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From founding unicorns to funding them | Rajul Garg @ Leo Capital
43 Plays4 hours ago
In this episode, we delve into Rajul Garg's inspiring journey from his beginnings as a budding entrepreneur to a successful venture capitalist.
Rajul is the founder and managing partner of Leo Capital, a venture fund that invests in early-stage technology companies. A serial entrepreneur turned investor, Rajul co-founded GlobalLogic, a digital engineering services company that was acquired by a Japanese company for $10 billion. He also co-founded Pine Labs, a merchant commerce platform valued at $6 billion, which plans to launch an IPO soon. In addition, he ventured into the edtech space by co-founding Sunstone Eduversity.
Akshay Datt, a serial entrepreneur who has run ventures in employability training and hiring, hosts the Founder Thesis podcast. He has interviewed 500+ founders to date.
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Transcript
Sales vs Technology in Business Success
00:00:00
Speaker
Yeah, every year you have to sell more and more and more and more. To build 100 crore business, you have to sell immensely. It's not technology, but it's sales, which is going to be different in Google wind. Businesses like Flipkart, Visio, Amazon are so sort of awesome. The lifetime value is just immense. Once you're on these platforms, you just keep buying and buying and buying and buying, even if it's a smart ticket.
00:00:21
Speaker
I always think that my entrepreneurship journey started from a conversation that I overheard from new gen founder. You know, so I always think that hopefully someone will hear this and get inspired and, you know, hopefully we'll have more entrepreneurs.
Types of Venture Capitalists
00:00:33
Speaker
Of all the venture capitalists that I've interviewed till there, I found that I could put them into two categories. One is somebody who looks at his role
00:00:52
Speaker
And the second kind of VC is somebody who's there for the entrepreneurs, who's there to help entrepreneurs build large businesses, get amazing outcomes, move the ecosystem forward. And someone like Rajul Kirk is strongly in the second camp. You would hardly find a more qualified venture capitalist than him in India. He has built some of the biggest names you would have heard of.
Pine Labs' IPO and Rajul Kirk's Ventures
00:01:20
Speaker
Pine Labs is planning to do an IPO soon. It is a rare fintech, which is profitable, a couple of billion dollars of valuation.
00:01:29
Speaker
Global Logic was the other company that he started. Global Logic was acquired by a Japanese company for $10 billion dollars approximately. And the third company started is Sunstone, which is really taking a very ground up first principles approach towards fixing the employability problem.
00:01:46
Speaker
completely I would say like an anti at-tech thesis that they are following and I'm sure it would also be one of those large outcomes soon and now he is the managing partner of Leo Capital. Superb Conversation learnt a lot from it. I'm your host Akshay Dutt and you're watching the Found a Thesis Podcast.
Inspiration from College Days
00:02:16
Speaker
I want to kind of understand your origin story and just take me through you know like connecting the dots of what made you an entrepreneur in terms of the things you saw growing up which inspired you to do that.
00:02:33
Speaker
No, I wouldn't say it started growing up, but you know I grew up all over UP. My father was in a government job, so I transferred all through you know the nicer parts of UP. But I think my journey, professional journey in some sense, only started when I went to college, which was IT Delhi. This was 1994 to 1998. And actually, the first time I learned about entrepreneurship was that my roommate at IT Delhi, his uncle was the founder of this company called NuGen Software, which was a fairly large company in the 90s in the software space. and He had come to our hostel and he was talking to his nephew you know and talking to him about entrepreneurship. I kind of overheard because I was a roommate and I mean i sort of joined the conversation.
00:03:20
Speaker
ah So I thought that this is really cool. Before that, I don't think I really knew the word entrepreneur. I knew business. you know like I mean, like you see small shops and all that all around you, but I never knew the concept of entrepreneurship. um So that's what I think that's where the seeds were sown in my head. um and When I graduated in 1998, I actually became an entrepreneur right away. it was ah bit of what they say there is there needs to be motive and opportunity. ah so I was motivated. I was kind of thinking about it if I could do something.
First Entrepreneurial Project at Schlumberger
00:03:56
Speaker
and There was an opportunity that came by that somebody I knew, actually a cousin of mine, he was working for this company called Schlumberger. Schlumberger, we all know the company from an oil oil and field oil field perspective, but they also had
00:04:10
Speaker
like a what they call a division called Test and Transactions in which they were trying to sell chip cards, these SIM cards basically in India. While they had the cards but they didn't have any software but solutions that required these cards, it was like a solution looking for a problem. um so so they you know i so They thought you know i was I could write some cheap software. you know I was kind of fresh out of college and they sort of through my cousin commissioned me to write a small software for chip card software.
