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Investing in "Category Creators": Prime VP's Winning Strategy | Sanjay Swamy (Prime Venture Partners)
377 Plays2 years ago
"It was clear to me all along that this is how we were going to transact in the future." Sanjay Swamy shares this profound early conviction about mobile payments, a vision he pursued with mChek, attempting to build what resembled "Apple Pay on the SIM card" years before its time. This foresight into India's digital transformation underpins his entire entrepreneurial and investment journey.
Sanjay Swamy is a co-founder and Managing Partner at Prime Venture Partners, a leading Indian early-stage VC firm with approximately $300 million in assets under management that has backed over 50 startups. His work has been instrumental in shaping India's fintech landscape, including early contributions to the UIDAI (Aadhaar) project.
Key Insights from the Conversation:
- Early Vision: Sanjay recognized the potential of mobile technology to revolutionize payments and other sectors in India far ahead of the curve.
- Building from Scratch: He has extensive experience setting up and scaling operations, from building engineering teams to launching entirely new product categories.
- The "Missed Call" Innovation: ZipDial uniquely leveraged the prevalent "missed call" behavior in India for marketing and engagement, proving highly effective.
- Solving for India: Both Ezetap and his work with Aadhaar focused on addressing India-specific challenges and opportunities at scale.
- Entrepreneur to Investor: His journey provides a deep understanding of the founder's perspective, shaping Prime Venture Partners' "founder-first" and hands-on approach. .
Chapters:
00:30 Sanjay Swamy, a doyen in the startup ecosystem.
01:41 Early life and education of Sanjay Swamy.
03:54 Second Masters and job search in US.
05:29 Design simulation software for Aerospace industry.
07:21 Billing software for the Telecom industry.
09:16 Mobile payments and joining mobile company.
14:44 Starting Zipdial and Easytap companies.
27:17 Zipdial raised about $3 million.
35:37 Prime Venture Partners and raising funds.
56:54 Spaces and technologies that Sanjay is interested.
Hashtags for YouTube:
#SanjaySwamy #PrimeVenturePartners #IndianStartups #FintechIndia #MobilePayments #VentureCapital #Entrepreneurship #StartupJourney #MakeInIndia #DigitalIndia #FounderThesis #Podcast #TechInnovation #StartupFunding #ExitStrategy
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Transcript
Introduction to Sanjay Swamy
00:00:00
Speaker
Hi, I'm Sanjay Swamy, Managing Partner at Prime Venture Partners.
00:00:15
Speaker
There is this wonderful phrase, shoulders of giants, which essentially refers to the fact that the current generation benefit from the work done by some of the incredible thinkers in the previous generation. And for the current generation of entrepreneurs, a giant on whose shoulders they are standing is a man called Sanjay Swami.
00:00:34
Speaker
Sanjay Swami is a doyen in the startup ecosystem and he saw the vision of mobiles disrupting the Indian economy way back in 2003 when the first Reliance CDMA mobile phone was launched. He spent the next decade building businesses and products in the Indian tech industry that were way ahead of their time and he started not one but two startups
00:00:55
Speaker
both of which were acquired by big tech companies. Today, most listeners would know him as the man behind Prime Venture Partners, which is one of the biggest homegrown VCs in India, having funded dozens of iconic startups. In this episode of the Founder Thesis Podcast, your host Akshay Dad is talking with Sanjay Swami about his amazing multi-decade journey in the startup ecosystem and learning some valuable lessons on starting up, getting funded, scaling up and how to think about exits.
00:01:25
Speaker
Listen on, and if you like such insightful conversations with disruptive startup founders, then do subscribe to the Founder Thesis Podcast and any audio streaming app.
00:01:43
Speaker
I grew up in India in, I guess we had Kanadigas. So we're actually one of the natives of Bangalore and Mysore. So my dad was in the Air Force, one of the very early people in the Air Force. And he was deputed to set up the make engine factory in Koroput and all this stuff just around the time as I was born.
00:01:59
Speaker
And I grew up in a very small town. It was a township, a jail colony, till I was 10. And very interestingly, some of my really good friends in life now are some of my best friends in school then, given up to the fifth standard. And so T.N. Huddy, for example, and T.N. Huddy is the very well-known big basket guy. So we actually co-authored a book about three years ago, which is really funny because we were best friends till the fifth standard. And then we lost touch for 45 years as Henry Knick.
00:02:27
Speaker
And then did my undergrad also in St. Joseph's College, then went to UBC in Bangalore for my engineering. I did my undergrad in electrical engineering. And during the course of my engineering, of course, at the unfortunate instant, my dad passing quite suddenly. And then my mom has since been, of course, very strong in my journey as an influencer.
00:02:49
Speaker
During my schooling days, you know, very, I would say I was really good in arithmetic, I think. And that's about it. I enjoyed physics, enjoyed chemistry, not so much biology was always clear. I was always good to be a engineering student, not a medicine student. So I did my four years of engineering and in Bangalore University. And unfortunately that was a time, it was four academic years that ended up taking five calendar years. So we all lost one year because of the delays and exams and stuff like
Education and Early Career
00:03:18
Speaker
that.
00:03:18
Speaker
But yeah, right after that, I had both the option to go to the US as well as I got a fellowship to go to France. And I had studied a little bit of French in high school or UC. And so I said, this is a more unique opportunity and it was a better fellowship. So I ended up going to Toulouse, France for a couple of years, ended up doing a master's in avionic systems. Fascinating experience. Everybody says, Oh my God, and how could you study in French? Actually,
00:03:45
Speaker
studying in the foreign language is amazing because if you do well, it's despite the language. And if you do poorly, it's of course because of the language. And then later I went to the US University of Washington and Seattle and got a second master's there, hoping to do a PhD, but I ended up not being able to sort of make the grade. It was a tough time. There was, you know, it was 92. There was a recession in the US.
00:04:07
Speaker
developed a lot of assistantships and so it became very tight. And so I ended up finishing up the second Masters and then looking for a job and eventually finding one. It was almost impossible to find a job in the US and had to figure out some ways to, you know, some database programming. And then I actually worked.
00:04:25
Speaker
in a place which was called an involuntary clinic. And I had no idea what that was, but I said, well, they're paying well. And I got a database programming job. And after about three days, I asked the person there was a hospital. I said, I didn't have all these keys in the elevator. And she said, you don't get it, do you? The people that we are looking after here are not just cuckoo, they're also criminals.
00:04:47
Speaker
I said, part. These are actually people who are claiming to be mentally unstable, but they're actually criminals. Some of them might actually have been, some might not. And my wife was like, there's no way you're going to go work there. It doesn't matter. Give up the job. And so I had to actually go rent a computer, get a copy of the software at home and do all the work from home. And that paid for about four months of our living and we just managed to get things forward over time.
00:05:12
Speaker
and then got a job and moved to Silicon Valley. The job happened to be with the company of one of the first Indian entrepreneurs in the Bay Area called Dr. Narayan Gupta, who later started Nexus Ventures and sadly passed away about a year ago or less than that. But he has been a mentor to me throughout and about seven years in his company,
00:05:31
Speaker
What was the company doing? What were they building? So the company was making design simulation software for the aerospace industry. I started in customer service, then I went to sales, then I went to Europe, I helped set up the European operations, and then the customer demanded that I would be the point of contact with an engineer, so they moved me into product engineering.
00:05:49
Speaker
And then later I went into marketing. And at that early stage, and I got such a 360 degree exposure to the operations of a company that was making several hundred million dollars of revenue and sort of just roll up your sleeves and just do great work. Right. And anyways, after integrated systems, I got
00:06:07
Speaker
the opportunity to work at Xerox,
Career Challenges and Transitions
00:06:09
Speaker
which is where everything in technology got invented. I was actually a business guy in the technology firm. And so Xerox at PARC, they had a lot of the technology innovations. One of the big areas was digital rights management. And so there was a group being set up there where they wanted to take the IP and the patents that they had developed and then got granted and said, can we package these into digital rights management technology for documents? Because that's the business Xerox within the document processing.
00:06:37
Speaker
And so they needed a marketing guy. And so I got pulled in and became the marketing guy on that team. And over the course of, I guess, two years, we spun that group out into a new entity and then licensed the IP back to Microsoft. It was a large contract.
