helping
00:44:34
Speaker
great founders build phenomenal brands. And we're coming in at early stage of the journey. We understand this journey. Having done this ah between us, we have bought 40 years class of experience and ah we have been part of 20 plus consumer brand journeys and not just from zero to 10 or 10 to 100. Several of those companies have gone public. Several of those have created phenomenal value, 8,000, 10,000 crores in market caps and valuations. So we find that we we'll be able to bring to the table what a lot of our peers were not doing. Then another thing interesting which was happening, which was ah which is what led to our name Prat. 2021 was a strange period, right? There was excitement beyond the imagination in the east stage.
00:45:22
Speaker
and a lot of the tier 1 and the larger VC ecosystem got really excited about the India consumer opportunity. A lot of money started going into consumer brands, consumer businesses. and oh Unfortunately, that's that was not the right match because the new brands don't follow the tech journey. They will not have that 10X growth year on year for a few years. They they need to be built, nurtured in a very different manner. You can't expect that, okay, now now we have PMF, now let's just put capital and it will grow 10X every year. That's this' just the wrong approach. And oh because
00:46:01
Speaker
Because of that frenzy, the valuations which started kind of ah getting ah for consumer brands, I listed companies are trading at a fraction of those valuations, even sales multiple. Obviously there was no earnings to compare with and that created a lot of ah bad blood in the market. These companies which got funded, they they were taking down a path which sometimes even those founders knew that this was not the right path that we are taking down. But it was growth at all costs. We have all heard that. But it was actually being practiced. We have seen that. We have seen so many companies which are trying to do down round now and really struggling because how do you explain the last three years, five years where it's been
00:46:41
Speaker
just you forgot about the fact that you were doing Christmas. We just wanted to chase one number and that sales number also gets defined in different different people, right? Somebody is talking about GMV. Somebody is talking about gross before it turns after it turns before tax after that is just crazy. so But So we said, okay, in this madness, we want to come in and we want to stand for what we have always done. Money is deployed to make money. right Everything else is ancillary. We want to have values, which we bring to the table. We want to do a lot of that, but money is not invested for kind of four more. A lot of people around us was just not investing. Only people who are feeling left out, right? Something was happening. Social parties are all discussion about early stage investment. So.
00:47:25
Speaker
So we said prat, prat is a Sanskrit word which means value creation. Also the core word for pratam. So we said as a first institutional investor with a focus on value creation and value creation, when you create value, well you create value for everybody, right? Those companies will create value, we will benefit, our investors will benefit. So I think a lot of this was kind of just fitting in and which led to prat get informed. You said Prath is not a PE and not a VC either. What did you mean by that? yeah so I think some of this I alluded to it though while talking about what was happening. so ah so like A typical VC model is where we are saying that a lot of checks, you will have several VC funds doing 40, 50 checks where
00:48:15
Speaker
The idea is the cost of missing out on a greater opportunity is much higher than making a wrong investment. right ah Private equity is the exact opposite. You want to be absolutely sure about what you are doing. you you would basically There is a lot of rigor in your approach, in your analysis, in your thesis writing. and this and ah Basically, you are trying to find just those mature companies where almost everything is right. And you're just playing for that 25% kind of growth from there, you're on your to deliver returns for you. Whereas we believe what we are doing is kind of marrying both of both of those. We are building a concentrated portfolio. We believe consumer companies don't go bust if they run ah half decently. They have no reason to go bust. You follow if there is a product which is accepted and mostly we are not coming to create a revenue state. So there is some bit of product acceptance that one can see and we can talk about more what that means, but there is some bit of product acceptance and you're backing a founder to understand what it takes to grow from there. oh You basically keep on building levers from there. So you will take some share of the market.
