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Why 70% of India Is Invisible to VCs | Jyotsna Krishnan (Elevar/ EPIC)
0 Playsin 4 hours
India’s real economic engine isn’t in big cities - it’s in the 400 million+ people building, trading, and growing across Middle India.
In this episode of the Founder Thesis Podcast, host Akshay Datt speaks with Jyotsna Krishnan (Managing Partner, Elevar Equity; CEO and Co-Founder, Epic World) on how to invest, build, and scale startups for India’s underserved majority.
With 15+ years in impact investing, Jyotsna shares how Elevar Equity has backed 50+ companies, catalyzed $3B+ in follow-on capital, and impacted over 60 million low-income households - proving that profit and purpose aren’t mutually exclusive.
She also introduces Epic World and Epic Intelligence, a data platform designed to map the $10 trillion informal economy of entrepreneurial households in India.
Key Insights:
👉Elevar’s customer-backward investment thesis
👉Why India’s middle 70% is the biggest untapped market
👉Building startups with distribution, dignity, and deep context
👉Epic World’s vision to productize ground-up insights
👉Why Middle India needs its own startup playbook
👉The real size of India’s economy - beyond GDP metrics
#ImpactInvesting #IndiaStartups #FounderThesis #MiddleIndia #VCIndia #SocialImpact #CustomerCentric #InclusiveGrowth #InformalEconomy #StartupIndia #MSME #StartupPodcast #VCPodcast #BusinessStrategy #InvestmentStrategy #StartupEcosystem
Disclaimer: The views expressed are those of the speaker, not necessarily the channel
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Transcript
Impact vs Traditional VC Investing
00:00:00
Speaker
What exactly is impact investing and how does it compare to traditional VC investing? A lot of Investing has moved away from conviction-led calls to trend-based investing, right? There are models where there isn't trade-off between impact and returns.
00:00:18
Speaker
If you get the business model right, if you get the method of investing right, if you are truly connected with the end market and the pulse of the customer. How do startups successfully scale and become blue chip companies is the question you need to answer.
Jyotana's Passion for Impact Investing
00:00:44
Speaker
Jyotana, welcome to the Founder Thesis podcast. um The one big ah thing which I'm looking forward to learn from you in this conversation is about impact investing and the India opportunity.
00:00:57
Speaker
um ah Let's start a little bit with why you are the right person to learn this from.
00:01:06
Speaker
Thanks, Akshay, firstly, for having me on this show. um Why is this why am I the right person to learn this from? um I would say two things. One is I'm deeply passionate about what I do.
00:01:19
Speaker
deeply, deeply passionate. This is probably the single most important and exciting thing that I could have thought of. um Secondly, ah it's just been close to 15 years.
00:01:30
Speaker
ah And i've my first ah thoughts about this space, of course, date back to 1999. But in a practical manner since 2011, I've seen a fair amount of evolution in this space. So happy to chat about it. And I think it's it's going to be very exciting for the next 20 years or so.
00:01:49
Speaker
I think what you maybe did not mention out of humility is that you run Elevar and you're now also building Epic, both of which are focused in this ah space that we are exploring.
Elevar's Impact and Strategy
00:02:02
Speaker
um What is the portfolio size of Elevar? How many companies have you funded? What is the AUM or the total fund size ah under Elevar?
00:02:15
Speaker
So Elvar now overall has been working with companies for close to 20 years as a partnership. ah Over time, we've backed north of 50 companies.
00:02:27
Speaker
um These companies have raised ah over close to $3 billion dollars and have worked with 60 million households. But the part I'm most excited about is, and as we speak, we'll understand why I'm excited about it. I'm most excited about the fact that these companies have done business worth $40 billion dollars or north in terms of transaction value with this customer segment in a commercial manner, right? So in in many, many, many sectors. So we've actually gone from financial services to healthcare, education, MSME services, agri supply chain, and across the board, we've seen how economic vibrancy meets business models.
00:03:05
Speaker
for a segment that is otherwise seen as not ready for business. So that's the exciting part about the experience of Elevar. We are on our fifth fund. um and And I guess we've invested across India and Latin America over the years.
00:03:18
Speaker
India has, of course, been a ah fairly large flagship market for us. and How much have the five funds in total raised? um We've raised close to $450 million dollars over the years.
00:03:31
Speaker
Wow. Amazing. so Okay. Okay, ah so with that out of the way, help me understand what exactly is impact investing um and how does it compare to traditional VC investing?
00:03:46
Speaker
Well, to begin with, I'll say there are many, many, many definitions of impact investing. So probably, I mean, I can, ah while I wouldn't want to provide all the frameworks, but at a very, very macro level, I guess there is an element of having purpose beyond just returns and financial returns that tends to define impact investing.
00:04:06
Speaker
But if I look at how Elavar has approached it, we have a razor sharp focus on customer-centric businesses. Basically, we said that if you if you take away the top 10% of the population, there's a massive, massive population that is disconnected from formal services when it comes to essential services.
00:04:24
Speaker
All the sectors I mentioned, which you and I take for granted, ah These are largely existent in an informal manner for these customers. And there is ah there is a fairly large opportunity for capital and businesses to to invest money, to build businesses, and and serve this customer segment in a profitable manner.
00:04:47
Speaker
For us, that's what we refer to by impact investing. um Very often, you know certain sectors get tagged as impact. For example, all things in education get tagged as impact.
00:04:57
Speaker
But for us impact is very, very customer-centric. So if we're doing education for the high end of the market, ah We don't consider that impact from an LMR standpoint. ah But if you can make quality education affordable and accessible to to hundreds of millions of children in markets like India, that for us is where the excitement comes from.
00:05:18
Speaker
Same goes for healthcare, same goes for financial services. It is about democratizing some of these services in a commercial manner. ah Some of the healthcare companies we've backed like CureBay, which recently got funded and and Cloud Physician.
00:05:32
Speaker
These are all companies that are taking innovation, marrying it with the ground realities of these markets, layering on physical presence and figuring out how to truly deliver solutions to these markets in a commercial manner.
Customer-Centric Investment Philosophy
00:05:46
Speaker
So is it implied from what you just told me that most VC funds are backing businesses which are catering to the top 10% of India?
00:05:58
Speaker
um I wouldn't say that because also there's a lot of talk about Bharat and all of that investing, right? But let's step back and see how VC investing may be different from how we've looked at investing.
00:06:10
Speaker
and And some of these are generalizations. So many funds take different approaches. So I wouldn't want to get into specific details. but If you think about a typical VC model, we're talking about the power law playing out, right? you You make investments at a very early stage and many of those investments don't play out, but some businesses actually do very, very well and you get hyperscale and super duper returns out of those those investments.
00:06:35
Speaker
um That model is a very different model and looks for very different dynamics at the early stage. In some sense, the way we've gone about investing is to say, Let's pack few companies and go deep in those companies.
00:06:48
Speaker
And to that extent, we do a fair amount of work ahead of making the first investment. So Elevar's investing strategy has involved being the founding investor or the first in institutional capital in most of our investments.
00:07:02
Speaker
So at that point, companies don't necessarily have, you know, revenues that have grown or or may not even have. i mean, they may have just about set up their business. But the reason we we do our work ahead of that is we're looking for three or four things, right? We're looking for whether the customer is ready already to pay for a certain service that is delivered on the ground, right? So whether it is specific to healthcare or education, financial services, business needs, agriculture, we're looking for whether there's market readiness for a commercial proposition.
00:07:34
Speaker
That work is done by Alivar well before we even meet a founder. So it's a very deep thesis led strategy. Second, we're looking for founders who have execution experience, including in these markets. Because in some sense, when you have a more concentrated strategy, um you you don't have the ability to say, we'll get two out of 10 right. you have we're actually gunning for eight out of 10, right, in terms of investing, right?
00:08:00
Speaker
So therefore, trying to make sure and we're de-risking execution challenges in companies is a second important element. And I would say the third most, the third element is we're looking for alignment with the founders as well.
00:08:13
Speaker
So alignment is a very important goal. We want to make sure there's commercial alignment and ambition. We want to make sure there's alignment from a scale standpoint, because when I think of impact, impact in markets like India are relevant only when you get to massive scale.
00:08:28
Speaker
ah You take education, there's there's limited impact when you when you are focused on 1,000, 10,000 children. and the impact objective starts kicking in when you're reaching millions of children, right? So scale is a very important factor in our in our thinking.
00:08:43
Speaker
And ultimately, we're also looking for whether the way we construct ah or think about cap table journeys, return profiles, not only for current and investors, but future investors, wealth creation for entrepreneurs and management teams, all of that has to tie in with the commercial and impact objective.
00:09:00
Speaker
So we're probably one of the rare firms we do feel there isn't There are models where there isn't trade-off between impact and returns. If you get the business model right, if you get the method of investing right, if you are truly connected with the end market and the pulse of the customer, um you can get this right in a way that commercial returns and impact are aligned in in what you're building.
00:09:25
Speaker
right Now, that is different from how VC models work because VCs do have a much wider remit in terms of the kind of sectors, customer segments they go into, and and often the timeframe within which... um you know, VCs look for immediate returns may be different.
00:09:43
Speaker
um So ultimately, it's like saying, if if you need ah two or three investments to really be the rock stars, then it's a different dynamic. Whereas if you're spreading out the return profile across more investments and going deep on them, then you're allowing the fund to actually spend time with each investment and allow each of these investments to flourish.
00:10:05
Speaker
And so there's a different dynamic, I would say, in in how these strategies pay Having said that, we've co-invested with a lot of VCs and very often there are different stages at which which VCs come in. and And ultimately it boils down to which partner and which VC completely understands the business they're backing, right? So that's where we look for alignment. Okay,
Three-Phased Growth Approach
00:10:24
Speaker
got it.
00:10:24
Speaker
ah You said timeframes are different. What is your timeframe like? And what is a typical VC timeframe? So at a fund level our time frames are not very different from VCs. It's exactly the same, right? We we raise typical 10-year funds and and we have the same investing cycle. You invest in the first three, four years and you have to exit investments within the life cycle of the fund.
00:10:46
Speaker
So absolutely no difference from a fund or or an ultimate investor investing in a fund standpoint. The difference probably lies in in the portfolio construction strategy, right?
00:10:56
Speaker
When you pick few investments that are i dr set up in a way that they need to build out over a period of time, then in the early years, you tend to focus on laying a little bit more of the foundations before you start scaling.
00:11:13
Speaker
And so the scale metrics is in a way part of a different phase of our investment method. So we call this, we we talk about the LR method literally in three phases.
00:11:24
Speaker
The first phase is really about establishing distribution economics or unit economics for a company. That's really the phase when we say, is the customer truly willing to pay for the product or service in a way that you not only recover the cost of goods sold or cost of delivery, but also the cost of distribution.
00:11:45
Speaker
If you have strong visibility into that, that's when we feel that a business model is ready to enter the second phase. a The second phase is still not the scale-up phase or the rapid scale-up phase. The second phase is still what we call an institutional platform building phase, which is you're making sure ah various aspects that need to be put in place before the company can scale in a responsible manner are in place. For example, you make sure ah talent is in order, systems and processes are in place.
00:12:16
Speaker
You ensure your governance is set up in a manner that the company is can withstand the pace of scale that is coming up in the next phase, and everybody is ready for that scale. And then in the third phase, you you go into rapid expansion when all of these elements are are are tightly sitting in the right place.