00:06:54
Speaker
because Microsoft was getting into streaming media and of course, a lot of documents and that technology IP was very important for them. Of course, they over the years have built a lot of their own IP, but they wanted some access to IP. And so that was a project that I was very deeply involved in. And it was the first time I understood what it means to get a new company being started and incorporated a joint venture between entities, shareholding, all of that stuff. It was like a baptism by fire.
00:07:20
Speaker
And then I worked at a company called Portal Software, which was selling billing software for the telecom industry. And there also, the world was moving from charging for minutes of voice calls to saying, now, you're going to start having some data and content and things like that. And it might be subscription. It might even be usage-based pricing, things like that. And you needed more sophisticated
00:07:44
Speaker
So in 2002, I was running a very small two, three person group. And we had, I remember coming back from LA with a $750,000 purchase order for Sony Pictures. And I landed and I went to the office and my boss said, this is great, but your group is going to be terminated tomorrow. I said, but we are profitable. There's three of us and I just, we have $750,000. He said, ah, no companies decided, you know, if it's not wireless telecom, we are going to cut everybody.
00:08:11
Speaker
Moon gone out of her job. Apparently my wife had actually, she had gone through a startup that went startup acquisitions, spin out, IPO, she was a finance exec and she'd been like working really hard and we had a little boy and she had decided to quit me until here I was.
00:08:28
Speaker
Also without a job, every house we had built from scratch and we had a huge mortgage and things like that. Scratching our heads saying, what the heck do we do? We don't have a place to go and we had a little bit of savings, but not a whole lot. Instead of getting unemployment benefits for that period of time, it's just nothing much. So back to the second time where we are in this mode of coming back to zero and nothing. And we had this beautiful house. We said, let's put the house up on rent and maybe we find a smaller house or maybe build something else. We're talking with our
00:08:58
Speaker
And I literally told her, look, let's just go back to India. I mean, we were here on vacation. So we went back to do a ship, all our stuff. And they had no job, nothing. So I want to go and figure out, can we do, you sold your house? No, no, we actually had rented it out. So it continued to stay rented at
Return to India and Mobile Payments Exploration
00:09:13
Speaker
the time.
00:09:13
Speaker
And so when I came back to India, I started thinking through mobile payments and understanding it. On the way today, literally as I was driving to the airport, a friend called me and said, I've got a friend who's got a team in India. They're doing a lot of work in the mobile industry and he wants to see if he can run the India team.
00:09:29
Speaker
And so I spoke to him at the airport, and I landed on a Friday night thinking I was going to take a year of vacation Monday morning I started work. And it's a company called Enportal. And they were doing work. In fact, Rcom had launched this R world thing, and there was this thing called Bus Button the Bow, and you press the R button, and things would happen. That entire software stack was written by our team. And it was great for me because I also had this idea to do mobile payments, and they were this big team doing mobile stuff. And so
00:09:57
Speaker
I got to learn a lot about that industry, but after nine months, we said, I didn't seem like it was working out. And they were much more of a services mindset. I was more of a product guy. And so we decided to part face. And then I got hired by another company in the US to build an India team, an engineering team, a company called Katerno. And so I set up the org from scratch. I was employee number one, up to six weeks, I called my boss and I said,
00:10:22
Speaker
I'm not supposed to get paid. You said, yeah, you have to set up the bank accounts. You haven't set up the bank account. So I ended up, you know, setting up the bank account and then after that getting paid. And so like from as entrepreneurial as it can get. And then along the way, about 18 months in, I got a call from Rajesh Jain, who was a friend of mine. Rajesh was one of the first entrepreneurs in India in the internet era. He had sold his company to Sipi for a hundred million dollars at the time in there.
00:10:48
Speaker
in the early 2000s. And I was chatting with him, he said, Hey, I have this idea on mobile payments. And he said, Oh, it's an interesting area, you know, send me something. And so I put together the business plan and I sent it to him. And one of the big things I had said was the mobile phone will become your ATM. And owners and ATM was one of the first things that I had looked at.
00:11:09
Speaker
It turned out that around the same time, there was this company called Little World that had created a prototype of this product called Emcheck, and they were about to launch it with Airtel and Visa and ICSJ Bank. And Rajesh was invited to invest in that company by VC, and he said, oh, I know this guy in Bangalore was very interested in this area. And so that's how I got pulled into Emcheck. So as the company was formed, it was brought in initially as the CEO, and then Anurag decided to want to stay much more bottom of the pyramid. And so he left, and then I became
00:11:38
Speaker
the CEO after both the months. And that was the first, I would say, large scale attempt at digital payments in India, at mobile payments in India. In fact, funnily, I just had a meeting with Dandan and we were talking about the UPI and how it has really thing.
00:11:55
Speaker
It's scale. You know, pretty much everything that Apple Pay and M-Pesa and all of these guys were doing, we were doing, attempting to do an M-Check in an incorruptible manner. Clearly it was probably two generations too early. We were on feature phones, running on the SIM cards or on U-S-S-D and things like that.
00:12:10
Speaker
But it was very clear to me all along that this is how we were going to transact in the future. Essentially, you're trying to do a payments product, like an interoperable payments product, because Empasa was only a Vodafone product, like only Vodafone users could use it. So you wanted something which is...
00:12:28
Speaker
No, we were working with Visa. So that's the thing, right? It was a bank-assured debit or credit card. It was a Visa card. So it was interoperable, but it only worked where we had signed up both sides, the merchants, and it ran on the SIM card of the Telco, but it wasn't a Telco product.
00:12:43
Speaker
And in that sense, it was exactly like Apple Pay, where the NFC chip that they have, it was the SIM card because it was the only secure element. And that had to be issued by the telco, but the telco had no say in the, it was like a private network that we built on the SIM card. But of course, in the business model, in the revenue share, there was obviously some revenue share for each party, including the telcos, right?
00:13:03
Speaker
Very ambitious because we were really trying to get the entire ecosystem to work. And in hindsight, I used to look at this and say, I don't know if I can fit their egos in the roadmap. I'm trying to fit everybody's business goals here. And we were very fortunate, very strong support from the telcos. Then Bhopalvitil was the chief marketing officer at the time, and we still have a good relationship.
00:13:22
Speaker
Everybody wanted to make it work. Everyone had something different that they wanted to get out of it. But I think everybody felt that at scale, this can be very valuable. It was clear to me after three, four years that this was not going to happen at scale anytime soon. And so I moved on. And so three years later, I think was the time that PTM came about. And then they, of course, they approached it differently, but they also had a strong ground on the UPI cave and then became an open and profitable space.
00:13:49
Speaker
But I wrote a blog about identity when Sunil Kani was appointed as a UIDI chairman. And he read it somewhere and then through his office, I connected with the team. And then after I left Amcheck, I reached out and said, Hey, I'm just taking a break, but I'm happy to help. And so that's how I ended up getting on the team and working on several applications.
00:14:10
Speaker
conceptualizing them, conceptualizing electronic KYC, instant account opening without any paper, and things like that. And I used to have a small team from Nokia that was building demos and I would go and show it. So we should, you know, put this into the agenda for showing it to the RPI governor and to show it to IRTA and all of these.
00:14:29
Speaker
over a period of time with these demos that we would show people that their jaws would fall. It really is revolutionary to think that you could do this without paper. And so it was a real privilege to be part of that team for about 12, 18 months. But the entrepreneur in me was at the side saying, oh, I got to start something or do something.
00:14:46
Speaker
So they parallelly started the two companies. We started Ziptile with a couple of colleagues from them check and we started easy tap. That was the fourth bedroom of a four bedroom house that hosted Ziptile. And it started just as almost like a hobby with some personal savings. And then both the companies suddenly ended up getting traction and Ziptile of course got some good initial
ZipDial Creation and Success
00:15:11
Speaker
Could you talk about each of these companies? What was the problem that you set out to solve for each of these? What was the market? Yeah, so zip dial was a wacky idea, right? At the time to get some information, you had to SMS ICICI bank to 7 or 58888 and it was 3 rupees for SMS and you'd get a return SMS.
00:15:32
Speaker
And Valerie and I, Valerie was this American young lady who came and worked with me at Demcheck and she and I were on the plane ride once and I said, hey, instead of saying this short code and a message, what if we made it a unique number and you just gave a missed call to that number. And so it's toll free for the user.