00:49:28
Speaker
it If you do very well, it will be a meaningful share. You will become relevant in the category. If you dont don't do very well, it will be a smaller share. But it's not that you'll become zero, like what will happen and could happen. A lot of tech companies. And hence what our portfolio will deliver, we would believe is a 70-80% of them delivering returns to us. We might see concentration similar to private equity where 40-50% will deliver most of the returns, but 70-80% will don't contribute to returns. Unlike a VC portfolio, we are and because it's a concentrated portfolio, we are very vigorously involved with each of our companies. We are not
00:50:09
Speaker
oh investing in them, and then if that works out, then you kind of bring that together, which is if you have that kind of portfolio, basically give money to people and say that see how it's going to span out and then oh greeninests and kind of reinvest when things start falling in place. Whereas as a consumer fund, you say these are the you take better categories, you see these are the odd emerging themes and oh then find the right founders within those themes. And more often than not, you will see some out outcome in all of them.
00:50:42
Speaker
So long as you have chosen rightly, you'll make some mistakes. And that's why you have that 10, 20% of the portfolio where either your call on the category or the founder went wrong. Or both went wrong if you did a terrible job. ah But ah otherwise, you have an outcome in most of them. And hence, while it's early stage in investing, the the portfolio return construct starts to demonstrate closer to private equity than we see. The risk profile of these companies are very different, but obviously these are early stage companies that there is that is just ah that risk which is there of just early stage investing where very basic things and that's where we spend so much time with the founders. Will they be able to work with the team? who they have Do they have it in them to continue for the long haul? Because it
00:51:27
Speaker
It is a difficult job to do this for two years, three years, all of us doing the same thing. And we have so many people, so many friends around us who change jobs every year, every two years, every three years, right? People get bored by what they're doing. They're not passionate about what they're doing. So if you are, if you are at it for the long haul, you have the thing to be able to build it. We believe that ah our model of consumer investing will deliver returns, which are closer to private equity while coming in at an early stage. Interesting. I have heard that as an asset class, private equity has the highest return of all asset classes like public equity, venture debt, et cetera.
Private Equity Returns and Exit Strategies
00:52:07
Speaker
Of all these asset classes, private equity delivers the highest return to an investor. Is that the case and why is that?
00:52:17
Speaker
So hu che i I don't have the exact data to be able to kind of refute or i say anything in its favor, but So the way you measure returns in public markets is very simple because it's all listed value can be seen every minute or every day. When you do ah analysis of how your portfolio is returned, that's the actual value of those. Whereas private equity returns or any private unlisted market returns are driven by, ah there are two broad parameters. One is the total value or the NEV.
00:52:50
Speaker
okay but TVPI is the term which is used, technical term. It is basically, ah you invested 100 rupees, what is that total value? ah And that includes what you have returned to investors and what you have not returned, what you are holding on investments, what is the enemy of that? and oh That number is something, if you measure on that, I think private equity in India, at least the top quartile or the top design has done very well. But what has happened is that exits have been illusive in India. It's changing. It's getting better over the years. But ah until, let's say, four, five years back and we had the IPO boom for the last several years. Before that, I think it was ah
00:53:31
Speaker
It was mostly returns on paper. And hence, if you talk to and international investors who were investing in India, they would say all that matters and truly all that matters is DPI, which is what you're paying out. DPI is the money that you return to investors. And on that measure, I don't think private equity or venture capital scores as well as public market investing. But also one has to understand these are very different. oh So one is these are as asset classes very different. ah what in terms of ah just the ability to kind of so private public market investing can be done um for let's say short periods of time with the limited horizon but here just by its nature these are very long-term investing eight to ten years is the kind of life of any fund and
00:54:18
Speaker
you cut If you're going to measure its DPI in the third year or the fourth year when the fund is still deploying, it's just incorrect. You have to look at cycles, long-term cycles, and then India has not been an easy market for exits, and hence some of those, ah even long-term, five years, seven years, ten years, also some of those periods, there is underperforming private equity. But I believe that market is getting more liquid. and Hence, there is and more liquid each with market getting deeper. ah Venture check capital, are the Series A funds at being able to exit to Series B, Series C, and Series C getting to Series D, E, and going to public market which has started to happen. Private equity market is deepening. There are a lot of large funds in India where small funds are able to exit to. Strategic market is slowly opening up. or especially in consumer we see a lot of subjects being very acquisitive in each of them and hence ability to exit your companies is far more today than what it was in the past. so So I don't have the data to answer your question but I think on ah on a TVPI basis definitely they have done very well but DPI is a measure that they have to improve on eventually I think it should get there.