00:12:34
Speaker
And then you step on the pedal, where growth is basically a function of the the ambition on on pace of scale. And then your capital that you're raising effectively in the growth phase is truly growth capital. you're You're investing so that you can increase the pace of scale.
00:12:49
Speaker
But at that final stage or phase of investing, it's not funding losses at that point. right You're really funding growth. So in the first two phases, we're really building a company in a way that in In the first phase, you've established distribution economics, which is you you get to ah contribution margin visibility. And in the second phase, you inch towards um you know proper EBITDA and corporate break-evens so that you know that you're standing on on strong foundations, all driven by customer paid revenues.
00:13:20
Speaker
So that's the emphasis difference. Now, that approach may be different when it comes to um you know classic VC models that operate in the market.
00:13:30
Speaker
So in a sense, I sometimes joke saying we're a crossbreed between private equity and VC because from a state standpoint, we are a lot more like VC. But from a mindset and style standpoint, we operate a little bit more in the private equity ah style in in terms of taking more calculated risk, de-risking your investment before um you you all start scaling and things like that.
00:13:55
Speaker
Okay. um So the ah from the timeline perspective then, for a VC, the rapid expansion stage is something that they won't reach too much faster. like You have ah ah stage in the middle before rapid expansion, ah which is like the platform building, institutionalizing stage. ah Most VCs...
00:14:18
Speaker
may not have that as ah i mean, it may not be one of the timelines in their calculation. They would expect the company to build it as they go along. And the goal is to reach rapid expansion as soon as you can so that subsequent rounds can be raised and there is an opportunity to show returns to their LPs. So so that is that is what you mean by ah difference in patience or timing.
India's Middle Segment Potential
00:14:42
Speaker
Potentially, yeah. the The time at which we are expecting scale is a little ah you know phased out as against upfront proof through scale. Our proof points come through the the demonstration of economics in in small clusters or or small cohorts.
00:14:58
Speaker
and then scaling it up. Because in some sense, you know when you think about this customer segment, by the way, when i talk about the customer segment, we're literally talking about the middle 70%. We refer to them as entrepreneurial households because this is a huge segment in markets like India. right It is largely informally organized.
00:15:14
Speaker
And therefore, the the willingness to pay for for essential services in ah in a commercial manner is very, very high. And that market size has never been an issue for us.
00:15:26
Speaker
And therefore, can we get to scale if you prove a business model in a small cohort? The answer there is yes. And that's why in the second phase, you're really testing out whether there's replicability of your model in the next two, three cohorts without breaking the economic margin constructs, et etc. right So there is ah there is an emphasis on that element a little bit more.
00:15:47
Speaker
I will also say that some of these markets, at least till date, require an element of being grounded physically. right Now that can happen through a B2B2C construct.
00:15:58
Speaker
It can happen through partnerships on the ground. But these are not pure tech models. And therefore, it's not something that can go viral in this space or or can just be you know pushed through through app downloads, et cetera.
00:16:11
Speaker
Most of our models require a certain, um you know, tech and today AI led delivery. However, it needs an element of physical presence or proximity to the customer in an offline mode as well to complete the proposition or complete the feedback loops or understanding of what you're delivering on the ground.
00:16:30
Speaker
And that those business models have a different dynamic to it. And that's why it's very important to understand where ah you can deliver technology as a product versus where technology and AI enable the delivery of services, right? So those are are different constructs and need to be treated differently.
Tech and AI in Market Expansion
00:16:48
Speaker
I think investments go very wrong when you mix up these concepts and try and apply one concept on the other. That's when things go wrong. You generally prefer where tech and AI is an enabler, like those kind of businesses?
00:17:01
Speaker
Yes, in fact, today, I think it opens up the market a lot more. I think when you look at pure tech in a and AI and what you can deliver ah without the the benefit of physical presence and distribution, um you narrow your markets.
00:17:18
Speaker
You completely open up your markets when you know how to work on distribution through blended solutions and layer on the power of technology and ai two offline distribution channels that exist and sometimes you these are pre-existing channels, right?
00:17:33
Speaker
So you completely open up the market. When I talk about open up in terms of number of people, would 10x your market if you go down that path, right? That's what I find exciting about approaching these customer segments because these are not segments that are easily understood by large corporates or by commercial players to that extent, right? so Hopefully that's that's where the next 10, 15 years will go in terms of really understanding how to work with these customers and then more players and more capital and more businesses can work with them.
00:18:02
Speaker
Okay, got it. Would ah Misho be a company that would qualify? for being a good question. there are There are lots of examples in the market where there will be elements of a company that would qualify.
00:18:15
Speaker
um See, even if I don't get into the specifics of company marketplaces and in general companies that are set up, what do we look for when we say what's a company that's committed to this customer segment? right um Let's take business models like Uber. right These are all marketplaces.
00:18:32
Speaker
And there would have been a time when we said was Uber set up for the drivers. But ultimately, the question we ask every time we look at a company is, who is a company optimizing for?
00:18:42
Speaker
right Push comes to shove. Who are you solving for? And if that question is you're solving for the person who's hailing a ride versus solving for a driver, that's where your answer comes out, because every business goes through cycles. right You will be underfunded in some cases. You'll go through stress in some phases.
00:19:01
Speaker
At that point, you if you don't have clarity on on who you're focused on, those companies don't do very well. And the companies that do well have a razor sharp stack ranking on which side of the marketplace is their biases.
00:19:14
Speaker
so When we're looking at these models, we're saying, is the bias in favor of the customer segment, which is entrepreneurial households, which is the underserved market?
Farm to Fork Model Complexities
00:19:24
Speaker
And the answer is yes.
00:19:26
Speaker
Then we know that whether times are good or bad, you will find other solutions to the second side of the marketplace. But your primary focus is this. So I'll tell you, in farm to fork models, for example, which used to be a big rage a few years back,
00:19:40
Speaker
ah Firstly, in markets like India, it's almost impossible to pull off a farm to fork model, right? You're either a farm to something model or a something to fork model. You cannot capture the entire supply chain.
00:19:51
Speaker
but It's too complex? I mean, I think most people underestimate the the the amount of entrepreneurship that goes into making that entire farm to fork model work.
00:20:05
Speaker
Because we're talking about six or seven layers of entrepreneurs that are handing off to each other in a very, very nimble manner. I haven't yet come across a ah commercial, professionally run business that can meet that level of efficiency that runs in that entrepreneurial chain, right?
00:20:22
Speaker
It's like the Mumbai Dabba Wala thing. Yeah, I mean, a lot of people would attempt it. But how do you match the nimbleness of of an entrepreneur who owns one like leg of that supply chain?
00:20:33
Speaker
by placing employees and warehouses and and trying to, you know, professionally run it. You you can't do that in, in I think it's it's been a dream for a lot of people to try and crack that.
00:20:44
Speaker
But I feel we've underestimated the power of informal supply chains when you, when you, think that you can easily replace that with a formal construct right so i guess otp did not make it right i know there are many many cases that that may have tried the end-to-end piece but i think the more interesting piece is that when therefore when you look at people who are trying to solve for the supply chain the question for us is is your bias towards the producers or the consumers right if your bias is towards the producers and solving for them
00:21:14
Speaker
then you're a little agnostic on who your consumers are, who your buyers are. It could be ITC on the one hand. It could be a retailer on the other hand. It could be the export market. You should be nimble to say it doesn't matter who you're serving. I'm not solving for the buyer.
00:21:28
Speaker
As long as you deliver a full basket to the farmer who's selling or you deliver a fair fairly negotiated price to the farmer or you or you start building those networks.
00:21:39
Speaker
So this is where I guess from and from from a buyer standpoint and from an expertise standpoint, our our expertise lies in knowing the producers when it comes to agriculture. right So that's the the bias difference that I'm talking about when it comes to impact.
00:21:54
Speaker
so So I guess those are the nuances. On the face of it, a lot of business models may look similar. But when you really go deeper into the soul of the organization, the DNA, the expertise, the commitment of the organization, invariably you get to one bias and and we are looking for to align on that bias effectively when we back businesses.
00:22:15
Speaker
So like in case of Misho, they used to empower resellers, ah which now they're going direct to customers. So therefore, clearly they are not serving the entrepreneurial class anymore, but they're competing with a Flipkart, Amazon, Snapdeal.
00:22:30
Speaker
So therefore they're not in... Got it. Okay. That's not a business model that we would have backed. and And I think it would have been tougher for me to answer this question in the early days of Misho in a way that people understood it.
00:22:42
Speaker
But you see how it evolves and then you understand where the alignment would have broken down at some point. right so And so we're very pragmatic. We do feel that there is a place for all these business models. It's not just for our capital. right It's just not aligned with our thesis.
00:22:57
Speaker
And that's what it is. So if Misho had come to you in the early days, ah at that stage, would you have had the ability to judge and say no?
00:23:08
Speaker
Honestly, that is the core of what we do. so So the answer is yes, because it's a different alignment. At that stage, it was clearly empowering resellers, right? like Yes, but you know when you when you try and, I mean, honestly, our process involves very deep engagement with entrepreneurs, right? It is about their personal excitement. It's their motivation.
00:23:30
Speaker
It's what makes sense commercially. Very often, there are founders who, especially in in spaces like education, right we've had founders who've come and pitched to us about content play that could be very exciting for for tier three, tier four markets.
00:23:43
Speaker
And they've also had ah similar content demands from, let's say, the Middle East and other markets. And you know we're also thinking about what is the right thing to do commercially.
00:23:54
Speaker
Remember my first point on saying that we don't trade off between impact and commercial? If the right answer commercially is to head towards serving overseas markets and and a different customer segment, then that is the right thing. No amount of intentionality can overcome commercial priorities. right And that's that's what creates friction if you try and overlay some requirements over the natural course of where capital would take you.
00:24:18
Speaker
So I think a lot of things that we've done at Elevar and we've done it well over the years. is we've said, let's look at what is the natural direction a business should take, given the capabilities, given the business model, given at the DNA of an organization.
00:24:33
Speaker
If the commercial requirements take you deeper into our customer segment, that's where we would back the business. If the commercial answers take you in a different direction, then that's not an investment for us. And that's that's not where we would align, right?
00:24:45
Speaker
And that requires some experience, some deep diving and some also overlaying of our judgment on where this will head in the future and take those calls.
Vernacular Content Strategy
00:24:56
Speaker
Fascinating. What about entertainment businesses like, say, Stage, Cuckoo FM, which are vernacular content clearly serving that 70% middle ah layer which you spoke of?
00:25:09
Speaker
you know You know, it's a very, very interesting question because content has a massive influence on this market and and there's no doubt it's an important space. I honestly don't think we've figured out how these things play out commercially in the future.
00:25:23
Speaker
And that's probably where the it's it's not completely fitted in with the Elvar method of building our businesses. In some sense, we've had a bias for things that have built a moat because of quasi-physical distribution and things like that.
00:25:38
Speaker
Because we are we are also saying we'll double down on a few investments. Our appetite to take pure binary risk plays where, you know, more money will drive growth, et cetera, et cetera, is limited in our fund strategy, right, in that sense.
00:25:52
Speaker
So from a customer standpoint, is it is it an important place? Absolutely, yes. From a capital standpoint, is there potential? Absolutely, yes. From an Elevar investing strategy standpoint, is that something that would align with our portfolio construction?
00:26:09
Speaker
Tougher when businesses require capital to build growth ah versus a clear customer paid revenue stream. right? So that's where we've anchored on historically, but very, very exciting spaces because especially vernacular content has has grown in a phenomenal manner.