00:15:50
Speaker
And the server will know who dialed for its number and would send her a sponsor that was appropriate. And so she came home that weekend and we sat down. My wife kept serving us a lot of goodies and joy, I guess. And we kept thinking what all the possibilities that you could do. And there was also some nice payments related things. I could dial a number and get my back, right? And what if you could do this and you could do that. And all you needed was a feature phone, the lowest of the lowest phones, and you had a toll-free global network. That's really what it was.
00:16:19
Speaker
So we actually conceptualized this, started saying, hey, maybe we can find some patterns here because nobody had done this before. And after I left and checked, my other colleague, Damir, who had worked with me at Ketera, he said, hey, what are you doing? And I, on Yahoo Messenger, I typed this idea. So that's a great idea as its builder.
00:16:37
Speaker
So IPL was coming around. We said, let's just put a cricket score service and then you dial a number and you'll get the latest IPL cricket score. Yeah. In the beginning, not many people used to care about it, but over time we started pushing some clubs in Ashish and I wrote a blog about us. Ashish had worked with me and Ketera, so I had good access to it. Low end day, all suddenly the volume started increasing and then World Cup football in South Africa 2010 came about.
00:17:00
Speaker
And we used to watch the matches till the middle of the night and update the score. And you think this was a very mundane thing, the score is publicly available. But people would wake up in the morning and even before they put their glasses on, would dial that number. And the next time this would come with the scores. And I think a couple of times I'm here, I would fall asleep and fail to update the score.
00:17:19
Speaker
calling and scolding us. And we said, my God, people actually take this seriously. They care about this. And so that went wrong for some time. And then later we pitched this thing to Mumbai Angels. And one of the gentlemen there said, this is amazing. You have changed marketing forever.
00:17:35
Speaker
was a gentleman who was, again, no more with us. But Ranjan Nag, who was one of the doyens of the advertising industry in India, and he basically stood up and told, everybody was telling us why this is going to fail. And he stood up and told the audience, you guys don't get it. These kinds of change marketing forever is going to be the call to action. And of course, if you fast forward to today, many marketing campaigns, they give a missed call to this number, right? We actually had built that from scratch.
00:17:59
Speaker
So that went on. And of course I was never in an operating role. Valerie and Amina ran the company. It grew pretty big. And in fact, over time, political parties wanted to use it. The 2014 elections, both parties were using it, but for different feature set. And what can
00:18:14
Speaker
of features were possible or in fact before that I don't know you built this keeping in mind a b2b use case that you would go and sell businesses this service or you thought that there was a b2c opportunity here because the cricket service is obviously like a b2c opportunity that you started with oh yeah we really wanted a little b2c but then we realized there was also b2b
00:18:34
Speaker
B2C would be ad supported, ad supported. We started putting ads in there and we had built a targeting engine, so I would not see the same ad too many times and so on. But there were some very cool things like during the India-Pakistan World Cup match, 2011 World Cup, the one that we won here, both in the first match was India versus Bangladesh, where Sachin and Seval both scored centuries, and then the Mohali match as well.
00:19:01
Speaker
Both those days, we registered 4 million plus calls. And I'm sure we must have got some 10 million. Our servers couldn't handle this code. And it's just nuts that Amazon and all these guys would call and say, who are you guys? Because your traffic is like flat. And all of a sudden, one day, it spikes to like 4 million.
00:19:17
Speaker
And again, it goes down to like $50,000 a day, which was the average traffic at the time, right? Because we were near new and the telcos would look at us and say, what are you guys? And would ask, well, is this a big deal? What are you doing? And stuff like that. But we didn't stop us for permission. We just said, this is the right thing to do for the consumer. And over time, we became one of Airtel's very large enterprise customers because we were buying columns of numbers a month and paying for them. But we had a lot of interesting use cases, like eventually banks
00:19:42
Speaker
Did you struggle to sign up advertisers and so you pivoted to B2B or was it not enough ad dollars being spent? Yeah, I think what ended up happening was we had a lot of ideas about what we could do with this.
00:19:54
Speaker
We had a very simple thing and we would start a meeting saying, okay, dial this number and you would get our equivalent of our visiting card on SMS. And people would think we're a visiting card company. And they said, no, this is just a demo to show you what's possible by the concept. And by the end of the meeting, every customer would start giving us 20 other ideas of what could be done with this because it was a platform. And we just said, we'll build a really amazing platform.
00:20:15
Speaker
But I can tell you in the cricket score thing, we ran into situations where people would create a lot of spam in the system. They would set up an auto dialer that every 30 seconds would just keep dialing. And there were times you would see a few people that would have 1,500 calls in a day or 1,200 calls in a day. And I would tell them, yeah, this is spam. I said, why do you say so? I said, cricket not just 600 balls. So you can't dialing 1,200 times or even in a 50-hour game.
00:20:40
Speaker
What was the intent? It was just having fun or was there a way to... Yeah, somebody having fun and somebody just being too lazy to dial the number and programming a computer to do it for them. But so that was some of the IP we kept building these spam filters and things like that. We even made some games like the famous childhood game of Bookquicket, right? We programmed that on this call. And I remember Kingfisher having the parents of at least large sum of money doing an IPL because it kept the fans engaged. All you had to do
00:21:09
Speaker
just keep hitting the green button on their own and you're playing a game for cricket. There were some fun things like that, but there were some serious applications also. And I think we said, look, it's a platform. Anybody can use it. Literally, you can come sign up on our website, pay with a credit card or net banking and type what message you want as a response.
00:21:28
Speaker
you could connect it to your server and it could get some dynamic data. And so we had companies who were checking bank balances, brokerage account balances, and sending. Because anyway, the customer would their balances and they would say, hey, dial this number, you can get the balance anytime, right? Or lower their cost of support. We did a pilot once with Make My Drift, where they were saying that they were getting like certain amount of response rates for SMSs. Then they would say, if you're happy with the call center, reply, why, for yes, yes, or not happy.
00:21:57
Speaker
We made it two different numbers. And three hours later they called us and shared, we're getting 20 times the response rate. So you can't believe these numbers. It was definitely a product that in its time had a lot of, it was one of those, which was perfectly timed for that market. While if the company had continued, it would have probably evolved into a mobile app that knew all the preferences of the users and blah, blah, blah, blah, blah. It could have done a lot of personalized services.
00:22:24
Speaker
Did you also take it to media? Like I know like KBCM, all of these like reality TV use this a lot. Did you do that? Ramastai was a great example for us where I actually, they had shown them channel activation using a missed call and we had talked to them and we'd done pilots and stuff. And now today, that's how they do it. I mean, it's a bigger missed call from the registered mobile number, but I think that some industries were early.
00:22:49
Speaker
But yes, we did do things like real-time voting for one of those support your talent shows online. We did that for Indian Idol, beauty show, beauty pageants, things like that. We saw a lot of those. This technology was patented. Could you prevent copycats? In theory, we could have. I don't want to say it out loud because the patents got granted after we sold the company to Twitter. And if you go online, so the legal owner of the company of the patents is Twitter.
00:23:17
Speaker
But the several of the use cases, they're super exciting. If you think about some of the Neo banks that we are invested in, like Neo and the others have this feature where you can turn off your credit card, your card, no transaction can happen. That could happen through a missed call too. And it's an amazing feature or security feature that we could give people. And we have conceived a lot of those and filed a lot of patents around all of those things as well.
00:23:39
Speaker
But I think over a period of time, as you went to the connected smartphone, it became less and less of a requirement to do with strongest calls. But to this day, it's the simplest interface, right? You just need number literacy and you can get all this functionality. What would you sell to Twitter? I think three, four things. One is, did you have investors here? Did you raise external?
00:23:59
Speaker
Yeah. So we had all personally invested also. And it was the zeroth company for Prime Ventures, which is what we were at now, the fund that we started. But it was also, we had the Bloom, we had Jungle Ventures, a few others as well. And Rami as well, a few others that also invested in the company over time, with the ones who conceived it. And in fact, Sunil Goyal, who's now at, just started Jornest, he was also one of the early engines in the company.
00:24:24
Speaker
But it was largely a project of passion. And I think after four years, we have to make a call that we want to be in this for 10 years and raise a lot of money and try to build a large company here. And when the opportunity came, there was one other potential. So it felt like the right time to sell.
00:24:40
Speaker
Valerie being Caucasian American with family and husband, and they were going to start a family. And I really wanted to be stationed back in the US. And this business had no role in the US because in fact, at her wedding, I had to create a demo and have everybody in the family pull out their cell phones and dial a number. And I just said, congrats, they'd be greeting so that they would understand what she's doing in India. It was actually funny because she was building something in India that nobody in the US could imagine. They didn't know what a missed call was.