00:55:28
Speaker
Okay. For a private equity fund, typically they're just saying there are three ways in which the actual money is returned to the investor. Either a bigger fund buys that share or link or public listing or a strategic acquisition, which means like say, Mariko acquiring a consumer brand would be an example of that. Okay. Understood. You said that ah it doesn't make sense for a small company to have an IPO. What is the stage at at which it makes sense to be publicly listed? Sure, there is no right answer to that. ah so And now we have that SME market as well, which which has also become very large and there's been a huge number amount of listings over the last few years over there, but the main boards, the BSC, NSC, the main boards are one Mr. Lutz. So i would I would say that today to get a quality investor, and that's where one has to know what is the reason why one is going public.
00:56:24
Speaker
Today, there is risk capital, which is available plenty for the right business. ah There is venture capital, there is private equity, there are lots of family offices deploying money. There are so many ways in which today a founder can raise money. India is no more a capital-staffed country. And a lot of that capital actually is domestic capital also. For Prat, also, almost all the money that we have raised is domestic capital. And we have seen that being true for a lot of the AIFs around us. so now that you have you have so much capital being available.
00:56:57
Speaker
public issue if you're going to be doing, it kind of means that you are, ah one is that you are going to be scrutinized on a daily basis by a large number of, you're taking public money, okay, so there are mutual funds and be public investors which come in. So there is a concept of kind of then being on a treadmill, quarter on quarter you have to perform, and there is a corporate governance which is excess expected of the MCAB puts a very high bar on these companies, and rightfully so, ah of corporate governance which needs to be there. A lot of the small companies are not ready for that. They're still struggling to get their business oh right. And hence, I believe it's an added kind of a thing. And at the same time,
00:57:36
Speaker
that public money is oh is being put, they're trading on your shares. they're They're interested in how your company's market cap will increase. These are not guys who are involved in your business. Whereas any kind of private institutional capital will help you build the business in addition to not really measuring you on a day-to-day basis. So that's why the because Because of that, I would say that one should delay this, one should have the right reasons why you're going public. Sometimes people don't want blut one or anyone to come and be involved on the business side. They don't want private investors. but And there are all kinds of people, right? they What they're looking for is, okay, I'm doing well. i
00:58:18
Speaker
Don't need somebody to come and tell me or guide me. i I know what I'm doing. I need capital for my growth and I need to see liquidity. I need to see market cap that gets because private, whatever the valuation might be, the might be it's still on paper. oh Seeing it on on and the exchange is very different. If you want to, you could sell your shares and you could realize some of that value as well as aspi promote it. and hence those guys go there. But two to answer your question, I think to get any appetite for a market cap less than 1000 crores would be very difficult. I've seen most of the issues starting at 2,000-3,000 crores and going northwards from there. It's very different from that 50-70 crore kind of companies being listed. ah i But you now have the SME market as well, which is which is different, which is still growing. But again, I think
00:59:10
Speaker
just in a venue for risk capital being available even for smaller companies. and There there are companies with 50, 100, 150, 200 product market kind of getting listed and raising capital from investing.
Case Studies: Assembly and Jimmy's Cocktails
00:59:23
Speaker
So you've invested in assembly and people who watch chat time would have seen assembly, you went up against natural miles. Some of your thesis would have been driven by your safari experience as well. I'm curious to understand why you chose ah to invest in assembly versus the other opportunities in this space because there are quite a few startups in this space from mokobara to natural miles to you know.