00:26:26
Speaker
um I don't understand why Cuckoo FM and Stage will need more capital ah for distribution ah because whether it's physical distribution or if you're distributing content through an app, you the costs are there in both cases, right? In physical distribution, you'll need feet on street. So what is the reason that you feel this distribution you will not be able to fund, but you'll be able to fund a more physical distribution?
00:26:55
Speaker
No, it's not that we'll be able to. we We have invested in things that required ah you know don't necessarily have direct physical distribution and and approach differently. I think it's a question of of where there is a certain um staging of growth. We've actually explored some of these options in the past.
00:27:12
Speaker
I wouldn't say these are completely ruled out. It's about what your familiarity is. See, all of us back things that that we're most confident of predicting a play out towards. right So some of these things actually adopt a different growth curve and and may require different kinds of capital plane. And figuring out how who's likely to end up as ah as a market leader is also an art and a skill in investing.
00:27:35
Speaker
So these are all capabilities that you build over a period of time. and And these are calls that you end up taking in different phases. We've come close to a few such entertainment content conversations, um I don't think we've crossed the line on making an investment, which is why I said it's, I think the absolute yeses and nos in this space are much tougher.
00:27:54
Speaker
ah If there is a business model that appeals to things that we can visualize and we can double down. See, given that we make very few investments and and like I originally said, unlike a VC model, we end up making ah two or three investments a year and that's it, right?
00:28:10
Speaker
So given our capital is limited and our time therefore is limited on where we engage, we just tend to end up prioritizing things where we feel the chances of us adding value and us seeing how this plays out over a five, seven year period is is greater.
00:28:25
Speaker
And ultimately it's a relative call that ends up playing out. So invariably when we've looked at some of these models, there's always also been something that is in a far more, um um LFR style playbook, which is, which is played out or or something which has been a lot more in the wheelhouse of what we would have seen creating impact on the ground, et cetera, et cetera.
00:28:48
Speaker
and think it's a matter of relative calls that end up driving these decisions. Got it. Okay. So you said that impact investing is a marriage of impact and returns.
00:29:01
Speaker
Um, So what is the, ah you know, you would probably have made some sort of a pitch deck for your LPs whom you are raising funds from about the time of 70% market, which you're talking about as entrepreneurial households. ah So what is that returns opportunity and specifically for India?
00:29:27
Speaker
um That's a
Market Data vs Ground Realities
00:29:28
Speaker
good question. And honestly, we we spent a lot of time thinking about this because there is a huge perception that ah profit pools, revenue pools, e etc. are concentrated in the top 10-15% of markets like India. right we've We've seen a lot of reports about the emerging elite and and all of those segments that get a lot of attention.
00:29:48
Speaker
And I i' personally struggle because By the way, I spend a lot of time walking and walking the streets and traveling deep into rural markets and talking to customer segments directly, right? Not not so much from a survey market research standpoint, but I do genuinely believe that you get the best pulse of what's happening in the market when you have unstructured conversations in a trusted environment.
00:30:11
Speaker
That is my ultimate source of where the markets are likely to head over a 10, 15, 20 year period. So what I see there versus what I've heard published in reports, in market sizing, cetera, et cetera, there's been a huge gap. And so we've we've really wanted to unpack this whole perception of the market.
00:30:32
Speaker
ah The perception lies in size of the market. Perception lies in you know ability to pay for things, willingness to pay for things. Ticket sizes, there's a lot of perception mismatches that I see versus what I experienced on the ground and what is said and written about the segment.
00:30:48
Speaker
um To my mind, the moment you take income or discretionary income as a criteria, this market disappears. It just falls off the map. It disappears on the radar of any TAM, SAM sizing reports that you do.
00:31:02
Speaker
Mainly because I do think income is the wrong criteria to measure this market. So I'll give you an example. if you If you take a smallholder farmer, right, a farmer whose income may be, I don't know, 50,000, a lack of rupees in a season or whatever it is, um that seems like there's absolutely nothing to do with that farmer, right? Because there's not much left on the table for, or you know, you take away some household expenses, et etc., etc., and you're like, there's there's not much to do with that farmer.
00:31:31
Speaker
Now you take A different lens, and I will give you two perspectives to the different lenses. One is when you look at the economic transactions that the farmer is involved in. Typically, that farmer, in order to generate that income, would have bought inputs worth a couple of lakhs, would have availed a working capital worth a few lakhs.
00:31:50
Speaker
would have also engaged in some kind of market linkage activity, which is basically sales of their produce worth a few lakhs. All of that would have added up to transactions um that add up to, I don't know, definitely north of five, six, seven times the one lakh that he would have earned, right?
00:32:08
Speaker
He or she would have earned. When you take the transaction lens, is there business to be done on every single leg of that transaction? The answer is yes.
Household Economics and Global Comparison
00:32:16
Speaker
Is there revenue or take rates in every single leg of that transaction? The answer is yes. Is there profit to be made because the farmer is looking for better input solutions, better working capital solutions, better market linkage solutions?
00:32:28
Speaker
The answer is yes. So the lens changes when you take a transaction lens to the segment versus an income lens. The second very important piece, which has not been understood well um by the broader market, is the role of the household from an economic standpoint.
00:32:45
Speaker
a lot of people look at markets either as individuals or businesses. And unfortunately, even if you look at the most successful sector in the space, which is the financial services sector, banks, et cetera, you have personal loans and you have business loans, right? there is There is very little ability to recognize formally the role that a household plays in the economics and the resilience of that household.
00:33:09
Speaker
So the same farmer in the family would typically have ah the... the one side of the family that is managing dairy related income, which is different from farm related income.
00:33:21
Speaker
You'd have somebody who's set up a shop in the family. That shop has its own set of income streams. One member of the family may have migrated to the city and maybe earning you know a salary, could be a gig worker, could be a factory worker, could be ah a vocation um that is also picked up a fair bit over the years.
00:33:39
Speaker
And somebody may be getting a pension from some source. say When you add up all of this, this family is actually very, very resilient. eight This family not only is prone to bad monsoons and and those shocks, they they've actually um you know de-risked themselves and their family from those cash flow issues.
00:33:57
Speaker
But they're also their ability to say that we have surplus from the crop, we can invest in something. their ability to make interstate decisions within the family is also very, very high. So when they recover money from sales of of crop, etc., their ability to reinvest in some other part is very high.
00:34:15
Speaker
So this dynamic is actually not very well understood by the formal ecosystem. not by large corporates, not by tech-led ah companies that don't fully embed themselves in this ecosystem.
00:34:30
Speaker
So that is where I think we go wrong in estimating the size, power, potential of this market from a commercial standpoint. And this struck me all the more during COVID because very early during COVID, we said that, you know, we we were very unhappy with what we were reading online. We said we have to go down and figure out what's really happening in these markets.
00:34:48
Speaker
And as we drove and talked to families, sure, people lost their jobs in cities and went back home. But what happened within the home was very often the family was like, ah here's a lakh, here's two lakhs, set up a spare part shop, you know, set up your shop, do something.
00:35:03
Speaker
the response was really entrepreneurial in nature. That's what entrepreneurs do, right? You you don't sit down when you when you have a bad month or a bad quarter, you figure out how to innovate and come out of that. The amount of innovation and resilience we saw was phenomenal.
00:35:16
Speaker
And that's actually what led to the coinage of the term entrepreneurial households, because we said, We're just not doing justice to the segment by calling them bottom of the pyramid or you know the poor or or all kinds of terms are used to describe that segment.
00:35:31
Speaker
And it just wasn't capturing the spirit of the segment. So we said entrepreneurial households is the right economic term that describes the behavior patterns of the segment. and their economic decisions and their resilience, ah which of course was powered by some phenomenal aspiration on the ground, which I have lots of stories on for ah for whenever we get to it. Okay, interesting.
00:35:53
Speaker
So what you're saying is that seven two-part question, that 70% middle segment is largely entrepreneurial households. And second part is ah Is this a unique India only phenomenon because you also invest in LATAM or for example, would China be similar or, you know, so.
00:36:13
Speaker
Well, a lot of countries which go through this phase where, you know, people have actually come out of and the absolute bottom, if you look at it, is a segment that's fighting for survival, right? if you If you don't have enough food, shelter, clothing, if you don't have a permanent roof on your head, that's still a place where people are fighting for survival to make ends meet.
00:36:33
Speaker
But in most economies, we've noticed, and now as we've looked at this over the last two decades, economies, when they when they progress, people move up one segment. They effectively graduate from fighting for survival into a phase where they're fighting for growth.
00:36:49
Speaker
We see this phenomena in many countries. But I will say that there is there are two dimensions at play here. One is an economic pure, you know what is GDP per capita, et cetera, et cetera, where the inflection curves are and what the diversity of income is, et cetera.
00:37:03
Speaker
But there's also a there's also a social aspiration dimension, which is very, very powerful and should not be underestimated. When customers are aspirational for growth, it drives a certain kind of behavior.
00:37:17
Speaker
And that, I would say, is very evident in certain markets. Like if you take Vietnam, there are there are parts of Indonesia which which, I mean, there are the population in and Indonesia which is going through that phase.
00:37:28
Speaker
ah Definitely markets like Brazil, Mexico. So it's a country-specific thing. It's not just a population size issue. It's also an aspirational quotient where people have seen that they can get to the next level. They've seen other people. And thanks to ah digital penetration, social media penetration, people can see what the next level of life could look like.
00:37:47
Speaker
And they work towards it. right That drive is very powerful. People then double down on investing in themselves. They double down on backing themselves on this growth. and and they they're willing to take some risks, which by the way, behaviorally is very different from the traditional middle class in India that was conservative, did not like loans and debt, you know wanted salaried jobs, wanted kids to grow up and become doctors and engineers.
00:38:12
Speaker
So that mindset 20 years back was a very different middle that was there. This is a fundamentally different middle that needs to be understood From ground zero, without any biases or or um you know layering of the past behavior in a very, very different manner, because you'd end up making massive mistakes if you think it's the same middle at any level.
00:38:35
Speaker
It's a very different middle. the The energy levels, the aspiration levels, the entrepreneurial calls are very, very different. And that's important understand. ah Incidentally, we worked on trying to size out this market, right? And we said, if we were to measure the size of transactions in these in these markets, what does it add up to in a market like India?
00:38:56
Speaker
And our estimate as of 2024 is that just in 2024, these transactions would add up to $10 trillion. Right? Which is more than the GDP, right? It is. And I'm glad you mentioned that because a lot of people ah do ask the question.
00:39:12
Speaker
The thing with transactions is GDP is net soft transactions, right? You're adding up the value creation. You buy something, you sell something. so Yeah, yeah. Here you're actually saying, and it's not about saying that ah would this all just add up? It's not about adding up because obviously two people in the same industry ecosystem are transacting with each other.
00:39:31
Speaker
But it's useful to think about the transactions that are taking place and how do you upgrade the quality of each of these legs of transactions and therefore size out the market. It's very useful for a business to think in this manner.
00:39:43
Speaker
It's not for the economy to necessarily think in this manner, although even at an economy level, when you start thinking about transaction value of an economy, it's a multiple of the of the GDP. It's not just the GDP, right? But it's a very useful metric for businesses to look at, even for us from a capital standpoint, when we're thinking about what's the potential.
00:40:02
Speaker
um And I'll give you a simple example, right? Take education as a market size for K-12 when you go into these markets. If you think about, is there enough discretionary income for people to spend on higher quality education?