00:25:08
Speaker
So anyway, it seemed like a good offer for everyone. I think all the investors got a good return. One lesson there for entrepreneurs is when you don't raise a lot of money, everybody does well with a relatively modest exit. If you raise a lot of money, then it has to be a large exit.
00:25:26
Speaker
Right? Only raise a lot of money when you're sure you can go all the way. Otherwise, keep it modest. Don't get too ambitious. Easy when money is thrown at you. Raise the money. When you, at the time of the exit, you'll realize it was the worst thing you could have done. Or it was probably not the best thing you could have done. But of course, in entrepreneurship, you don't get too many opportunities to build large companies. And when that happens, of course, you should take that opportunity.
00:25:49
Speaker
Every entrepreneur thinks he's going to win the large company. It's hard to have the ability to judge that, is this going to be a... And I think that's where, you know, advisors and investors also have to be pragmatic about it. Because by the time you get to CDs B stage, I can understand that seed, I can understand that CDs. But when you get to CDs B stage, when you're raising at 40, $50 million valuation,
00:26:13
Speaker
By then, you should be sure that you can go all the way. At least there is a reasonable probability that might be some other thing you might stumble on, which are execution risks. But at least there's no reason to believe it can't be a large company at that point. As opposed to, I still haven't found product market, but I still haven't found business model, but I think someday I can and therefore I should.
00:26:31
Speaker
So that's the part that I always counsel founders saying, look, if you're not a well oiled machine by them and you get a decent exit offer, I think you should seriously consider it because the path ahead is not proven. Success has not been proven yet. We have another situation with the company for an outstanding exit offer.
00:26:49
Speaker
And they had built an incredible product, but they had not yet fully broken out the same cycle. And of course, because of pandemic and things like that. And when the offer came, they said, look, we still think you can build a large company and we'll support you. But remember that you're
00:27:04
Speaker
betting on something that you've not yet proven. And I think the founder of the said, you're right, we have not yet proven it and we might be able to pull it off, but this is a good option and we should take it. What were the numbers for Ziptile? Like how much did you raise? How much did you get from the sale? So we, I don't know how much this publicly announced eventually, but we raised about less than 3 million, maybe 2.5 million from budget investors.
00:27:26
Speaker
And I think the early ones certainly got more than 10x out of the company. Maybe the latter ones, I think the last one probably got two and a half x, but in four months. So it was an outstanding outcome, but small amounts of money. As far as the second company at that time was ECTAP, which just exited last month to raise a pay rate.
Prime Venture Partners Founding and Strategy
00:27:46
Speaker
So
00:27:46
Speaker
This was the one of the much longer journey, had raised a lot of capital, although it had an opportunity to become a very large company. But we ended up partnering with Raise With App, and it is a pain. There's still potentially a lot of upside left in the journey. But I was solving Raymond's problem for retail offline payments, making them smart. But it is a company that started by building hardware in India. And we built point-of-sale hardware, smart hardware with Android.
00:28:10
Speaker
and a very ambitious plan. We actually had built devices that were certified and far more sleek and less expensive than what the Chinese manufacturers had made. But it was clear that over a period of time, they would overtake us because of their sheer scale and expertise in manufacturing, which we just did not have in India. And so at some point it didn't make any sense to continue with that.
00:28:34
Speaker
We turned into much more of a software company doing a front-end point of sale. So it literally was the only sort of credible alternative for the large companies to find labs. But it was much more designed around bank partnerships and a model that coexisted with the banks as opposed to competing. And it's done very well. It was profitable. It was one where I was again co-founder and chairman until the very end. But there was another couple of founders who ran the company for the first six to seven years.
00:29:04
Speaker
Then they left and then there was another, the CFO took over and became the CEO. Yes. And he saw it all the way through to exit. And it's actually a fascinating story to see that a known founder, and with all the founders having left the company, took the company to an amazing destination without really any material investments and things like that. And that again, was an outcome where maybe barring the, everybody actually would have made some return and then obviously earlier investors made a stronger return.
00:29:32
Speaker
So that was the start. And back to 2012 is when we said, let's start a bunch of fun. So it was a by easy to have Bala, Sheebati and I, all three of us used to work on Adhar. And all of us had worked in the valley, knew each other from different times. And we ended up starting venture capital fun.
00:29:49
Speaker
And that was the origin of Prime. So, Zabdai is easy to have by the early companies and then we started Prime in 2012. I have a question about EasyTap before we come to the Prime journey. EasyTap raised a fair amount of money and it had the potential to become a unicorn by now. What do you think happened there? What are some of those insights from that journey?
00:30:10
Speaker
Yeah, several of them, I think. Look, there were execution snafus along the way. The one thing, we have a celebratory party, and I'll say this, we got a lot of things wrong that we could have got right, but we got a lot of things right that we should have got right. And I think that was the story here, right? We didn't
00:30:31
Speaker
make like fatal blunders. But we certainly didn't get everything perfectly. And some of these things, they might seem obvious today. But if you rewind the clock, it's like a VC fund, right? We have companies that flip-flop after the seed. Now, when you look at it after it has flopped, it looks like an obvious thing. What were you thinking?
00:30:50
Speaker
But if you rewind the talk to when you made the decision, it seemed like a perfectly rational decision. Now, when you're running a company, unfortunately, you can't make two decisions. You can't hedge your bets. You have to make a decision and you've got to move forward. And only time will tell you if it was the right decision or not.
00:31:08
Speaker
So, for example, I needed upscales early on, we invested very heavily in hardware, right? So, though we raised a lot of money and we won some very strategic contracts in the company, in the country where, you know, with like SBI and stuff like that, but a very big part in margin. And it ended up, you know, at the time hurting the company.
00:31:24
Speaker
But winning is where the time seemed like a very important thing for us. So things like that. Now it could have been a huge moment in time for us. We could have had 10 million devices on the market and could have dominated the market if the partnership had been able to structure it right and executed it right. But it turned out that wasn't the case. And most entrepreneurs believe that whatever people say, my situation is going to be different. I'm going to pull it off.
00:31:48
Speaker
When you look at all of these moments, at different moments in time, great things are possible. At the end of the day, if you say, look, here's a company that when I started out, if someone had said, this is what the end game is going to be, I was like, can you write the check? Now, along the way, you have these moments where you say, oh, it could have been 10 times bigger. It could have been this, it could have been that. And so you look at it and then we had a similar situation with Happy, right? It's also put like a couple hundred big into credit.
00:32:15
Speaker
And someone asked me almost the same question. And I said, two young men walked into my office with a blank sheet of paper in 2014. And today, from nothing, they've created 1,500 cores of value with maybe 25 million in investment. Which part of this is a bad story here? What am I missing? What's the fact that it didn't become a unicorn? How many companies do become that, right? I mean, yeah, if you have 100 right now, I think that company is
00:32:39
Speaker
unfortunately going to shrink. I think many of the unicorns are not going to be only when not on solid footing. But regardless, I think on absolute number, if you say it was a blank sheet of paper, two 24 year old boys, and seven years later, it was 1500 crores with 100 crores invested, I think we would all be signing the check right now. So I think this is the part that I think in our industry, unfortunately, last year, we got very greedy and we saw a bunch of these unicorns being formed in the crazy overhyped market. And
00:33:08
Speaker
And we have to celebrate the mid-size outcomes more because these are going to be material, right? And there are going to be several investors, several founders, several employees who are going to make life-changing returns, especially the employees and the founders level. And that is the fuel that we need to have in the startup ecosystem.
00:33:31
Speaker
The unicorns, the decacorns will be too and far between and they will inspire people. But the reality is those happen more by exception than by a plan. I don't think anybody expected all of these companies to fire on all cylinders perfectly and the perfect storm of UPI and all these things to happen. So I would say, yeah, it could have been much bigger and could have also gone to zero. We have to put that in perspective.
00:33:55
Speaker
I think what they ended up achieving I think is to find a home with a high quality company like Razorpay and so on. It's an outstanding outcome at the end of the day and it's a win for everyone. But in these things, not everything ends up being 100X and that's reality. That one SBI snuff who kind of derailed the trajectory and then once Bias came and then he probably like did a little bit of reorientation.