00:59:47
Speaker
Right. So oh let me try to address it. our So by the time they went to Shark Tank, he had already committed money and money he had not gone. So our thesis on travel goods is that India, the previous 10 to 15 years has seen this category grow on the back of two, three broad things. One is ah the transition from unorganized to organized. And it was driven by a lot of things. I think just aspirations of people as well as government kind of doing the GST and becoming unsustainable for the unorganized guys to be able to compete. And so that was one big driver unorganized to organize and hence the mass market brands really benefited from that.
01:00:30
Speaker
So people who were at the entry price who saw that people move from the unorganized brands to organize just had a phenomenal decade. right In addition to that, this category became a lifestyle category. oh I'll give you a personal example here. When I was growing up, I used to go to every summer vacation was at my nanny's house. And it used to be first day to last day. I didn't own a piece of luggage. There was no concept of owning a piece of luggage because I ah grew up in a joint family. You would go and ask your cousins and some you you would take someone's luggage and you would take and come back and give it to them. And that's the way it used to be. I think for a lot of Indians.
01:01:08
Speaker
From there, to kind of where that category has come now, where ah your ah your travel go to install just its luggage, or and luggage also the cabin luggage, plus your check-in luggage. Each one is different from each other. Then the backpacks have become something that you are very conscious of. Each one of us have our own, and not maybe not one, but multiple. And ah even your kids will want to carry their own. They don't want to kind of carry your luggage. So it defines well your lifestyle. Backpack clearly, it's something that you wear on your whole day and you're very oh weird again from the generation where I used to go to college, carry a plastic carry, maybe two books in plastic carry. Today you don't see that. Today you will not even see a kind of, even in tier two, that thing about carrying everything in your backpack, right? So that oh that entire change in category happened and an organized or organized automation happened.
01:02:05
Speaker
I believe what has to play now, which happens in host categories, is premiumization. Today you have oh ah across tiers, across income classes, people having a few choices of brands, right? Traditionally in this, ah there were three large companies and each one had multiple kinds of brands, but three large companies, right? VIP, and then the third one, which emerged that investment in Safari. And all there was hardly any new age brand till three, four years back. these guys only between that brands which were there and playing this and
01:02:38
Speaker
oh I thought what what was happening in a lot of other lifestyle categories was was starting to happen in India. Mukubara did a phenomenal job. I love that brand. They've done a phenomenal job of creating an aspirational luxury brand in the space where there other luxury brands at those price points were struggling to grow. right ah For a lot of the things that we spoke about earlier on in terms of the way the consumers are evolving, their needs are evolving, I think Mukubara sold for a lot of it, which the legacy brands were struggling to do.
01:03:09
Speaker
but they were doing at a very steep price point. If if you ask me cross categories, what Indian consumers are willing to pay for is a 20 to 50% premium, and this varies across categories. right When they want to buy into a better brand or something that talks to them or appeals to them, they will pay that much premium. Whereas this was more than 100, 150% premium to the legacy brands in the mass premium space. And that's where we that is one thing that we really liked about assembly was the price point. We believe that the next story in travel goods is real and the price point where they play is the perfect price point according to us to build for the next generation of or the next growth level for India.
01:03:55
Speaker
Secondly, the team the founding team. We really like the two co-founders. They come with years of experience, grinds that we spoke about, not our domain knowledge. ah So one of the founders is part of family which manufactures one of the largest manufacturers of third-party manufacturers of luggage for several brands. And hence, there isn't ah so this is a business which requires you to have product knowledge and very deep supply chain knowledge. So that was that was something which was a huge differentiating factor for them. And they had built this business very frugally. So we have seen more than 1000 companies now in the 16 odd months that we've been evaluating companies. And our capital efficiency in most companies is is like 1.5x, 2x, which is measured as what their current run rate is divided by total capital, which is gone in the business.
01:04:46
Speaker
And a lot of them are less than 1X. A lot of them are very big brands, I don't know how to name them, but they're brands that we really like, but the capital efficiency is very low because the amount of money which is gone in creating the brand awareness or just ah creating the top of the funnel is so high. They have, their capital efficiency was more than five weeks. And we, it was really different from a lot of others, the frugality and having both come from having come from family business, understanding the importance, not just of unit economics, but the burn with which you build a business. I think a lot of these things really differentiated that.