00:40:14
Speaker
You will invariably answer the question with a no, right? But the reality is, if education and higher quality education is a priority for these households, they, if required, will borrow and invest in education. They will figure out ways to reprioritize their spend so that they They invest in their children's education. And that's the most natural thing that happens in this segment.
00:40:36
Speaker
I'm also a big believer of not judging markets and judging the customer for what they should do, but to just listen to what they want to do and and and follow that, right? Because ah that's how a lot of us have built our careers, et cetera. We've gone after something we're passionate about.
00:40:54
Speaker
ah So each business needs to understand where does the ah propensity to spend lie, right? where do people wish to invest and then figure out what that market size is, not judge this segment to say, are they going to be left with enough to spend on something?
00:41:10
Speaker
Because if you take that lens, your your answer will be very different. So which is where for for me, the observations on the ground become a lot more powerful than reported ah data points that are analyzed and and you know you you draw conclusions based on that. I think those observations are very, very powerful on the ground and gives us a very, very different lens, very, very different framework to assess these markets ultimately on where to build businesses, more importantly, on how to build businesses.
00:41:36
Speaker
I'll give you another example, which a while back, there were where were a lot of reports that talked about how vocational training is a huge space in markets like India. But then if you look at how many successes there are and you don't find as many,
00:41:49
Speaker
Because for years, people tried to, in quotes, mobilize people into classrooms, try and figure out what jobs they could be mapped to, place them.
00:42:00
Speaker
And you know at the end of all of that, people used to quit their jobs. right now ah And the proof that the market wasn't ready for those models was in the fact that a lot of these had to be subsidized with CSR capital or, you know, other forms of nonprofit entities that were working with them.
00:42:18
Speaker
But ultimately, people who are attending the class were not paying for that. So if you have to take an impact investing lens, you have to ask yourself as to what is the customer excited to pay for, right? Because this is an intelligent segment to begin with. It's not a segment that doesn't understand. They speak a different language, but it's a very, very sharp, intelligent segment that and and informal markets are highly capitalistic also, right? There is no question of of you know If anything, the the businesses we run are highly governed capitalism. right So in some sense, you're talking to a segment that understands math, understands cash flows, understands purchasing decisions, understands where to allocate their spreads.
00:43:00
Speaker
If the students were not paying for classes, if the families were not willing to pay for classes, there is a very loud signal to say what you're offering is not what is exciting for them. right and And so that played out over a period of time.
00:43:15
Speaker
And at over time, as we've looked at the segment, watched the segment, it's very clear that if you're not linking it to careers that are in line with their aspiration, these models don't work. right So is the answer that vocational training doesn't work?
00:43:32
Speaker
is There's no commercial model? the answer is no. ah The question is, how do you make it work? You have to go back to understanding the customer's aspiration. 20 years back, women in microfinance households used to prioritize savings to ensure that they could move their children from ah into English medium, you know, quality education, et cetera, et cetera.
00:43:53
Speaker
When they did that, they were also telling their children that you'll grow up to become X, to become a doctor, to become an engineer, to become or get a job with the government. All of these have associations with, with pride and prestige or, or a police job, or, or, you know, these are all the things that they, these kids were brought up. And today you may have like close to half a billion people in the age group of 10 to 30.
00:44:15
Speaker
They're all being raised in, in an environment where aspiration is encouraged. Right now, after all of that, if you say, okay, what you and end up with is a, is a gig role or a call center role or, or some, or a even a serving in a, in a,
00:44:29
Speaker
you know a cafe or something, or a sales role, you know there has been an entire ah phase of youth that have gone through disoriented realizations saying that you know after studying, why am I dealt with roles which are not considered prestigious roles in the society? right So this mismatch that has emerged over several years, you have to acknowledge that and understand how to work with it, and then figure out what would marry it. So actually, roles that allow for people to build their sense of pride and prestige in society is an important element to factor and you can't ignore it.
00:45:03
Speaker
So these are the nuances that you need to go in and understand. And you do have data points that start emerging, which actually scream about why something is a fit or something is not a fit.
00:45:14
Speaker
And you have to listen to that. You have to watch these data points carefully and then think of what your investing strategy would be. Then think of how your business is going to meet the reality without judgment, right?
00:45:25
Speaker
Oh, this is good for people. That is, bad i mean, that's not a luxury that an outside in person can have to say that what's good or not good for this segment. You have to listen to the customer.
00:45:37
Speaker
Interesting. Interesting. um um This, ah you know, the entrepreneurial household, ah the the domination of entrepreneurial household in middle India, is this typical when countries are,
00:45:53
Speaker
Moving beyond fighting for survival, ah like when the population is moving beyond fighting for survival, or is this unique to India, the the desire to be entrepreneurial? Would you think similar is there in China also as it moved beyond fighting for survival?
00:46:07
Speaker
you know there are a lot of things that need to come together it's not just ah a population and an economic you can't it's not that you have a certain population and you have a certain economic reality and you lined up with this dynamic i think a few things need to come together so maybe let me double click on what has really worked for india right um let's take four or five elements of growth if you take physical infrastructure growth We've made phenomenal progress over the last 20 years.
00:46:34
Speaker
You look at the quality of roads. From the time I started traveling into rural India, today the drives are a breeze. It's amazing. It's a joy to drive into rural India. um you You take the number of airports, the number of flight connectivity.
00:46:46
Speaker
A lot of these things have made a difference to how connected smaller towns and cities are. That's a factor that has really helped. Take a policy infrastructure that has built, right? Right from the time we opened up the economy to how businesses have flourished, you've had a whole range of privatization followed by the startup economy, followed by businesses that have been built out.
00:47:07
Speaker
There's a lot of development that has happened in that sense, which has it opened up. Digital adoption, huge difference. I think we've actually gone past many countries on this front. In fact, a lot of our um colleagues, investors, et cetera, who come in from outside India have been surprised at the level of progress we've made, whether it's on wallet-based transactions, on the digital infrastructure that exists.
00:47:30
Speaker
Just UPI Aadhaar is a huge opener. And we've not stopped at that, right? The stuff we keep building on on top of these layers is a huge contributor to how well-connected people are from access to economic growth.
00:47:43
Speaker
um And I would say financial inclusion, the fourth piece. um Right from the onset of microfinance back in the days to how We've gradually emerged from microfinance into small finance banks. And and financial services has has played a very, very important role in opening up these markets.
00:48:01
Speaker
Because unless you unless you formalize access to finance, the entire ecosystem remains informal. right So that these four elements, to my mind, have had a huge role to play in how um the entrepreneurial household as a segment has emerged and flourished.
00:48:20
Speaker
um All of this has to be in the context of how your public markets have evolved, how your overall frameworks in the economy evolved. So I wouldn't say it's a it it is completely replicable in all countries.
00:48:34
Speaker
But as we are working on things, especially on the Epic World platform, we're looking to see how the data-driven insights, et cetera, that are applicable for India are also geographically portable to other economies. One of the big questions is what are the indicators that allow for entrepreneurial households to flourish?
00:48:53
Speaker
So we definitely have a playbook that emerges from India. But like I mentioned earlier, there are other countries where we've seen, ah ah definitely in LATAM, definitely in Southeast Asia, And these are the markets we understand relatively better. I won't claim to understand even markets like Africa and China, et cetera. I wouldn't claim I have a deep understanding. Because for me, all this understanding is bottom up in nature. So unless we understand the bottom up reality of a market, I wouldn't say we understand these markets.
00:49:19
Speaker
But at least in in three of these regions, I would say, there is a very clear emergence of entrepreneurial households as a concept. Because like I said, it's it's a combination of social aspirations, a combination of economic realities and the environment in which businesses can flourish. right So that's where it is.
00:49:39
Speaker
Where did you grow up? I grew up in Delhi. ah So yeah, that's where grew And what your parents doing? um Bhutani, Interestingly, both my parents sometime in their you know late 30s early 40s decided to move into the nonprofit space in different forms and shapes so my father is ah ity i am a i'm cal graduate who, after a few years in.
Jyotana's Background and Influences
00:50:07
Speaker
consulting, public sector, et cetera, et cetera, moved into working with large international nonprofits on on workshops. I mean, he he actually is fairly well traveled, including into countries in Africa and did a lot of consulting work for them.
00:50:24
Speaker
um My mother, on the other hand, ended up working with grassroots women um very early on. And so she was working with nonprofits that worked with self-help group women on capacity building,
00:50:37
Speaker
ah training, etc. So I will say the exposure to this segment was very high in a sense, especially with my mother, I ended up traveling into smaller towns and cities like Chansey, rural Chansey, which is when the first time. How old were you?
00:50:52
Speaker
I was, I guess, 19. Yeah. oh yeah I travel, that's the first time I truly interacted with, I felt the energy of the segment, if I may say so, right?
00:51:04
Speaker
ah Women who were very optimistic about their future. And if I looked at pure data points on where they stood, I wouldn't have projected that optimism. right And that's the bias I brought to the table having grown up in Delhi.
00:51:17
Speaker
And that's the first time I realized that the worst thing to do is to bring your bias into the segment. But if you just ignored your biases and you just sat and listened to to them, ah even though they had ah you know lots of children, they had to feed, educate. And this is back in 99. I mean, if if if you had to go imagine their mood or state of mind with ah biases of a large city, I would have thought that they should have gone into depression by now. But I realized the amount of energy they brought to the table was actually a shot of inspiration for me.
00:51:51
Speaker
was deeply excited about the segment. I admired the segment. um And also, you know, in all of this, eat it's... It was with a smile, right? It was a very, very positive orientation and a determination in life.
00:52:04
Speaker
So that's when I realized that there is something about the spirit which is going to outperform the the economic realities of their life. And that's something that I very early on felt I wanted to be closer to.
00:52:18
Speaker
um Of course, after that, I ended up doing my MBA in Bombay and then joining HSBC, which was a very, very different world. ah But it's also taught me that eventually, um i was also clear that there is a commercial dimension to things. I flourished in a commercial environment um and I was excited by this customer segment. So bringing a commercial dimension to working with this customer segment was what the combination of HSBC and my early interactions with the segment resulted in in some sense.
00:52:50
Speaker
What are you doing at HSBC? like Lots of things. I joined them as a management trainee. um So I did multiple roles. I started by managing wealth for high net worth individuals in out of Bandra branch. So it was a very, very nice location, very nice clientele in that sense.
00:53:08
Speaker
And I got a chance to work very closely with several clients and understand what that mindset was and how they approach life, investing, all of those things. um At some point, i I then moved on to leading the learning and development vertical for the wealth channel.
00:53:25
Speaker
um HSBC had its wealth presence across India and six other countries where there was NRI presence, which was a very interesting student because... It tells you how how channels work, right? how How mindset of people work, how incentives work, how grooming talent works.
00:53:43
Speaker
All of that was very, very fascinating for me as ah as a second stint ah because there was no one size fits all approach when you're when you're thinking about talent. And eventually I was working as part of a team that looked at strategy and finance.
Role at HSBC and Wealth Management
00:54:00
Speaker
And I was also looking at distribution, a little bit of analytics. I like to describe my last two, three years as a miscellaneous role, which was very, very useful because you bring everything together. And and in some sense, from looking at performance management to weekly P&Ls to three or five year projections to reporting it to the board on on what got done, et cetera, for the retail bank, it was very, very useful to to look at a 360 degree view of business ah Because then you start connecting the dots, right? what you what you In fact, I think that's what was very useful from an investing standpoint, because every time I would make projections, I knew where the buffers were or what the story was or ah you know what could work, what couldn't work. So connecting numbers back to execution, that and the people dimension of execution was a very, very useful
00:54:54
Speaker
ah aspect that I guess got honed when I was at HSBC. Of course, at some point, I was like, I'm too far away from the market that inspired me. And that's when in 2011, I reached out to um to figure out what the alternative would be, especially if I wanted to work closely with this market, right? so Back then, microfinance was a complete disaster.