00:34:19
Speaker
He's straightening things out because he's here, boy, look, I said, this is rubbish. This doesn't make any business sense. Let's fix all these things. I think what happens with startups is sometimes you're very greedy and sometimes you think this is the only time I'm going to do this. And yes, it doesn't make perfect business sense. In the long run, it's going to work out. And sometimes it doesn't.
00:34:36
Speaker
Yeah, like everyone likes to pay themselves with Amazon, but it wasn't losses for X number of years. And so this is part for the course. What worked well for EasyTap was eventually when we asked the hell was he realized that some of these things had to be streamlined and enough. And that's why I said the things we should have gotten right, we did the things we could have gotten right, we didn't get all of them right. And that was the story.
00:35:03
Speaker
Coming back to Prime, you started Prime. You were not very active as an operator for both Siptile and Easy Type. You were mostly like playing a strategic role. Yes, which meant that I used the product. I did everything, but I never took the responsibility for it. Somebody else was running it. I say that slightly tongue in cheek because I used to sit down and spend a lot of time on the product side, starting in the same execution. I would go and meet customers in the early days, but it was clear that the role was never going to be operating.
00:35:33
Speaker
So we're now investing, we fast forward to today, we're investing our fourth fund, which is $120 million. When we started small, we started with the first fund, which is not yet, not quite 8 million. How did you raise the money? Was it domestic investors or did you? So far we have largely raised from overseas investors. I think the regulations are now going to make it easier for us to mix both domestic and overseas. But earlier we had these challenges around long tripping as it's called. So we focused primarily on overseas investors exclusively.
00:36:02
Speaker
Was it tough raising that first fund? The first fund was I have to credit my partners, but they had very strong relationships in the Valley. And so it was a lot easier because we had already started Zubdial and EZTAP and there was something to show. And many times I talked to a lot of new VC funds and they always say, Oh, I'm going to raise blah. And they end up spending one year, two years raising. We did our full fundraise in four weeks, maybe.
00:36:25
Speaker
Whatever we get out of this, that's the first one, right? And we just bam, and we started focusing on investing and we had a running start with Zebraal and EasyTap and it was something to show already. So people struck any scale of series. They've already been doing it, right? Though it was the people who started the companies too in those cases, we were not in that role, right? So I think like all things with entrepreneurship, we approach it as entrepreneurs. Our startup is a VC fund. Yes, we are founders. We're entrepreneurs.
00:36:49
Speaker
And we, I think, got, of course, very lucky with the initial support that we had, but we stayed very picky. We didn't deploy a lot of capital for a long time. I think the first 18 months, we had one very small investment, and then we met Hacker Earth and Happy, and that was really the start of it. And so we went for two years with our salary because we said we can't keep drawing capital just to pay ourselves unless we fight companies to invest in. So,
00:37:14
Speaker
Everybody glorifies life as a VC. It is a lot of hard work. And you tend to do reasonably well financially, regardless of which company does well. That's true. And that's business that we are in. Basically, portfolio theory. It's a portfolio. And if you're in that one company and you have a founder, of course, you're going to do very, very well. But as a VC, as long as one of the companies or two of the companies do well, you do reasonably well.
00:37:37
Speaker
by yourself. But it takes time. And one of my partners, she would be telling me, when take Apple is a get-rich-slow scheme, Sanjay, be ready for that. And it's true. Nothing happens fast in our business except you could lose money very fast, but you certainly can't multiply it. You have to take the long-term view and be very, very aligned with your stakeholders. And we have two stakeholders. We have our LPs, we have our entrepreneurs, right? And we are not aligned with them at any point in the relationship next door.
00:38:05
Speaker
So you have to be aligned with them. Then everybody in this industry is happy to reward performance. Just like we are happy to reward entrepreneurs when they're doing very well. Maybe it's a bonus MSOP grant or something like that. RFPs are happy to reward us if we give them great returns. And that's an alignment of interest here, right? There's one thing I've learned in this industry is just try to be fair, transparent, like common sense rules and good things actually happen over time.
00:38:30
Speaker
And you have to play the long-term game. So it's not to get the fast game for sure. And the moment you do that, actually, people look at you very differently. We have had LPs. Today I had some meetings. And now I've got IFC as an LP. But you can meet people for years. And all of a sudden, it's OK. Now we're ready to move forward with you.
00:38:47
Speaker
And you have to be patient and good to them. You can't just say, well, I met him three times and he's not doing anything. So let me stop hitting him. It's also very cottage industry. So your reputation precedes you and both good and bad, especially bad. So you got to be very professional in your dealings with people and so on.
00:39:06
Speaker
And if you think about the large funds here in India, many of them don't necessarily have to go and raise the capital because they're Indian entities of large global brands. But people like us, we do everything, right? We are entrepreneurs. We have to go raise capital. We have to go find out where to manage the capital. We have to work through the returns, etc.
Investment Philosophy and Criteria
00:39:24
Speaker
And it's important for us to have this very complete 360-degree view and balancing the time.
00:39:30
Speaker
We are not out raising a fund when you're raising a fund, you're always fundraising. And many a time you meet someone and say, we are now in fund four, okay, we'll start courting you guys and maybe in fund six we'll show up. They also want to see us perform over a period of time. These are all multi-billion endowments, family offices, and there's a lot of domestic capital also coming. These are long-term relationships that they look at.
00:39:51
Speaker
How big is a fund for? $120 million. Almost like a 15 X of your fund. Yeah. Yeah. And I think I have to say, if I look back at it, it is really humbling for us to see how, what we started with. We have no idea what we were doing. We didn't understand the business at all. We learned the business, but we were really fortunate to have people who supported us.
00:40:13
Speaker
with an intent that they seem like good, honest, authentic people. They are going to try their best and maybe some good things will happen. And I think either our first fund has already delivered and returned property-style returns in more than four weeks to all our IPs. And the second fund is doing what all our funds are, thankfully, doing probably amongst the best in the country.
00:40:33
Speaker
How did you hold your skills as an investor in terms of being able to take that, call that, okay, this, I want to invest in? Oh, Akshay, we made more mistakes than got things right. That's the reality of it. This is a business where there will be mistakes of omission. What we cannot afford is mistakes of commission. So we will miss out on companies that will give us outstanding, that would have given us outstanding returns on a daily basis.
00:40:58
Speaker
The only thing that matters to me is what robots make it to our wall. Then once it makes to the wall, then we're all in trying to make that company successful. And with three partners, Shepa Diamit and myself, and we have two partners in the US who are partners that matter to us, as we call them, work closely with us.
00:41:15
Speaker
The only thing we look at is the companies that we do admit into our portfolio that we are privileged enough to work with, what can we do to make them successful at all times? When success and everybody comes in thinking they're going to build a large unicorn of a company, but in reality, it doesn't work for everyone.
00:41:31
Speaker
And the ones that end up doing very, very well, of course, we do very well thanks to them. But to the others also, these are founders that are trying very hard and we have to do everything we can to try to make them successful up to a certain point. And if not, try to find some safe outcome for them because the outcome might still be material to the entrepreneurs, even if it can't be material to us.
00:41:54
Speaker
So we constantly are looking out for, okay, things are not going great. Okay. How do we help them? Maybe we help them brainstorm through a few things. So we end up spending more time with the companies that will probably not end up giving us crazy returns than we do with the companies that will. And sometimes it's a dichotomy of that because logically one would say, Hey, if the guy is not going to play in the IPL, stop wasting your time poaching him.
00:42:15
Speaker
But you can't apply that here. Not that we could keep coaching me to get into the IPL, but you know, it's important for us. The commitment we give our founders is we do everything to try to make you successful, right? There's no guarantees here. And it may not be this startup. They may do the next startup that might be successful. And this is a business of referral and reputation. And most important thing I want is when LPs meet us, they say, okay, you are executing the plan you told us you were going to execute, but that's why we invested in you.
00:42:43
Speaker
I say that we're going to invest in 20 companies and put X million dollars per company to work. And I end up investing in 200 companies with one tenth of X. I might still give them a great return, but they'll say, you probably got lucky because this is not what you told us about what we should do. So it may not be a reason why they would continue to work with us. And if you're building an institution, you have to build a relationship. The same thing is true with entrepreneurs.