01:05:23
Speaker
ah And we really, I think it's sometimes just the chemistry commission you made, then we loved it. Mukumara was well past our stage ah by then. And a lot of the others, we met, I think, almost everybody in the space at that were raising money. there was I think we liked them the best amongst everyone else. Okay. Interesting. And ah what about the ah GV cocktails? GV's cocktails? What was the thesis then? so jimmy's So you would see a common thing that we have, we have a very strong founder market fit for all our three investments which we have completed. ah So Jimmy's started by Ankur and Nitin and both of them have 20 years experience before this.
01:06:04
Speaker
in beverages most of them. ah So Uncle Hye has had multiple experiences but a large part of that was ah where he was, so ah where he launched Jim Beam and he'd spent 10 years there with Beam Sundari. and the alcoholic beverages side. So understanding of the category was very high. Nitin, on the other hand, had spent 20 years in distribution, FMC of distribution in the previous 10 years with Red Bull North India distribution. So non-alcoholic beverages distribution, alcoholic beverages marketing. So it was kind of very, very strong market fit, which we saw great founders had kind of built the category.
01:06:48
Speaker
So we were speaking a little bit earlier about large category versus small emerging categories. I think when we think about it as a fund, we want to invest across both because we are a long-term fund. We have the ability to be able to sustain for that period of time for even these emerging consumer trends to become large and meaningful. So Jimmy started as a mixer spread. So in India, or alcohol can only be sold through those wine shops. And hence, pre-mixed does not work in India because then you have to sell only at that wine shop. To be able to sell across the grocery stores or modern retail or online, oh they they came up with these mixers. So you mix your alcohol and have that ah drink at home. And that, they are the category leaders by far. ah The next guy is like one-fifth their size.
01:07:43
Speaker
and the brand, they've done a phenomenal job. There is such a high. So India won the top end of the India won. There is just unbelievable that I don't think I come across people who have not gotten that brand or not consume that brand. So it's Great job on the on the brand, on product, phenomenal team, category creation. But while it is category creation, we know that mixers per se cannot be your jig of immediately. You have to wait for that to happen. ah I'll go tell system far more brilliantly than I do in terms of what the opportunities and what it can become. But I think the idea was that they have the capability to become
01:08:23
Speaker
premium beverages brands in India which caters to a lot of opportunities. So Jimmy's has been taken to a lot of adjacent categories after we invested in non-stonic water, or they've launched ah well well ah some of the other sodas and now ah six months where they've entered into energy drink as well. energy energy drink is unlike the mixers market is a very large high growth market and being kind of amongst the beverages all beverages put together the star in terms of the category in India and even globally it is oh
01:08:57
Speaker
It's something for Gen Z, the caffeine kick kind of comes in far better as an energy drink than ah what tea was for our generation that is what energy drink is for them, right? It is it is a functional drink that way, right? So it's not just something that you have to have a good time. It's something that that gives you that caffeine kick and something that people kind of really want in their daily lives. And unlike mixer, which is occasional drink, this is an everyday drink. And they were very clear, and with Nitin's experience of doing distribution of Red Bull, they wanted to build this for, ah not the metro tier one, but a tier two audience, or a market where, ah so India Red Bull is a very large outcome, it's at 125 rupees price point. Plus, they have they built a very aspirational, phenomenal product. Then you have staying at the other end at 20 rupees price point.
01:09:55
Speaker
It's a larger success story in India in terms of beverages. So they are building at a 60 rupee price point where they're building a great product. Again, they do a phenomenal job on product and branding and building aspiration product at 60 rupees in tier two, where the consumer cannot have Red Bull every day while aspiration might want to have Red Bull. So if he if he wants to drink energy, drink every day, He might or there might be occasions when he is going out and with his friends will show that he lacked Red Bull but for everyday drink consumption Hustle is you know, so that's I think it's still early days. You're very confident that they're into a picture job So yeah, that's our thesis a
Career Advice in PE and VC
01:10:34
Speaker
Jimmy's. Okay. Okay. ah Let me invite
01:10:38
Speaker
asking you this, you know, for people who want to build a career in PE slash VC space, what's your advice to them? How does one go about building a career here? So for the longest period, I've i've told people that one should kind of have more experience on the sales side, try and understand businesses, try to get the rigor of what it takes to kind of oh understand businesses. do two years of rigor in investment banking or research before you start the enrollment on my site. But even if, let's say somebody is starting out and we have hired a fresher as well. And I think there are a few things which is which are very important. Curiosity is extremely important in our business.