00:55:18
Speaker
And the reason I say microfinance is if you marry retail financial services with that customer segment in a commercial manner, the only model that had so shown some ah promise was microfinance. And so It was chaos, but then that's the irrationality of calls, right? So to me, there was just too much potential in that market for any crisis to wipe it out. And and so I decided to double down on that. And that's when I was introduced to Elevar, which was very early in its partnership and moved to Bangalore. So I consider Bangalore my entrepreneurial calling and that move.
00:55:51
Speaker
um And that's how the Elevar journey started. So Elevar was in the microfinance space or it was funding microfinance? Our first fund was actually a pure microfinance fund. So we were investors in microfinance very, very early days. So if you if you think of companies like SKS, Ojiwan, Madara Microfinance, these are all like very early days of microfinance.
00:56:13
Speaker
In fact, and a lot of people ask me today as to whether we are microfinance investors. And I was like, actually, the last new investment we made in microfinance was back in 2008. After that, we've got made fresh investments in microfinance.
00:56:24
Speaker
And so we we tend to follow the customer, right? So very soon we realized that this customer was willing to step out and do a lot more than microfinance. So affordable housing finance was interesting. Small business lending was interesting.
00:56:38
Speaker
Education, healthcare. we We just literally followed the wallet of the customer, the cash flows of the customer. Now I should say it's the trial balance of the customer, right? Given the transaction view. so So that has been the evolution of the thesis.
00:56:51
Speaker
But yeah back then there was microfinance, but we'd already started looking at spaces beyond microfinance and looking at adjacencies. What was ah the ah kind of LPs or investors who were backing Elivar?
00:57:05
Speaker
is ah I mean, see, what I've understood so far, as on date, Elivar is ah middle India fund rather than an impact fund, from what I understand. ru You are clearly...
00:57:21
Speaker
saying that there is a lot of, there is a massive TAM here in middle India. Most ah people don't understand the TAM because they're looking at discretionary income instead of transaction value.
00:57:34
Speaker
But if you look at it from the transaction value lens, there is a massive TAM here and we are funding businesses who are chasing this massive TAM. So it sounds like a regular VC fund. oh that That impact label ah doesn't vary.
00:57:48
Speaker
I mean, they it, it Doesn't seem like the right label, from what I understand. I think the right the right label today is middle India investor. ah But ah when you joined Deliwar, what was the thesis? What kind of investors were backing it at that stage? A little bit of that?
00:58:06
Speaker
Interesting you you talk about middle India because um I think the customer is middle India um in that sense.
Customer Solution Focus
00:58:14
Speaker
But the investment thesis goes a little deeper into ensuring your delivering solution versus selling products.
00:58:20
Speaker
And that's probably the angle that ah makes it a lot i mean makes it a little bit more niche than a generic middle India fund, right? because um I'll give you an example, right? If we were to be backing an ed tech company that is looking at some kind of online solutions, et cetera, for Middle India, that may not fit an LOR thesis because both from a commercial and impact standpoint, we're strong believers that you have to solve for the end customer.
00:58:49
Speaker
So it's not enough if you just sell to the end customer. We're focused on solving for the end customer. And that, to my mind, has a very strong commercial and impact thesis. So what we look at is ah is a subset of businesses that are building for Middle India from a solution delivery standpoint.
00:59:05
Speaker
So it plays out when we look at themes in agriculture. It plays out when we look at themes in education. So within each sector or space, the subset is defined by solution delivery to the end customer.
00:59:16
Speaker
And actually, that mindset hasn't changed in 20 years for us. right So we always said, where is a customer willing to pay? But what is the kind of business that will solve for the end customer, not just sell to the end customer? say And that, I think, is an important nuance.
00:59:32
Speaker
who The investors that we've raised money from have have actually truly understood what our worldview is, what is our investment thesis, and backed that thesis. We've avoided the temptation to say, oh, what's popular today? What are people allocating to? Can we just do that and raise money on that?
00:59:49
Speaker
That's not the approach we've taken across five funds. We've actually, because ultimately when you when you raise a fund, you're taking a 10 year view on a certain market, right? So your conviction on saying how is this likely to play out is very, very important.
01:00:02
Speaker
So every time we raise a fund, we we look at where we think the market is headed. We think of what will deliver ultimate solutions to the end customer. and then design our thesis. In fact, in the early years, a lot of people did feel we were a financial services investor.
01:00:18
Speaker
And in fact, some of the investors used to feel like we should ensure that X amount of allocation is to financial services, etc. Whereas now I think there's a broader realization that we're not a financial services expert.
01:00:31
Speaker
We are a customer segment expert. right We know what it takes to deliver solutions to this customer segment, which is heavily embedded on how you build distribution into these markets, which is actually at some level, it requires a certain amount of work to be done.
01:00:46
Speaker
And that's considered hard. But once you do the hard work, the motor is also very strong. So that's where our brand and perception is built. Our investors very early on were largely individuals, high net worth, very few and in institutions that were focused or understood this space because honestly, in fact, domestic investors?
01:01:08
Speaker
Sorry? ah Domestic investors or? ah No, actually, so far we've largely raised funds overseas, but our overall emphasis, if I take the nature of investors,
01:01:21
Speaker
It has been, ah it it started with a lot of individuals, H&Is, family offices, ah sometimes foundations, et cetera, if I think about the first fund. But over time, we've now got a blend of investors that cuts across commercial investors, ah banks, pension funds, I mean, institutions, foundations, H&Is, family offices. It's a full mix of of investors.
01:01:48
Speaker
And what people are typically looking at is saying, Investors love our investment thesis, which is impact-oriented.
Impact Tag and Fundraising
01:01:56
Speaker
They like to diligence us for the commercial track record.
01:01:59
Speaker
And ultimately, allocation very often happens based on what thesis they're looking to buy in, right? So we've reached that point where the diligence is commercial, the thesis is customer-centric.
01:02:11
Speaker
Now, whether we call it impact or not, I'm actually not a big fan of labeling things because we just have a worldview and we are investing to back that worldview. We do think there is a segment that is Aspirational wants to grow, but is disconnected from the formal ecosystem.
01:02:26
Speaker
We feel opening up those barriers and building businesses that can serve them is is our thesis for investing. But like I said, the impact tag is something that is heavily debated these days. So i wouldn't get dragged in.
01:02:38
Speaker
I will say we we would be classified as an impact fund, but also with a very, very strong commercial lens, right? So. Okay, got it. ah Does the impact tag help in fund raise?
01:02:52
Speaker
I don't know. I think ultimately money backs investors um and money backs returns. So it's about what is your thesis and what is it that you can ah invest in, right? Because I also am a big believer that you shouldn't change the nature of capital.
01:03:09
Speaker
If it is commercial capital requires returns. If it is philanthropic capital, it requires a certain outcome on the ground. And if it is a capital that wants to achieve both, so these what I call super ambitious capital, then you go after both. and I think we fit the definition of being super ambitious.
01:03:27
Speaker
um But I will say that a lot more is needed than just the thesis to to attract capital. And part of the reason why we set up Epic World was to actually go down that path of saying, how do you open this market up for people who may be interested in these markets but haven't yet figured out how to deploy, how to build in these markets?
01:03:47
Speaker
in a way that delivers returns. right So that was the reason why we said we need to do something more than just channelize the capital that Elwar may raise. And that was the reason why we said we need to pick up set up a platform that is much larger, much more ambitious.
01:04:02
Speaker
in saying how do we um help businesses understand what it takes to generate ah ROI on distribution? How do we fine tune, sharpen decision making on the ground so that the a ROI on distribution is clearer, the pace of scale is faster,
01:04:19
Speaker
the unit economics and margins are far more resilient and and locked in. That was one objective. And secondly, if you do that, you also make it clearer for capital to understand what it takes to invest in these markets in a successful manner.
01:04:32
Speaker
And therefore, um we felt it was important to set up a platform that in a way productizes our experience on the ground, because the world is shifting very fast. And so is this customer segment. And if you don't keep pace,
01:04:45
Speaker
ah it's not going to be that easy to capture the economic value in the segment also.
01:04:51
Speaker
What are you productizing? ah you From what I understand, you want to help other businesses and investors to tap this middle India entrepreneurial household segment in a better manner.
01:05:07
Speaker
um But what exactly does that involve? So, like I said, there's a certain nuance on how you connect the dots on the ground. Right. And, you know, we soon realized, I mean, for me, the biggest realization was during COVID when a lot of money was flowing into India, but it was chasing business models that were most familiar to people who are part of investing. Right. So, for example, you think of quick commerce as a theme, you think of themes that have come up.
01:05:34
Speaker
They're all themes that are more obvious to to things that are visible. right And this market was just not visible. right So we soon realized that even if businesses are doing well, if customers are willing to pay, even then the amount of oh ah excitement about that market was was a little fuzzy because it wasn't very well well understood.
01:05:55
Speaker
um The issue is twofold. I would say one is narratives. The second is data. And we found both of those needed an evolution. And a lot of people have actually been caught up in the past of these markets.
Epic World and Data-Driven Insights
01:06:08
Speaker
Even people who grew up in small towns and cities have memories that are associated to 10 year old memories. And if you actually visit these markets, you see fundamental shifts every two to three years.
01:06:19
Speaker
Right. that pace of change has completely gone unseen. And we said, are i mean, honestly, because we were already into Fund 5, we said we could either just continue with the LR investing practice or we could get more ambitious and say, how do we double down on the segment and open it up in a way that both...
01:06:40
Speaker
I mean, investing practices can also grow and and businesses can also flourish a lot better in the process of serving the segment. right So but to me, there's not much of a difference between capital and businesses reaching the customer and the customer are accessing capital and businesses.
01:06:55
Speaker
They're two sides of the same coin. So it is to me these I find it very difficult to talk about one without the other because you build strong businesses only when the customer is very happy. Right. And when this segment is happy with the quality of education, quality of health care, quality of financial services, quality of supply chain and agree, I think you've transformed the customer segments lives from an impact standpoint and you've built very, very successful blue chip companies. Right. And for me, blue chip is a far more exciting term than unicorns because it emphasizes the role of a trusted long-term brand.
01:07:29
Speaker
It emphasizes on longevity of businesses and laying strong foundation. And Blue Chip is also being very well respected by the customer as a company, right? So to me, it's a far more holistic term. So I'm a big believer in saying that we have to build Blue Chip businesses for this space and do it in a way that you address the gaps that the customer is facing.
01:07:50
Speaker
So that dimension is is what is um exciting overall. But in order to do that, ah we felt it was important to bring more data-driven narratives and data-driven insights for businesses and capital.
01:08:05
Speaker
Now, I'll give you I mean, I took a very simple example of income versus transactions, right? Today, if you think of a Starbucks store setup, you have phenomenal analytics on where exactly the store should be set up, which lane, which angle, which everything is very, very clear because you have the data to take those decisions.
01:08:29
Speaker
You take the same call on where should you set up e-clinics for healthcare.
01:08:36
Speaker
you're literally building in the dark, right? And when you think about markets that go beyond tier one, tier two cities, there is very, very thin data and understanding. And even if data exists, it is in a form that is not usable, or it is extremely expensive.