00:43:06
Speaker
I would tell all the entrepreneurs, you know, kind of marketing guy, I'm, it's a product guy, she's the knobs guy. They're all, all available for you. And then once we fund them, if neither of us is available for them, we might get away in that particular transaction, but what we'll get around that is they'll say all these things. They don't do any of it. I think it's very important for investors to know what game they're playing and to be very transparent about the game with founders.
00:43:28
Speaker
And that's where the match happens because the money, good companies will always be able to raise money. They don't have some valuation that we might analyze from each other a little bit. But outside of that, why are you working with us? And why are we working with you? That has to be clear to both parties, right? What am I willing to do for you? And what do you need me to do for you? Because some entrepreneurs would be awesome in marketing. They say, Sanjay, you might be a great marketer, but you don't need your help.
00:43:50
Speaker
And some might be great in operation and they don't need ship with these inputs. Some might be quick as product guys and some might don't worry about our product we got it. If we have something, we'll come to you, but we don't need you. So we need to be very clear amongst ourselves and with our founders. Why is this a right fit for us? And why are we the right partner for them?
00:44:09
Speaker
And when there is clarity there, I think it's an obvious fit. Of course, there are the routine things of, is this a large opportunity? Is this team capable of building up on it? Is this team likely to be able to fundraise? Are there going to be follow-on investors that will want to invest in this area? Are there too many competitors? Is this likely to happen now or is this likely to happen five years from now? And then should we be pausing on those things like that?
00:44:32
Speaker
may not agree with the founder. We might think that it's around the corner and we might think it's five years out and we might both be wrong. We might actually be one year out and somebody else might be doing it slightly differently, but better. All these things are there, but ultimately it is about being comfortable with each other.
00:44:48
Speaker
Do I think I can really hang out with Akshay when they're going and stuff and he calls me at 3am and I say, oh shoot man, this guy, I don't want to deal with him again. Or am I going to say, how can I help? It doesn't matter what time of the day it is, please keep calling me if there is a problem. And I always have this thinking that good news takes the staircase, bad news takes the elevator. So you should want to call me and say something went wrong.
00:45:10
Speaker
But if you are also, if we end up in a situation where you say, Oh my God, the last day I want to tell about this is Sunday, right? It's a bad relationship, but it's a bad situation. Remember we are in the cap table. We are in this together. Both of us sink or swim with this thing. And we need to get to shore to a safe harbor, right? Whatever it might be. And so I think that feeling that we can work transparently with each other in bad time is more important than anything else. And of course we are all happy in good times.
00:45:40
Speaker
Because in a startup, 360 days of the year, crap, five days of the year might be good. In a leap year, 361 days are crap. You're always in that mode and you don't get any respite here in this business. Either there's a competitor who showed up or there's a customer who's upset. And as we see with 40 companies, 50 companies in our portfolio, every day, somebody's having a decent day.
00:46:02
Speaker
Somebody is having an exciting day. And we see all the emotions on the same day. And we have to be in this mode saying nothing is as good as it appears. Nothing is as bad as it appears. Then the guys and sometimes there's an entrepreneur that's very lonely. And you're sitting there going, oh, shoot, man, you know, I am dead here. There's this company that was going to make it. And we have to be the cheerleading squad for them. I remember the whole time in the early days of my gay twin.
00:46:26
Speaker
The founders told us one day, they said, when we come out of your office, we feel that these three guys are more excited about our company than we are. And what's the best thing that we are not seeing? And at the same time, sometimes these guys are crazily optimistic and euphoric, and we have to show them the mirror and say, this is not happening. And if we don't, the market will do that. And it's expensive for everyone when that happens.
00:46:46
Speaker
I want to understand what are the filters you apply when you invest? Do you look at revenue positive or do you also fund that pre-revenue stage? Do you look for young founders? Do you look for tech-first kind of companies? Are there sectors that you are more fond of? All of the above and none of the above are.
00:47:09
Speaker
necessary and sufficient conditions. I think tech first is important for Prime because we are technologists and we believe tech is the only way in which we can solve problems at scale. But outside of that, we have founders who didn't have an idea, but like the space of founders who had a product with a million dollars of revenue.
00:47:28
Speaker
and everything in between, platform teams, fully formed teams, et cetera. Now, of course, the quantum might be different. In some cases, we might be able to fund two and a half million. In some cases, we'd be probably funding 100K and say, hey, let's work together here. Because we are the early stage investors and we like to do category creating companies, like when we funded my gate, there was nothing like it. Right now, yeah, there are probably a couple of others attempting to copy it.
00:47:52
Speaker
But it's not like heavy proven in any other part of the world because the concept doesn't exist, right? Americans can now visualize what it means to use MyGate because they don't live in gated communities in that part of the world. So you can't say that, oh, this happened in China, this happened in the US and it's happening in Europe. It will happen in India.
00:48:09
Speaker
not how it works here, but we are very excited when we can apply first principle and say, this could happen in India and at scale. So that's something we love to do. Now, that doesn't mean that we will do everything that has never been broken anywhere in the world. We will also look at a few things that, you know, so the real things that we look at, there are the three T's, team, time, timing, because the most outstanding of entrepreneurs
00:48:33
Speaker
We might be able to build a market-dominating company, but the size of the market is tiny. The price is not worth winning. It is just not worth winning yet. So that is the first and most important thing for us. And the second part is the timing. I was wrong in mobile payments on the timing with them check. Of course, it was hindsight that told me that.
00:48:51
Speaker
But it just, and I was, but I was not wrong by that long. You can't give up in four or five years. It's not that much, but it was just off from a timing perspective. Ideally, you don't want to be late on timing because the biggest companies happen when you just get the timing right. So this is the, are you on the leading edge or the bleeding edge or the trailing edge? If you're on the trailing edge, you miss the opportunity. And so these are where you might make some mistakes of commission, but it's only hindsight that we tell you that.
00:49:16
Speaker
There are certain things we look for in this entrepreneurial learning machine. And this is why I say this is sort of stupid that people say, oh, I just did a check in the first meeting. In fact, I tell founders, why do you take the check you got in the first meeting? Because that person does not know about you unless you know that person who's investing.
00:49:33
Speaker
How are you going to know if when things go wrong, you want to talk to this person? So it's actually, it seems very tempting for founders, but it's I think the wrong thing at sea. And later on, it's a different issue to the business running and you just need the cash. But early on, it's very important to be careful about when you pick on your cap table and your early stage entrepreneur. And we look, of course, at those interactions. I was giving some examples yesterday. People will say, oh, how do I contact you? You are an entrepreneur.
00:49:59
Speaker
If you can't figure out, my name is Sanjay Swamy. I happen to be the founding partner at Prime Media Partners. Our domain is for MVP.in. Can't figure out my email address seriously. And you would think that, you know, the number one thing I'm looking for is hustle. If you can't figure out my email address, how the heck are you going to go and contact some head of product at HDFC bank and say buy my software, my security solution. I look for some of these signs. I don't necessarily hold it against founders, but I
00:50:23
Speaker
They really love it when found themselves. That's what I've done is in sales, they just sent cold emails. Oh, tell me when you're three. No, you tell me when you want to meet. If I was to do that, I would end up living there. I hope some of you are listening to learn from this letter, it's with us or anybody else.
00:50:40
Speaker
You need to meet somebody in Mumbai and you're sitting in Bangalore. What do you do? You can tell and look, I'm planning to be in Mumbai sometime over the next couple of weeks. Is there any day that works better for you? Buy your ticket and say, I'm coming on the 27th. I hope it works for you. That's an important meeting. You do a few things. These are not lies.
00:50:55
Speaker
being clever about it. He said, well, you know, 27 of them is a board meeting and I'm back, but the 26th works. And now it's too late for you to see, just committed that you're only there on 27. That is, if you had said all the work you did, and he says the trainings work, you can travel on the 26th or you can say, Oh, let me try to make it work. I'll get back to you.
00:51:13
Speaker
You've got to be learning machines, you've got to understand, and we look for that because professionalism is about how you interface with people because it's not me, it is your customers, it is your employees, it is your next round investors that you're talking to. Can you hold a dialogue and you have your voice? I always tell founders, look, there's a thousand of our species.
00:51:32
Speaker
There's one of you, your company is unique. It's the only thing. And you need to be the one that has to be in the privileged seat, not us as investors. The moment you think that the investors are the ones in the privileged seat, you've lost the plot. And so it might not be helpful to us, but I always tell founders, look, you have to remember always that the right to invest in the company is something you are giving investors. We're not taking on that. We are requesting you for that. Then you have to feel really comfortable. You are evaluating us.