01:11:28
Speaker
You need to ask questions. Our business, you need to understand businesses, and it happens over a period of time. I have seen 4,000 businesses in my life. I will be able to come up to the curve faster than someone else, not because I'm smarter, but I just have had that much more experience. I keep saying it to my team, no question is the wrong question. Mostly actually you get the smartest answer for the dumbest questions because you don't know and you ask a dumb question leads to some discussion which is very meaningful and try to understand something that possibly I would not have asked for thinking how I know this, but somebody will ask it and leads to that. So curiosity, ah willingness to kind of really
01:12:07
Speaker
ah So private equity venture capital business is a self-starter business. So while I'm an entrepreneur, now I believe that I behave like an entrepreneur always. if you do If you're not self-motivated, then it's not a business for you because these are very small teams. It's not like working in a bank where you will have somebody telling you, morning ah shamo check keriga kan you're you're given enough freedom to do your thing because ah that's that's the way most of the private equity forms are. they
01:12:38
Speaker
between five to ten people in teams and they want each person to be self-motivated to really excel or to go out there and wanting to make a difference. When you want to be a better person every day, you will contribute towards the firm as well and that's that's what if you don't have a growth mindset, you can't contribute towards ah what the firm. So having a growth mindset and curiosity are two like big things. If you have this, you should. Unlike when you're growing up, everything is available. Read. There is just so much to be read. There is follow. If people say that we want to be private investors, they don't know anything about that.
01:13:18
Speaker
i i think Just be gentle and show what your interest is. If you are passionate about something, it's far easier today to follow your passion wherever you are. You don't have to be in that business to kind of do that. You can follow what's happening across the world and demonstrate. you can I remember public market also when somebody said that I'm a good, I want to be a public market investor. Public market investing is very easy, right? You make a portfolio of 1000 rupees or you start animating 1000 rupees, start demonstrating on a public market investment. Similarly, I think private is also getting there when so much information is available. Demonstrate that you understand this.
01:13:55
Speaker
Say that, okay, you can't buy those companies because you're not unable, but say that, what are the ideas that look good to you? Demonstrate. And two so I think people don't find shortcuts. that is hand If it is not for you, it's not for you. It is a lot of hard work. and It is more of, I think it looks great from outside. You're on the buy side, you're working on PVC form. It's a lot of hard work being on PVC and one should be ready for that.
01:14:24
Speaker
So, you know, you probably would know like say fireside team has a lot of you deliver guys who set that up. So is that also a way to enter this like from an operator to an investor? Yeah, I think there is there are multiple ways that you can do this. There is no right way. I think there is such a large opportunity. and There are various ways to address this. I think while operating is is one way where you try to you're able to understand virtually, your ability to guide them in the growth path will be much, much higher. I think investing is a slightly different skill set, but I think all of Kaval has been investing, and he has been investing for a long period of time. right so it's
01:15:10
Speaker
ah so Investing both the skill sets of operating is something that I learned but working with these companies over a long period of time. I have been an investor for much longer than that, and you need to understand both the skill sets. Unlike in public market investing where you just select and you you have to time your entry and exit, you need to understand trends. In private equity and venture capital, you need to be able to do both because there is a lot of value at or the value creation which is driven by what happens after investing. So selection is extremely important, you need to have your themes right, you need to find the right people. But what do you do with them post investing? How you behave with them, what leads to, also leads to a large part of value creation and hence both are important. and
01:15:53
Speaker
And that's why people can have both ways of kind of doing this. oh It's different in terms of data globally. It's different in terms of operator but operator- run VCs have not really had great outcomes, but I think in the market is unique in every way. I just feel that at least in consumer funds, there is just so few of them addressing the early stage consumer opportunity. And there's so many guys who are trying to build good businesses. that is our There is space for 5 10 guys to come and try.