01:08:51
Speaker
And ultimately, what ends up happening, and i've I've seen this because we've sat on boards of companies that have built out rural distribution for a while, is that you mix up issues of opportunity, execution, ah decision making, time to build, et cetera, in a way that you're taking incorrect decisions. For example, if a company has, you know i don't know, 500 clinics and needs to double that growth, and and if you're unclear as to if 30% of your clinics are not operating performing well, or 40% clinics are not performing well, the answer to whether you got your location wrong
01:09:30
Speaker
or you got the team wrong on the ground or something else went wrong is ah is an answer that comes out of hit and trial. You try and change the person on the ground. You try and see what else could do. You try and seek feedback from people on the ground who are obviously in some level biased because if you have a you know a person in a district who is head of the district, then they will never say there's no potential here, right?
01:09:51
Speaker
So sometimes these decisions get very convoluted in the absence of clear data points. And that is one problem we said. Firstly, You know, when you're trying to build out a platform, or you need to be razor sharp in where you're intervening and what you're solving for.
01:10:05
Speaker
And for all the years we've spent and watched businesses build out distribution and grow, I just believe that if you are if you can solve for data-driven insights on decision making,
01:10:17
Speaker
that improve the return on distributions basically can improve the pace of scale, can improve your top line, can improve your productivity, can reduce your cost of distribution.
01:10:27
Speaker
That is where we need to tighten the business model so that you know when you scale up, you're scaling up in a profitable manner. right That intervention, I i almost feel is a low hanging fruit.
01:10:39
Speaker
but It's probably the most impactful intervention you can make in in helping companies grow from, you know, there are a lot of startups. I don't think we have a dearth of startups. How do startups successfully scale and become blue chip companies is the question you need to answer.
01:10:53
Speaker
And for that, the answer lies in the robustness of your P&L so that you're building for longevity. And for most of these companies, 60%, 70% of their operating expenses are actually distribution-oriented expenses, including the people on the ground, including you know the marketing spends you do in these markets, et cetera.
01:11:11
Speaker
So if you can optimize that, you optimize the P&L and then you set up a company for much faster growth because it's more confident. It's a more confident way of building distribution.
01:11:22
Speaker
So we we said, let's solve the harder problem first. And once you solve that, the obvious next step is that, you know, all those insights can make investing a lot more ah confident because then you know what works on the ground, what doesn't work on the ground, and what tweaks need to be made to optimize distribution.
01:11:40
Speaker
Today, the answers to those questions are not that obvious. And therefore, the perception of risk is very high. I'm a big believer that risk is a function of of understanding. And therefore, we said, let's shine the light on these markets so that you know the perception of risk goes down, the confidence in building goes up, and you do it. And and honestly, this is an AI-led data, um AI and data-led solution on how to think about ah distribution intelligence, location intelligence for businesses.
01:12:10
Speaker
So that itself, I would say the perspectives are 20 years of experience. The data sources today are multiple public sources that have been repurposed to make sense on the ground for businesses that are operating on the ground.
01:12:24
Speaker
And how this is building is... A lot of people ask me saying, what are the sources of data? I think the sources of data are less important because if you have 30, 40 data sets today, it will become 300 data sets very soon.
01:12:36
Speaker
I don't think the answer is what is ah what are the sources of data? The question is, how are we connecting the dots to provide insights on decision making on the ground so that companies can improve the the pace of growth, the the revenue trajectory, and the cost involved in building that revenue.
01:12:54
Speaker
So that is what is special about Epic World because we have leveraged all our expertise as investors. In fact, the team is has ah one of the co-founders come from an operating and a data background.
01:13:07
Speaker
So we are leveraging all of our life experience to say, how do you focus on the economics of a P&L dynamic for a company that is building distribution into these markets. um and And honestly, AI is very, very exciting these days because I don't think we could have built this in the absence of AI. It just takes too long and it's too expensive.
01:13:28
Speaker
So automatically, the ability to wade through messy data, the ability for pattern recognition, the ability to to create solutions that can then be automated for delivery at scale, all of that becomes very, very interesting in today's world.
01:13:44
Speaker
So the if I am kind of trying to take a stab at visualizing what Epic is, something like, say, a pin code by pin code breakdown of what is the population density, what is the transaction value of that pin code, ah what do they spend on, is this more of an aggro-dominated area or is more of a trading-dominated area, ah would be the base layer of data based on which a business could say that um I want to open a
01:14:19
Speaker
but like ah Like a kiosk which sells ice cream, for example, is this the right place to do that? Or I want to open a kiosk which is giving credit cards, is this the right place to open?
Epic Intelligence Platform
01:14:32
Speaker
Is that right ah in terms of how I'm visualizing So what you're describing is the first product from Epic World, which is Epic Intelligence. right This is the data-driven product that we have, which is actually going to ah come out of beta mode and will be more generally available starting July this year.
01:14:49
Speaker
um This product does allow for businesses to literally, it's a map-based interface. So visually, it is a very, very intuitive way of of you know navigating markets like India, where even terrain makes a difference.
01:15:04
Speaker
it is It definitely factors in the concentration of entrepreneurial households in Pincode village level all the way down to a street lens. um It does factor in our own estimates of what core transaction value would be in these locations.
01:15:21
Speaker
It does layer on even historical estimates of growth within sub-sectors, we have like close to 50 subcategories of businesses that are in our experience. And when I say our experience, our observed experience on the ground that are lead indicators of economic prosperity.
01:15:37
Speaker
um It does layer on several other um softer aspects also of how these economies operate and how to read into those data signals. And so what Epic does today is using Epic Intelligence as a product.
01:15:52
Speaker
there is solution delivery that is happening in beta mode and and will step out of beta mode with companies that are looking to solve problems. So in some sense, um we have a use case where we're helping a health care company identify locations faster because they know what works.
01:16:09
Speaker
But to identify what works 100 times over and over and over again is time consuming and expensive. right So how do you crunch that cycle and how do you provide that blueprint? um Working with companies to say, can you reallocate your salespeople on the ground to optimize their client coverage right or customer coverage in an MSME context?
01:16:28
Speaker
There are several, several. So these are whatever we've discovered is like four out of 10,000 use cases. right The beauty of this is basically where the way we operate is we we work with companies to say, what is what is your um current distribution model? What is the problem statement that you would want to fast track? And what is your pain point?
01:16:48
Speaker
And then how can data-driven insights solve for that? And how do you plug in and embed yourself in a company almost like a chief location intelligence officer that sits within a company driven by data and AI, driven by the power of all the experiences that roll up over 20 years to solve for day-to-day things that have demonstrable P&L
Epic World as Authoritative Platform
01:17:07
Speaker
impact? right So effectively, and and you know when a lot of people are saying to do companies and people pay for data,
01:17:13
Speaker
My question is, will people pay for b impact? And I think the answer is yes. right So it's more about what value you deliver to companies that matters. And that's why we're very excited about this particular solution.
01:17:26
Speaker
But this is today. right Firstly, the data driven intelligence itself grows non-linearly. As you work with more business models, as you work with more companies, as you get more feedback loops on the ground.
01:17:39
Speaker
But the more exciting part for me is how do you start productizing the voice of customer? How do you take the field visit that I made into Dhammo and Bundelkhand belt in Madhya Pradesh, the trusted nature of that conversation, how do you multiply that and plug it back into data insights? right So for example, folks on my team were out in Hubli district. And there was some conversation about how some of the government schools may have been good or ah you know versus private schools, et cetera.
01:18:08
Speaker
Now, that's hyperlocal intelligence. And that's not something that data in itself may throw out in an absolute sense. Now, the marrying of qualitative and quantitative is where I think insights, not intelligence alone, but insights overall come together.
01:18:25
Speaker
And that's when the power of this platform starts compounding over a period of time. So to me, the product is our language to communicate in insights today. But this is going to compound in a way that ultimately Epic World is set up to be the ultimate authority on entrepreneurial households and how to work with entrepreneurial households irrespective whether you are a business, you are a capital provider, you may be a CSR person because you Interestingly, the converse to economic vibrancy is where there isn't vibrancy and where nonprofit money should flow. right
01:18:59
Speaker
So we're discovering use cases as we go along. But ultimately, if if if I take Elavar's expertise of 20 years of saying we are customer segment experts, Epic World is basically the the platform that provides that expertise to a a significantly larger part of institutions and capital pools so that we can. Now, obviously, we're in different phases of this. We've started by focusing on on companies that are building operating businesses on the ground. And we are evolving to say, what is the,
01:19:30
Speaker
in what way do we create the language for communicating those insights to the world of capital? So obviously, Elevar as ah as as part of our our group effectively becomes the first place where we can fine tune the language for capital and then over a period of time figure out how to open this up even more.
01:19:47
Speaker
But this has massive potential and and Epic World does have geographic ah expansion capability because like ah like I mean, you rightly pointed out, this is not just an India phenomena. India is a flagship market, but what we observe here and what we learn from here, there are several parallels to be drawn. And then you layer on bottom up nuances of different countries and different markets that obviously will provide a variant. We're a huge believer in bottom up thinking because anything top down to understand the segment invariably lands you in the wrong place.
01:20:18
Speaker
so So you need to be plugged into ground realities. You need to have the the humility to drop your biases and say, i'm I'm going to listen very carefully and then connect the dots.
01:20:28
Speaker
So those are the things that are portable. um Your ability to learn is portable, if I may say, geographically. Got it. So the ah the version one is companies paying for ah better decisions of where to locate their interests.
01:20:47
Speaker
engagement ah points or whatever it may be. um what what What would you be selling in version two when you're saying like insights for capital or what exactly, like, would you be telling ah funds that these are opportunities in India, for example, that you should ah invest in iCare because they're they're it's an underserved segment or like what exactly would version two be?
01:21:16
Speaker
So version 1 itself is is a lot more nuanced than where to locate your branches, right? So even within version 1, you could be optimizing Salesforce. You could be optimizing marketing spends on the ground. You could be optimizing um you know time to market.
01:21:31
Speaker
You could actually even figure out lead gen in certain cases. There are lots of variants to version 1 itself, which which ah we are just about scratching the surface on what you can deliver.
01:21:42
Speaker
But like I said, can I start adding, you know, 10, 20, 30, 50, 100 basis points to the bottom line of a company, right? That is what version one is about. And it's going to be rapidly learning and evolving in that avatar itself, right?
01:21:58
Speaker
um In some sense, in parallel, we're thinking about what does it mean for capital? So if I wear my Elavar hat, for example, Elavar did well all these years and we have a very low loss ratio. We don't lose those many companies that we back.
01:22:11
Speaker
Because we were we had a very nuanced view of this customer segment, which means effectively of have to do a PhD on this customer segment. like Can we help more team members do their PhD on this customer segment? Because now you have a very comprehensive lens into this market is is a starting point. right How do you potentially layer this onto your selection of new companies? How do you layer this onto to pipeline?
01:22:36
Speaker
also Effectively, if you think about why entrepreneurs have have worked with Elevar, right because they know that we know this market. right So the more a capital pool knows the market, the more interesting you become for a founder who is working with you. right Because you're automatically asking more intelligent questions about the business. You're automatically feeling more confident and not waiting for the MIS to check whether this is working or not. right You have a forward lens on this market. if you understand this market well enough.
01:23:07
Speaker
So to me, the first use case for capital, and obviously this is deeply integrated into how Alibar is thinking, is to make sure that you're on top of the shifts in this customer segment, you're on top of the nuances.