00:52:00
Speaker
I start so many meetings, I tell founders, I'm not sure what you know about us. I'm happy to tell you about what we do. Nine out of 10 will say, we know everything we have read about your website, you read your blogs, you read your things. In my blogs, I write the same thing. You clearly didn't read my blogs because my blogs, they asked me questions in the beginning. And I'm imagining saying, Akshay is going to, sorry Akshay, I'll use you as the example. He's the entrepreneur and he wouldn't even bother to ask me what my thesis is on this topic.
00:52:25
Speaker
When he goes to a customer, he's going to behave the same way. He's going to rattle about everything about his product without knowing if the customer has this problem or not, because every product has actually got 17 features and the customer needs three of them. And the opportunity in the first five minutes to ask questions is because
00:52:41
Speaker
The customer is going to tell you which string really matter. And that is it. You have to dynamically think, say, let me not waste my time with this first 14 features because there's those last needs and don't sell beyond the clothes. Things like that. And that's what they're evaluating in the meeting. If this is how bad he is in front of us, he's going to be the same in front of the customer and this company never going to be successful. Between raising funds from LPs and finding good entrepreneurs, which one is more challenging?
00:53:06
Speaker
I'll tell you which one is most exciting. Actually, both have this. When you get really high quality LPs and they ask you the most difficult questions about why you invested in this company and why you think it's going to be big when nobody else sees it, et cetera, right? It's really exciting. And people look at results and numbers and say, what is your process for this and how do you do this and what is this? It's like the most boring conversation.
00:53:30
Speaker
But when they challenge you about companies, and we've been very fortunate to have some of those, and they ask deep, insightful questions. One of our LPs or prospective LPs actually signed up for the service of one of our companies and started using it and had feedback. It is so awesome to have somebody like that because they really are getting into what we really do because the operational side of running a VC fund and the numbers we do, these are not targets for us. These are output metrics.
00:54:00
Speaker
The real thing is the real business is it's talking to an automotive engineer about the car that they designed, but making a decision based on the seat covers, right? It's not the car, the car is the engine inside, you know, talk to me about it, right? Because that's what's going to give you the zero to 60, right? Not the seat covers. I love it when people get into the guts.
00:54:18
Speaker
because ideally we've done very thoughtfully. And if we made a mistake, we have learned from it. And when people challenge us, sometimes we actually realize even in those conversations, yeah, this is, we had not thought about it that way. It is not a bad thing. It's that we need to be a learning machine and because we are also on.
00:54:35
Speaker
Now, when it comes to entrepreneurs, it's exactly the same thing, right? When you meet somebody that has so amazingly thought out the ways this could happen, the ways, what could go wrong and how they could fix it and, but why you would despite all this in
00:54:50
Speaker
some corner of this thing aligning with that thing, aligning with that thing, et cetera. This is like such an incredibly transformative solution. We may have been on fund them, but it's just so exciting to reach out to them because I've worked several years of experience as a polite way of saying I'm an old man.
00:55:07
Speaker
I stayed, I think, young because every Monday morning or every day of the week or every time my phone rings, I'm thinking, who is this next guy who's going to come up with something where the exciting guy can be in both genders, of course. And I'm looking forward to that. I wake up in the morning, I look at my email and go, oh, this guy sent me a plan. Without my glasses, I start reading the planners.
00:55:26
Speaker
It sounds really exciting. I got to meet this person, right? And every day live in that hope that the next person that's going to call you or email you is somebody who's just going to come up with something so breathtakingly exciting. And so we're not hunting for them necessarily. And hopefully it's a match that somebody else has facilitated with an introduction, much like an added match. This term is also the same.
00:55:49
Speaker
And of course, knowing the reality that we will back less than 1% of those we meet. And that's the sad part because sometimes you get so excited about the business or the opportunity, but it just doesn't make sense for us at the fund level or I get excited, but my partners don't or my partners get excited and I don't, things like that.
00:56:10
Speaker
Of course, the amazing thing about a tight-knit partnership where there is complete trust that the only reason we didn't support it is because we honestly couldn't get convinced. We've been very fortunate to have that kind of a partnership, and that's how it works the best. When everybody's convinced, we just are fully aligned. If a company has some problem, immediately everybody is available for it. Nobody's saying, I told you that was never going to work. And that's actually the worst thing that can happen in a partner.
00:56:34
Speaker
Our philosophy has always been, look, everybody can veto the deal, similar to the hiring, the other thing. And even if we disagree before, once we decide we are going to do it, then everybody's all in. Then there's no more statement of, I told you it wasn't going to work. So that is a culture thing. But I think the most exciting thing, of course, is meeting new entrepreneurs, no
Excitement about Indian Startups
00:56:54
Speaker
doubt.
00:56:54
Speaker
you get to learn about their space. What are some of the spaces or technologies that you are interested in? I am most excited about anything that is digitizing things in India. If I look at my gate being the front gate register intercom that got digitized. If I look at Beelzai, that is one of our portfolio companies in the logistics space, they're digitizing the fleets and trucks for the small fleet owners largely. If I look at
00:57:19
Speaker
dozy, which goes under the mattress and digitizes, it automatically records heart rate, respiration rate, blood pressure for all patients. In government hospitals, the doctor is able to walk in at nine o'clock and know that patient on bed number 73 and 94 are the two critical ones rather than going one, two, three, four, five, and it's like completely changing that.
00:57:40
Speaker
really exciting company called Bolt, which is designing, you know, helping design EVs and make them smart and, you know, and also has got a large charging network, etc. Companies that are really doing the unthinkable, NIO, it's like such a crazy banking experience you get when you download that app. And I have my US bank account also with Wells Fargo Bank and
00:58:01
Speaker
app compared to the experience. It's one of the better ones in the U.S. Today, a friend of mine said, I'm buying a hearing aid for my dad. Can you remind us buying it? Then I'll pay you in the U.S. And I said, okay, I'll show you my account details. And I looked at the app. There was no way to share the
00:58:16
Speaker
account details. But, you know, the first word is to share what you click on it and you can share on WhatsApp, whatever. And so things like that, you look at and you say, my gosh, we're so far ahead in India already on some of these things. And, you know, so this digital India thing is happening at crazy scale. And if my founders have not been mentioned in this podcast, I apologize to them because we think all of them are exciting. And so digital India, digitization of India and services built on that. We have another one in Agri, another one in supply chain financing, a couple of them actually.
00:58:46
Speaker
It's just happening at scale. This urban company guy came and was giving me a massage at home and he said, he has a baby and neither is going to go see the baby next week. But he had the loan that he wanted to repay a little bit. And I said, who gives you a loan? And he said, money tap. So I got it. I tell you, I almost broke down. I was like, wow, I've been so good about this moment. And he got scared. He said, sir, I have a lot of customers. And I said, I have a lot of customers.
00:59:12
Speaker
I want to know more about how this thing helped. He gave me a lot of feedback how he thought the service should have been done, why it could have been better, but what he loved about it and how they really helped him at the right time in life. We are able to have an opportunity in India as investors and as entrepreneurs. It's a unique point in time, I think, in India, where the brain and the heart can be aligned. And by that, I mean
00:59:42
Speaker
you can do the right thing and you can make a lot of money doing so. It's a perfect situation, right? Because all of us after, at the end of the day, we want to leave our legacy as we solve some real problems for people. You don't want to leave a legacy, otherwise I've made a ton of money. That's the least of it, right?
00:59:59
Speaker
So financial success and I always tell myself every day and I tell entrepreneurs every time I meet, to me financial success is an outcome. It's an outcome of doing the right things. Yes, Gautam Adani is the number two richest man in the world today. But I don't think he went in saying my goal is to become the richest man on the planet. His goal is to solve these problems and
01:00:17
Speaker
do it right and do it ethically and work hard sincerely and do it, good things will happen. Now, is he the number one or is he the number 10 or the number 23 is irrelevant. There's more money than you can ever fathom and need. And none of that is anyway something that he plans to spend in his lifetime. So for all of us at much different scale, of course, the intent here is really to solve real problems and make a living doing so.