00:04:40
Speaker
ah you know which which later became Petrocard and later became Pylons. So that's just kind of the origin story. um you know it was i did I did obviously have a job offer when I graduated. And so I think I remember like there was a big decision point. This was 1998. So this is prior to all the VC funding and all the you know things that happened. And I decided to kind of become an entrepreneur versus taking up a job. So I do remember it being like a desperate decision at that point of time.
00:05:09
Speaker
um but But that's basically that's basically how it happened. You started as a solo-preneur, you were alone? are you I had a co-founder Tarun. He was in a five-year program while I was in a four-year program.
Growth of Schlumberger Software Project
00:05:27
Speaker
So he was only able to join full-time the following year, ah but you know he was very much a co-founder right from Deva.
00:05:34
Speaker
and so how did when project to write some code, become a business. Just taking through that evolution journey. Yes. i think ah you know i also I think just the multitude of decisions also like in India, I would say the salaries for sound engineers were quite low at the time.
00:05:58
Speaker
um so For example, you know the normal salaries that if you were to join in India at that time was about 2 lakh rupees a year for my batch. ah It ranged from, let's say, 1.5 lakh to 2.5 lakh depending on where you joined. I didn't want to go to the US at the time. Again, that was the other option where you could get better salaries and all that. um but I felt the opportunity cost was low.
00:06:25
Speaker
you know I felt it's 15,000-20,000 rupees a month. I figured out how to how to make it, and that did play a part. I thought, okay, okay I'm not giving up that much. I'll come back you know in a year or two if I have to do something. This first project that I did was ah like a 10,000 rupees software coding project, you know three months, four months. What it entailed was that In Delhi, basically, Schlumberger, when they were selling these chip cards, they were trying to sell them to patrol companies like BPCL, HPCL, and they wanted to roll out this prepaid card. BPCL wanted to roll out this prepaid card where you could load money on a card and send them to a patrol pump. For example, if you have a driver, you load 500 rupees on the card, he can spend it there, like a closed-loop solution. It was not available anywhere outside the BPCL system.
00:07:18
Speaker
ah but very much a part of the BPCI system. um So this first project was the first pilot of that for one patrol pump, which is like a close by where I am right now. There's a mutual flyer in Delhi and there's a patrol pump ah there. So this was meant for the first patrol pump and that is what I was commissioned for and I wrote the software. But what happened was that but one patrol pump led to a fuller rollout over a period of time.
00:07:44
Speaker
you know It became multiple patrol bombs and became a BPC-wide rollout. The chip card project grew into other branches. so There was opportunity to do more just within that same project. it was I could see that will lead to more you know over the next two, three years, and at least give me some sort of income and revenue. um so That's basically how you know it kept on evolving and I just kept on working on it. This kind of reminds me of the Bill Gates origin story where IBM decided to structure the deal of giving him a license per Windows software installed on a machine instead of paying him a one-time cost to just write the Windows software and sell it to them. ah lump sum Was something similar happening here? like like It was like a one-time project to write code and sell it to them.
00:08:34
Speaker
ah it It started with one-time code, but actually, I have it interesting since you make that parallel.
Challenges in Revenue Models
00:08:40
Speaker
Over the next couple of years, actually, as we rolled it out in BPCL, ah we did, in fact, have a deal which was a per per month type of revenue to me, you know to my company, Pine Labs. It took two or three years before it happened, as the rollout happened and things like that. right ah so in that sound in That sense is quite similar.
00:09:03
Speaker
But I think it didn't end the same way, ah you know, because what I realized was that in India, again, I think what ended up over the following 5-10 years is that the end customer, which is BPCL, ended up renegotiating these contracts. So it started with a certain amount of money, let's say five rupees per card because they expected a certain amount of rollout. And then, you know, as the cards grew, they actually renegotiated it. So what ended up happening was that every year they were renegotiated so that the money that we were getting was actually became quite fixed. It never grew because, you know, they would they would say, hey, you're a small team. What will you do with so much money? You know, you're making much profit and we didn't have much leverage. So it was actually also a learning for me when I sort of now look at large enterprise contracts.
00:09:49
Speaker
I think particularly in a place like India, one has to look at the true leverage that one has. you know It's very hard for me even until today to believe that a large enterprise will keep paying you large amounts you know as license fee, which is very common in the US. I think maybe now I see some fintechs going a little bit to all over the place, but just connect the story. Now I see some fintechs charging large money from banks and things like that. But my experience has been that unless you have very solid leverage of some sort,
00:10:19
Speaker
you know customers end to end up renegotiating these contracts big time. So you never so really meet your projections or really sort of have the baggage story come true in that sense. Fascinating. ah Your customer was a shop worker or BPCL? My customer was number J ah for for the first few years and then over years, actually it was always number J.