01:23:18
Speaker
If you see the emergence of certain types of businesses on the ground, It tells you how this market is thinking. right So how is this market spending? There are spaces where growth curves are very, very different in different different types of of things. For example, the setup of a a new mobile shop or the growth of mobile shops is different from the growth of growth of mobile repair shops.
01:23:39
Speaker
How are EV repair outlets emerging? There are so many insights that come out of this that it does, if you're a good investor, you'll learn how to connect the dots to form your investing thesis. That's basic.
01:23:52
Speaker
Can I in the future imagine that this can help me diligence companies? Absolutely, yes. It allows me to, for example, layer on a company's existing distribution and form an assessment of how optimized your distribution strategy
Improving Capital Efficiency
01:24:08
Speaker
is.
01:24:08
Speaker
Right. Hypothetically, I could say that a company has 6 on 10 score on distribution. And we could build a roadmap to say over the next few years or a couple of years, how do you take that score up to 8 and 1 half, 9 on 10, so that your capital efficiency of deployment in the business itself improves.
01:24:25
Speaker
So these are all nuances that are easy to imagine. I'm not even getting into spaces like what is the potential for insurance and actuarial underwriting? What is the the potential for people who just buy data and intelligence?
01:24:39
Speaker
There is a lot that you can do. Just the inciting piece, which is a qualitative voice of customer, is a business model in itself. right So customer insights, I think, is the starting point of almost every economic activity that will that is set up for long-term success. right So to that extent, ah i i'd be I'd not be doing justice to anything that I try and paint a picture of what this could become.
01:25:05
Speaker
But tomorrow, the the the observations on the ground, um I think, will drive investing as well as optimization of of fund returns, optimization.
01:25:16
Speaker
All of those things is where this will head from a directional standpoint.
Data Sources and Insight Layering
01:25:20
Speaker
um you You said that the sources of data don't matter, but I'm curious, what where where are you kind currently? with What are the sources you're aggregating?
01:25:32
Speaker
I mean, I can give you some examples, right? For example, Google points of interest tell us what are the, i mean, today with which digital adoption, and this is the enterprise use case. It's not what you and I look at for for looking for the nearest ATM, but but looking at cashmere. But a lot of the map-based players like Google and Google And you know other players have built have built a lot of traction in recognizing ah business presence on the ground. So that's a good feeder input to us.
01:25:59
Speaker
um There are, for example, on the qualitative side, household consumption surveys get layered onto to this. Facebook wealth index, contour population sets, luminosity data.
01:26:11
Speaker
You look at, um you know I mean, even phone pay transaction data, for example. So all of these start layering on. Today, buying bureau information and layering it on for risk is an easy plugin.
01:26:22
Speaker
But the thing is that the reason I said it's sometimes when I describe this, suddenly you'd be like, oh, is this similar to this company? And I'm like, it's not about the data comparison. It's about what you do with the data and how you deliver insights and solutions to companies. That is where the IP lies in some sense, right? Translating this to the P&L is this and real thing. UPI transaction data is available. Like if you but obviously ah anonymized, but that kind of data is available.
01:26:49
Speaker
Lots of these transactional data are available. I think the team basically looks at what is exciting and what speaks to this audience, what speaks to transaction value. And remember, our our emphasis is a little bit more on on non-discretionary services because that tells us a lot. But we do have mobility. We do have construction. We have a lot of these elements which are built into what we're focused on.
01:27:13
Speaker
and then see what are we picking up the ground. So we are actually a very data hungry organization, if I may call it so. ah In that sense, we're always looking to see what is the data set that can be plugged in in a way that can also be geo mapped and taken deep down to a pin code level, village level, and interpreted in the context of everything else we're seeing. right So that's our perennial hunger.
01:27:34
Speaker
um The map interface itself is an important interface because it then allows companies to layer on their presence. For example, Can I segment my locations from a high performing, medium, and low performing?
01:27:46
Speaker
Layer it onto the catchment potential based on our estimates of core transaction value and population density, economic prosperity, et cetera. And then see whether but the low performing is, if there is a high performing location ah you know team which is in a low catchment area, then you have a star performer out there. right And the reverse is that you need to make some changes on the team. You need to spend differently.
01:28:11
Speaker
You know, at some point in time, a large bank actually ended up paying a million dollars to a consulting firm for targets setting across the regions because it is huge. I mean, you you can't take India as very diverse, right?
01:28:24
Speaker
Optimizing at scale is a very difficult ask. It is not a people driven thing. It has to be data driven. It has to be scientific because you're chipping away at saying how to refine your model, how to optimize every every dollar spent on the ground.
01:28:39
Speaker
and so I want to ask some questions to you about Middle India.
Middle India's Transaction Landscape
01:28:43
Speaker
um ah Based on the data you've seen, you would have deeper insights. So is Middle India like cash first or UPI first?
01:28:54
Speaker
um I think it's very blended honestly because everybody has adopted ah you know the wallet and and UPI because it's the most convenient way that people can transact so it goes down to a person who's selling Naryal Pani and I think we've heard enough stories about all of that but it doesn't change the way they I think cash is how you think about your money in life right and and it is it's It's not a P&L market, by the way. It is a cash flow market.
01:29:25
Speaker
so So what I mean to say is I don't know whether people are not as focused on saying, OK, is this my savings balance? And you know is this my bank balance? That formalization is a matter of time.
01:29:36
Speaker
But the thinking is very cash transaction driven thinking, especially in larger quantities. The smaller transactions are definitely happening on UKI. But all of this is rapidly evolving. The adoption has happened.
01:29:48
Speaker
uh in some sense i don't think i mean i've now gone fairly deep and you and you see the upi codes everywhere ah but it doesn't replace the volumes completely so does upi transaction ah transactions capture the entirety of of cash flows in the in the economy the answer is no not nowhere close i would think not yet i've i've heard uh fintech founders talk about how there is just more cash in the economy than pre-demonetization and Like cash is just growing. So, yeah.
01:30:19
Speaker
Okay. um What does Middle India spend on? like Like, you know, what are the top spend categories for them and therefore top opportunities for entrepreneurs?
01:30:31
Speaker
So ah if you take Middle India and that's why I would say what do they transact on is a better lens for me. um In terms of the business needs of Middle India are very, very high.
01:30:42
Speaker
We're talking about whether you are, a I mean, it's it's simple. You could be running a tailoring shop within the home, or you could be ah the agri side of your life to the shop side of your life to the dairy side of your life, all fall into the business side of their lives. right That, I think, is a huge opportunity.
01:31:00
Speaker
And how do you improve the quality of their growth? is the massive opportunity in in this segment in entrepreneurial.
Market Linkages and Growth Opportunities
01:31:07
Speaker
Which is lending? like Not just lending. it's also the market It's also market linkages. It's about figuring out the ecosystem for logistics so in some cases.
01:31:15
Speaker
There are many elements to this. It's aggregation in between. Right. So I think working capital is very important. And that is also a part of it. But it's it's ah unfortunately, when there's a sophisticated and an unsophisticated player, the unsophisticated player doesn't have the negotiation leverage.
01:31:31
Speaker
So market linkage historically has been a series of brokers and middlemen, et cetera, who kind of play the trading role in between. And I feel this segment of entrepreneurial households is outgrowing that informally brokered segment because there's not much left for them then.
01:31:47
Speaker
And therefore, you see generations trying to, you saw a flux of generations trying to find jobs and other opportunities, et cetera, right? But if you restore the economics in the business models they run and and balance out the fairness principles and and regulate that that system just that little bit with formalization, then there is a massive opportunity waiting to be unlocked. I've now seen anecdotally people who've gone back for agriculture, people are going back to set up shops in their in their villages and their communities.
01:32:16
Speaker
That is something people who get educated and coming back is a trend that I'm seeing early signs of. I don't have absolute data on it, but you're seeing the the proliferation of shops and setups in these markets is proof that there is economic activity that's growing within the smaller town or village and not just in the metros, right? So that is a very, very clear trend.
01:32:39
Speaker
The second piece, which is what we call high priority goods and services are all in the bucket of investing in your future and de-risking your investments in the future,
Future Investment Priorities
01:32:48
Speaker
right? So when I talk of de-risking, it's definitely healthcare.
01:32:51
Speaker
um And there, you know, people... would pay for local solutions, right? Not having to travel 10 hours, 15 hours to to deal with a solution, they would pay for doorstep solutions. And that appetite is there.
01:33:06
Speaker
um Education and employability, to my mind, is a continuum, right? So that's in investing in your next generation in that sense. That whole aspect of how do you get your children into a zone where where they can generate revenues and pursue something which is an exciting proposition for them. Matching the aspiration quotient also is definitely an opportunity.
01:33:29
Speaker
You know, I i i still haven't... um
01:33:34
Speaker
I think savings and and investing is is still to be proven. And the reason I'm saying this is the business mindedness of these segments is so high that if ah they can set up a shop that generates high returns, it's far more exciting and dearest for them than investing in ah in mutual funds or equity or something like that. right So there is a business orientation. and And going back to my wealth days at HSBC,
01:34:01
Speaker
i I used to really find it tough to convert a businessman to invest in in mutual funds or something like that. right And i'm that used to surprise me, but it completely makes sense today. as and As a founder, as an entrepreneur, you you tend to see, and again, going back to my risk understanding framework, your risk perception of something that you control is much lower.
ChitFunds and Entrepreneurial Needs
01:34:23
Speaker
And i see that I see that orientation in the segment. So I am not convinced that you know a business that is looking to raise more deposits from the segment or get them into a savings program, et cetera, works.
01:34:36
Speaker
Like honestly, ChitFunds is a phenomenal model because it appeals to an entrepreneurial mindset. It solves for liquidity. It solves for the bridging of working capital. That is what the segment has always veered towards.
01:34:48
Speaker
At scale, do I see, you know, ah I think they will there will be allocations towards some of these formalized schemes. But I think one has to think about this business model very, very differently.
01:34:59
Speaker
Because most wealth models end up again concentrating on the top end of the segment because it doesn't go deep enough, right, in a meaningful enough way. So I think there is an entry point and there will be some stuff that happens.
01:35:10
Speaker
But if you ask me, the chunk of their wallets and their savings is not likely to go into ah classical investing products the way we look at it from ah from a formal economy standpoint, right? So.
01:35:24
Speaker
ah Market linkage ah would be what?
Market Linkages and Value-Add
01:35:27
Speaker
Like, ah I'm just naming some names of founders I went to. Like, say, Lalten, which, or...
01:35:36
Speaker
It's not really in that entrepreneur or like say Resha Mandi was doing something with the silk producers. Are these market linkage companies or like say off business or like?
01:35:48
Speaker
Potentially and each of them go into different business models. So wouldn't get into that. But yeah, anybody who can who can link. So for example, Peopletree in our portfolio works with artisanal communities and and looks at at intervening on design so that their products and then placing the products.
01:36:05
Speaker
So I think there has to be an element of value add and making see what is the challenge to today, right? The margins are getting squeezed for these households because of something which is low value add. And so ideally a business model that focuses on market linkages and improving the margins for the segment is what will do very, very well.
01:36:23
Speaker
For that, you have to again go deep into these communities and know what it takes to improve their margins. So it happens in agriculture. It happens in artisanal communities. In each of the sectors you talked about, I guess that's the same play that that a model that needs to play out.
01:36:37
Speaker
Easier said than done. But there is a massive unlock out there that can flourish very well if you if you understand these segments well enough. This artisanal segment ah and doesn't seem to be VC fundable.