01:00:41
Speaker
we make a good living, a great living, an outstanding living, a spectacular living. It doesn't matter beyond a certain point, because then the responsibility is, okay, now we have to get into the giving phase of our lives and how do we do these, etc. So that becomes important over a period of time. I think
01:00:56
Speaker
And that is the first part that we can really align the heart and the brain and do great things that solve real problems for people, bring them forward in life. And at the same time, while delivering good returns for investors. And interestingly, all of our LPs end up being pension funds and endowments and foundations who are going to take the proceeds and the profits of this and turn it back into building a cancer hospital or doing some cancer research or doing this or doing that.
01:01:24
Speaker
it feels like just trying to make rich people richer. The purpose of adventure capital and the returns that they generate, he ends up going back and furthering the cause of society and mankind. So it's a funny way of saying, here's an opportunity to continue to go across the board and yet also hopefully do well eventually for yourself too.
01:01:43
Speaker
And I think what you do with it is the responsibility that we all carry. And I think to get more advanced in age, you start thinking about these things a lot more and saying, look, how do we make sure that good comes out of this as well? And when you evaluate entrepreneurs, you start sometimes looking from that lens and say, yes, they also, because they also have to be good people, which means they look after their teams properly. They will look after their, they'll have the right work ethic and work culture. And all of this, it ends up lining very well in the long run.
01:02:11
Speaker
I think we are so lucky to be in an environment and in an industry where we have an opportunity to make a decision here. And people like you also, you get to interact with so many people, you get to share the word, you get to think that we also run a podcast of our own focused on.
01:02:28
Speaker
on entrepreneurs. I think the luxury, speaking from my side as a podcast host, not a guest, it is such a privilege to talk to some of these people and hear their life journeys. And so much of good is happening and it doesn't get shared with people. And today the internet is really enabling a lot of that to happen. So it's a great point and time for us to be working on these things.
01:02:50
Speaker
There's one last question I want to ask you. I know we've overshot our time, but I want to understand what causes these cycles in the venture capital funding, like you said, that the last two years were excessive valuation happening.
Venture Funding Cycles and Economic Impact
01:03:03
Speaker
Then before that, there was another period of semi-winter at our gate. People are saying that winter is coming. What causes these cycles where there's certainly a lot of money, suddenly money dries up and
01:03:14
Speaker
Yeah. So I wish I could explain it like an economist would. The way I see it, look, technology creates step function, like growth. And every six to eight years, you see a new cycle of technology where new levels can be achieved. And now, you know, AI is there and you have distributed web with Web 3 and things like that. Now, like vehicles, you know, these are the step function.
01:03:39
Speaker
changes. Seven, eight years ago, it was something else. It was more, you know, connecting the dots, distributed systems going to the cloud, etc. And I think those moments, people realize these are gold rush opportunities. And so entrepreneurs come out, we don't know what's going to happen, but we know something exciting is going to happen. UPI in India, for example, everybody knew something big is going to happen. Nobody knew what.
01:03:59
Speaker
So that attracts a lot of interest, both amongst entrepreneurs and investors, saying, look, this could be the next big thing for the next wave of further. And while that's happening, some fundamental research is going on, preparing for what's going to happen seven years from now in the next big thing, right? And those are the sort of building blocks for the next wave. And
01:04:18
Speaker
Of course, at some point, what ends up happening is the winners start separating themselves from the not so great ones. And that's when you start seeing sort of this thing drying up because we were like, okay, the winners have been created now. There is no room for some of these. And then so that's one way of looking at it.
01:04:34
Speaker
And then you go into this mode where you're like hunkering down, starting to build. This is the best time to build if you're a founder, right? Because you know that by the time you have validated, got product market fit, business model taken care of, et cetera, people are going to come back to the table with a lot of money saying, okay, what is this new exciting stuff that's going to happen? And I liken it to sometimes driving a car, you're on the highway, you can't be going in fifth gear all the time.
01:04:58
Speaker
you need to pause, you get to refuel, you got to slow down a little bit, maybe there are some portals in the road, maybe there is some construction work going on, you got to slow down and come back up with more energy and so on. So now it ends up being tied also to, you know, interest rates and inflation and all of those issues where money becomes cheaper and more accessible, you know, more money stays in the private markets.
01:05:21
Speaker
So the more economic reason here is, of course, generally, if you see from an investor perspective, you have a portfolio that is part public, part private. That's how you balance liquidity and long-term growth. And what ends up happening is, as you've seen now with interest rates going up, the public markets get deflated. And now suddenly venture capital is a
01:05:40
Speaker
disproportionately higher share or private markets is disproportionately higher share than public. And so as an investor, you can't have that because you're managing large hedge firms at university. And so I'm pausing any new adventure deployment. And so that causes a deflation as well. And until the public markets pick up and become a larger percentage of the more reasonable percentage of portfolio, and then more deployment happens in private markets. So I think
01:06:06
Speaker
at all levels, everybody ends up having reasons for it. But I think in tech, what ends up happening is you have these every seven years, something new that keeps reinventing and that creates 10X opportunities and that creates a gold rush. So 2020 to 2022, I'm guessing that in the US, there was that Robinhood led bump in the stock market in the US because of which more capital would have got allocated plus
01:06:30
Speaker
There was that whole remote new normal theme because of which the land grab opportunity was there. So both of these trends would have contributed to the high amount of capital chasing startups. Yeah, I think several things, right? There was a once in a lifetime, hopefully, situation with the pandemic and it created some new short term winners, but it created a change in work culture. It created a change in how people looked at, look to discover products, look to procure them, et cetera.
01:06:56
Speaker
And some of these are temporary, some of these are permanent. And the ones that are temporary, you're seeing some contraction that's happening now because they're going back to the physical world.
Market Challenges and Opportunities
01:07:06
Speaker
But the ones that are permanent will continue to do well, although they may see some top-term contract. Zoom, for example, probably got overheated as a company because it was the only way you could do business.
01:07:16
Speaker
But it still is here to stay. And it's probably now much more robust and stable. But in the short run, because of the slowdown in its usage, it's probably going to take more of it than it deserves. And then it will come back to a more stable thing. I think the pandemic was an unusual time where things got crazily heated up because everything remote became the way. But over a period of time, I think that will stabilize down.
01:07:43
Speaker
Hopefully, we don't have these crazy moments where you have that, you have the board in Europe, and all of these crazy things. Of course, climate change is also one which is going to throw a lot of unpredictability into the future. But overall, I think it's just going to be a matter of just accepting that things never go up monotonically and linearly, and downturns are actually opportunities.
01:08:05
Speaker
It may hurt some, but it is also going to help others. And we see companies of ours also that were overheating, that were spending wildly and getting great traction. The moment they realized that capital is going to be a little more scarce, they were introspective. They looked at their execution time and said,
01:08:21
Speaker
my God, we've been so inefficient, we've been wasting so much money. And I think now some of those may die because of it as companies. Some of it might, some will come out stronger and those who come out stronger will actually be much leaner, meaner and more profitable companies.
Entrepreneurial Journey and Mindset
01:08:37
Speaker
And some, so for them, this downturn is indirectly a blessing because otherwise they would have just been very inefficient companies and that's never good in the long run.
01:08:44
Speaker
But for the one that sort of died because of this, this is bad news for them, one would think. But my view is that, see, if you're building a lasting company, knowing what you said every six to seven years, there's going to be a cycle correction. If you want the company to last, you know, 30, 50 years, then you have to be capable of extending the cycle correction.
01:09:02
Speaker
For the young entrepreneurs, the best thing is they're starting at the worst time. And so they're going to have hopefully a five to seven year run where it's only going to keep getting better. Whereas if you started in year four of the cycle, then you had only three years before. So everybody says, oh, I'll wait for the market to get better before I start. It's the wrong thing.
01:09:20
Speaker
you're going to have less and less time to prove things out. Whereas if you're starting now, you're going to get the maximum time to prove things out, but it will be difficult now. But everybody says it's too difficult here. This is not meant to be easy. If it was meant to be easy, everybody
01:09:35
Speaker
would be doing it. It's meant to be difficult. If it was straightforward, easy to do, and everybody could come and take money and start building things, then what's the fun? It needs to be difficult so that there's the feeling of accomplishment. And you're really doing the right thing and doing it in a smart and intelligent way and not focusing on the outcomes. I think this is the one thing, one takeaway that I would love for you to have is don't focus on the outcomes. The outcomes will be what they are. That actually is the last thing you can control.
01:10:04
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 this 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 this show? I'd love to get your questions and pass them on to the guests. Write to me at ad at the podium dot in. That's ad at t h e p o d i u m dot in.