01:16:24
Speaker
Are you as hands-on with your portfolio companies as you were during the PEDs? Absolutely. I ah speak to them very often. They've become great friends. and ah we had So the requirements are also ah a slightly more or slightly different. There is at a very early stage, it's just kind of helping them through several agencies on on several fronts. They're looking, let's say, on performance marketing, on fu fulfillment. let's say branding, you're helping them. i it's So for us, we don't just say, okay, this is the introduction and we would want to some of those because they are very critical in the way that they will kind of shape the company. We get involved, not just introduce, ensure that make three introductions, make sure those three conversations get recruited, and then be involved at the early part of that journey till we feel that it's gotten to a stage where the company can take on from there.
01:17:19
Speaker
hiring is one area that we really work with a lot of them. oh diesel So then because of their size, they're not looking to hire like really, um they can't afford oh ah the tier one guys, they're not even, also they can't have a very large organization. So identifying first what is the critical role for the next six to 12 months and how which will take them to the next stage and then they can add more. I think it's also a very important thing that we do with the companies and some of this we start even before the money is gone and building out the structure realizing, okay, these are the critical gaps. And how do you think about each one of those? oh So a lot of those companies that even in the CXOs would get salaries which are higher than the pharma salaries. So the founder mindset also needs to be clear that I'm taking the large risk. I'll get that reward. These guys, what is that about? Even if I give them one, two percent ESOPs, that doesn't kind of really solve it for them and ma sure be driver enough for them to move.
01:18:16
Speaker
so Hiding a lot of these agencies, kind of just basic kind of thinking, oh we we keep telling our portfolio companies to do the right thing, even if it's hard. And we practice that. We want all of us, all of our companies to practice that. We know businesses are not made on Excel sheets. None of them feel on Excel sheet, right? I mean, it's an Excel sheet. So it it's real life, right? You'll have challenges which are ah which are more and different than what you anticipated, but don't hide bad news.
01:18:48
Speaker
Say bad news first, share bad news even before you feel the need to share good news. Because we are we believe we are partners. We truly believe the moment we we invest in a company, we are we are shareholders, we are partners. We are not someone who will just ask good and difficult questions. We are somebody who will ask those questions, will lead to how do we solve those problems? Because asking questions after so many years or it's very easy for a lot of people to do. How do you solve them is what, and that will only happen when you know the bad news. People, I've seen a lot of people have this tendency of kind of holding back bad news, hoping that I will not have to share. That's what that's that what starts most of the bad ah episodes, the way companies kind of do. So hopefully we'll be able to inculcate this in our entire portfolio. But the idea is that you become partners on day you one, oh just make sure that they
01:19:44
Speaker
then They understand that we know the there will be good days and bad days. We are there for the long term. And we'll help them overcome the bad days. So that that's a general philosophy. And oh helping them through this period, becoming someone who they can call on, they can ah they can speak to as a friend, I think it really helps, developing that personal equation with the founder. So he doesn't feel the need to come. They know that, OK, I call him. He's going to be brought here. Why this bad guy? No, you I think as an investor, you have to be like a sponge. You have to be able to absorb that. If you're not able to do that, I think you will, without knowing it, you might say this as lip service, but if you can't absorb bad news and you are going to give it back to them, you will see that ah that wall which gets created. And that's what creates a lot of problems. Because if you don't know the problem, how do you solve it? How will you try to attack it ah in in any way? Yeah.
01:20:39
Speaker
It sounds a lot like bringing up a child. Yeah, it is. It is not very different. Yeah. Okay, good. Amazing. Thank you so much for your time, Piers. Thanks, Sakhsh. Lovely talking to you.