01:36:49
Speaker
but Because, I mean, the i don't think there is enough money on the table for a business to... really scale up? and I don't know about VC fundable, but there's definitely commercial business models that can scale up in that space.
01:37:07
Speaker
ah You do need to get to the bottom of how to unlock scale, both on the supply side, margin on the supply side, and then figure out how the placement works. right So there is still some work for lots of business models to emerge.
01:37:20
Speaker
But I think if you if you try and take a shortcut on that, it doesn't work. If you try and just say, OK, I'll procure and place it somewhere very soon, it it disorients. Because ah you know that's where even the loyalty, for me, whether it's artisanal work or farmers or any kind of producer or creator, it's it's all the same dynamic. right If I'm not fundamentally getting any value from the market linkage person, it is a transactional relationship for me as a producer.
01:37:46
Speaker
hey So very often people who've tried working with farmer producer companies are like, you know, at the last moment, sometimes they may or may not honor their contract because if there's nothing more you have to offer and there's this there's nothing else, then you're as good as the next person who who offers a slightly better price or something.
01:38:02
Speaker
But to build long-term relationships in this segment, you have to embed yourself and add value in a way that eat then you see the aggregation work, then you see the the magic of scale start playing out in this market, right? So sometimes it takes a little bit of effort to go deep, but with everything that takes effort, you build a very long-term mode, right? So but that's... Wouldn't ah the the way to scale here be for producer consolidation?
01:38:28
Speaker
Like one person making 10 saras in a month as opposed to someone setting up a factory which is producing 1,000 saras in a month. Wouldn't that be how...
01:38:39
Speaker
I think there are different models. And again, mike i wouldn't say complete aggregation because very soon then you turn into an organized system that I wouldn't say complete aggregation in the sense it's it's a little bit more about um saying what are the what is the right level of aggregation, right?
01:38:58
Speaker
So for example, you take warehouses or even if you take artisan, you do have a massive multi-billion dollar export market for artisanal goods, right? It doesn't deliver value. So somewhere you have to take the aggregation points closer to the end cu n producer.
01:39:14
Speaker
That's when it starts working for everyone. so So long as the aggregation is removed from the entrepreneurial households, the value add to them is lesser because then they are stuck with the same dynamics.
01:39:25
Speaker
If you move it closer, like even warehousing, can you move it closer to a smallholder farmer? Can you move the the same? Maybe 10 saris is not the right scale. But maybe 500 sarees is, but maybe 10,000 sarees isn't. So you have to find the right point of aggregation. You're absolutely right.
01:39:41
Speaker
I think trying to do these at a completely retail level is is a non-starter in these markets. right You do need aggregation on the ground. But there again, led the you have to follow the community on aggregation models. There are, for example, master weavers.
01:39:56
Speaker
who work with weavers. These things are already, that's the beauty of the, somebody once said that, you know, these markets are not unorganized, they're informally organized, right, which is very true. You have to understand what works on organizing, aggregating, and then see how to formalize that system.
01:40:11
Speaker
And that is the path that I think has a lot of potential in multiple, multiple vocations in that sense. ah Okay. ah Slightly controversial question. you You've been very, very good at saying no ah based on what I've heard.
Epic's Ecosystem Potential
01:40:25
Speaker
you know like Just three investments in a year means that saying no is not something you struggle with unlike most Indians.
01:40:33
Speaker
Why did you decide to run Epic yourself instead of continuing to be an investor and just fund it as a portfolio company? Why isn't Epic just one of your portfolio companies? Well,
01:40:44
Speaker
oh Good question. I don't think anyone's asked me a question as to why we didn't just find an entrepreneur to build Epic. In some sense, this is... As an investor, you can create, you for example, lead school, unicorn, massive impact. You can focus on finding five more such unicorn, massive impact opportunities.
01:41:06
Speaker
ah And Epic could also be one of those five, for example. Why why get into and, you know, move away from your core focus and expertise into an operator role?
01:41:18
Speaker
So I will say, i mean, the Elvar journey continues and it will continue in that sense. So Elvar will continue to build and grow its funds and I'll continue to be involved on that front. I guess Epic is an ecosystem play. It's not just a company.
01:41:31
Speaker
If it was just a company, then I think it would have been an easier solve. um I see Epic... playing a very, very important role in unlocking Elevar's potential.
01:41:42
Speaker
And if we had found someone who could have done it by now, we would have probably found a way to either back them in whichever capacity or or whatever it is. It's just that we haven't found that team. We haven't found those players and people who fully understand the intricacies of the world of capital, how money flows to companies, how companies operate and deliver value to the customer.
01:42:05
Speaker
So we're trying to connect the entire end of the customer's nuance to nuances of capital markets and what makes businesses successful. right I don't think we found, and honestly, it was it was a sense of of restlessness um and urgency, which brought us to say, let's just set this up and and get going because Without that, I feel um we we wouldn't have been able to give the Philip and the momentum that Elevar also needs. right So we needed this to happen.
01:42:36
Speaker
And in the absence, that's the entrepreneurial spirit in us. Because even at Elevar, we've been entrepreneurial. I don't think it's ah that there's no corporate backing to Elevar in that sense. right So it's the same entrepreneurial energy that flows from the customer segment to Elevar to Epic to hopefully the pools of capital that will come in and and transform the space.
01:42:56
Speaker
it It needs a little bit of that push. and It's just a question of finding somebody who's who can do it already has done it, etc. We don't want to reinvent any wheels or you know ah do things that could have been done otherwise.
01:43:09
Speaker
The idea, it it came out of, like I said, partly frustration, partly restlessness, sense of urgency, saying we've got to get this going. but My last question to you. What is something which you find very hard about being a VC which most people don't realize?
Trends in Current Investments
01:43:29
Speaker
um i will modify to say what is very hard… what is… that is very hard about being in investing that most people don't realize, right? um
01:43:41
Speaker
I think, to be honest, um a lot of investing has moved away from conviction-led calls, where you understand and back a worldview, to trend-based investing. right and And there is a certain safety in that.
01:44:00
Speaker
and it's and And today, finally, I'm hearing a lot more of debates on on the incentives that come from fees of funds and AUMs versus true alignment that comes from carry or profit share.
01:44:13
Speaker
ah Carry profit share requires you to back a certain worldview and have conviction in what you're doing, which means truly have an appreciation of businesses that are built, not just react to to certain things that may be happening in the market today.
01:44:27
Speaker
Because a lot of upside on investing, long-term upside and consistent upside, a lot of people don't appreciate the consistency. um you know There are big headlines that come out of one exit or one investment or one fund may have that may have returned capital. What most people don't realize is I think 95% plus percent managers do not go beyond fund three because consistency is the hardest thing to achieve, right? Because those partnerships don't survive.
01:44:55
Speaker
The investment strategy doesn't survive because you could get lucky with one fund. You don't get lucky over a couple of decades and multiple funds. it that is when you you then finally come to say that you've you've realized. Because someone said it well, when you're you're deploying the first fund, it's it's honeymoon period, right? you're you're You're kind of effectively going around looking for pipeline. By the time you raise fund two, fund one's problems emerge. You're dealing with the problems and you're raising fund two and you're deploying fund two.
01:45:23
Speaker
And when you're in fund three, that's when the most complexity, the complexity peaks because you should have exited, started seeing exits in fund one, which is always tough. you You would see the problems in fund two. You're raising fund three. It is the absolute peak of complexity. So I can see why fund three is like the valley of death for for fund managers.
01:45:44
Speaker
ah But ultimately, that long term nature of this business I don't think is appreciated enough. It feels like a very cool thing to be an investor. But if you're serious about building a long-term franchise, you you need to really learn how to back your conviction and your worldview, and then have the courage to follow it through. you know It's one thing to make an investment, to stick to it without getting nervous, to know how to engage with an entrepreneur who is also going through a ah fairly complex journey themselves.
01:46:14
Speaker
Those winning the respect of entrepreneurs building consistency over over the long term and staying consistent with your strategy all and being nimble with what's coming up over the next 10 years. right The world is a very, very fast changing these days. The cycles are no longer long term cycles. They're medium term, short term cycles that happen.
01:46:34
Speaker
Just learning how to. It's it's tough. It's not as as cool and fancy as it is. But unfortunately, when when a lot of AUM kicks in, the incentives on fee kind of ends up driving misaligning incentives with what it takes to build a long-term franchise.
01:46:52
Speaker
I just want to break this down a bit for my listeners. So ah fund managers make money through two ways. One is they charge a one to two percent fees on the money that they have raised from investors which they are deploying into startups. ah And the other way is a profit share which is called a carry.
01:47:10
Speaker
um So If you are following trends, it is easier to have a lot of funds that you manage and therefore the fees for managing funds ah comes to you. and So that is what you are talking about here, like being trend driven.
01:47:24
Speaker
It's easier to have a large AUM if you're following a trend. Actually, there are two points here. um If you end up having a large AUM, ah you end up being more motivated by deployment and and making investments. and And the fee is enough very often to take care of the economics of the team, right?
01:47:43
Speaker
And that is misalignment with the real objective of long-term investing practices. because ideally fund managers and investors should earn their rewards when they actually generate profits of the investments.
01:47:56
Speaker
right So the excessive liquidity or or sizes of funds, et cetera, sometimes very often misaligns incentives. So when you see funds in the early days, people who founded funds are very focused on the carry and long-term incentives.
01:48:09
Speaker
But as funds grow, very often that incentive shifts to fee-based drivers, which then is is not consistent with the long-term alignment. And that's where the temptation for the second piece, which is to try and ah go with trends, because you want to avoid making a mistake, but you're not really taking those contrarian calls that can build long-term value kicks in. There's a tendency to to head in that direction. And I think a lot of that has happened as liquidity has increased.
01:48:38
Speaker
ah in in terms of the fund dry powder itself and the size of funds that have grown in in in various firms. right So they kind of feed off each other at some level. But you will find lesser of this when it comes to a first time fund manager who's really trying to establish themselves and and kind of back their conviction.
01:48:56
Speaker
But unfortunately, in the world of investing, from from an investor in a fund perspective, I'd rather if I was an investor in a fund, I want to see whether you'll survive your third fund before I make an investment. Right. That's what gives me better predictability.
01:49:13
Speaker
So in some sense, this market is a little misaligned on multiple fronts. and And that's not often very well understood. So
Passion for Business Building
01:49:21
Speaker
interesting. like There used to be that saying that you can never get fired for choosing IBM.
01:49:25
Speaker
So possibly today a fund manager cannot get fired for investing in AI, like, you know, because that's the trend of the season. And similarly for a large ah LP, you won't be fired for picking a large established fund manager.
01:49:38
Speaker
So there are some things which aren't quite perfect about this world, which I'm hoping with the pace at which things are, I'm an optimist and I hope these incentives get aligned and and we correct some of the the trends that have emerged in how capital is managed, and especially in order to create value and and building businesses.
01:49:58
Speaker
For me, honestly, I don't see myself as as a pure investor at heart. I am passionate about businesses being built for blue chip companies to be created and about the customer segment. So to me, whether I'm wearing an Alivar hat or an Epic hat, it's it's not very different. you know Ultimately, while these feel like two very different things,
01:50:16
Speaker
In both cases, we're saying, how do we set up a business for success? How do we move more capital to build businesses for this customer segment? How do we ensure, therefore, that the customers can access high quality essential services for their growth? right So yeah.
01:50:32
Speaker
Thank you so much for your time, Jyotsna. It was a real pleasure. Thank you very much. Likewise.