00:10:44
Speaker
ah So it was through somebody and then but i was at some point i think it became like some sort of try party contract as well. Because you know there was they were more interested in sending hardware into the chips and terminals and i think they passed on the software service contract directly at some point you know. forty
00:11:04
Speaker
What was your scope of work here? You were just to write the code or were you also kind of project managing the whole Petrocard or the Fuelcard initiative? So I think it the man whole like if you look at the overall Petrocard initiative, it ended up being a large initiative. So BPCL had a full dedicated team over here, which was sort of the project management office. You can see a program office.
00:11:31
Speaker
um I remember the guy at our case, he was running it. so From their perspective, there was a lot to be done to train their patrol palms and operations and deploying terminals and service and maintenance. you know and Then Schlumberger was actually took the solutioning role of this how-whole this thing will work you know and combined with me to actually do both solutioning and then ultimately software development. But I think largely I would say it was software development, some solutioning,
00:11:58
Speaker
you know, some consulting sort of how things will work, you know, how they will not work, what is possible in technology, what is not possible in technology, things like that, but largely on the technology and the software side. ah How did the redemption, ah like how did they use the card ah through the existing point of sale credit card machines or you had a special machine?
00:12:20
Speaker
every everybody So this was the first version of the what we see as the point of sales machines today, the credit card, the finalized machines that you see. you know the So basically Schlumberger, as a part of the test and transactions division, had a card and they also had a machine. you know So the machine was basically, um you know they they sold the machine to BPCL. So BPCL deployed the machine. They sold the cards. The card was inserted. It was a chip card machine. So this was the first and generation of chip card machines in India.
00:12:49
Speaker
Because prior to that, it was all that swipe card, basically, right? Magnetic strip. Magnetic strip. And I don't know if you've seen that word, but prior to that, there was also this hitch-catch manual machine where you took an imprint of the card, but it used to call the bank by phone and take an approval. I haven't seen that before. Yeah, I haven't seen that. That was actually quite cool. So I think there was this swipe card machines, and
Pine Labs' Strategic Shift
00:13:15
Speaker
Schlumberger's pitch was to try and replace the market the chip card machines which they had and they wanted to sell a whole lot of those. so That was their business model. ah so so It was an involved rule out. You buy the machines, you roll out the cards, the patrol pump would sell the cards to you and me as end users. you know Then we'll load the card, then we'll buy the card, and then PPCL will give you loyalty points also on top of this right so that you basically keep coming back to PPCL versus let's say HPCL and IFCL.
00:13:47
Speaker
and ah this This was on the Cloud. Again, Cloud was not a thing back then, right? The Cloud dot.com, cloud dot com yeah, the Cloud term was, I would say, just coined around that time in 1999. If you know Ben Horowitz, right the A16Z, his company was called Cloud.com and he started in 99. That was the beginning of the term Cloud.
00:14:14
Speaker
ah Internet itself is fairly new. rich Internet itself came in 1995-96. Internet Explorer Netscape came in 1995 and the Internet Explorer came back. So I think the cloud became mainstream much later.
00:14:27
Speaker
So this was all pretty much client servers. So, you know, the the there was software on the terminal, on the machine that sort of took this ah card. And in the back, it was all client server like BPC, and there was these, you know, Windows apps ah through which they could see reports, they could manage, right? And then there was a network provider through which the transaction flew, you know, so it was, you know, fairly sort of but what they call two-tier architecture, they became three-tier architecture at that time.
00:14:57
Speaker
but what What are these terms? Two tier architecture, three tier architecture? You know, historically in the 90s software was just like this. There was like a database, right? Like a SQL Server or something, right? And there was a Windows application and the Windows application would directly talk to the database. So that was called a two tier architecture. So this is how sort of the whole form based Oracle forms and Windows forms based applications came in in the 90s.
00:15:22
Speaker
and Then later on, you know then all these application servers came which provided a middle layer. Basically, the client application would talk to the middle layer and the middle layer would talk to the server and provided more modularity and you know you would have heard these kind of things. It became three-tier through the sort of early 2000s. Now, today, I think just postponing that we had in the Kubernetes and container architecture. It's the evolution of the same basically thinking, which is to modularize every component,
00:15:52
Speaker
so that every component can be scaled on its own, you know, and every sort of, you know, you can have specialists in each part of that role, you know, but ultimately it's all query, edit, save, right? You're basically putting things in the database, expecting it, reporting, all that same stuff. Fascinating, okay. um You were largely like a product head kind of a role or were you like ah managing the business or like like what was your role in Point Labs?
00:16:22
Speaker
so I was the CEO you know from nomenclature perspective, right fun and su but I was really really a techie for the first, you know at the beginning of the company, I had no sense or idea of, let's say, business or what a product is or what a solution is. But through the years as you know we started deploying, I became aware of business, you know of like, how does this make sense for people sale? How does this make sense for Schlumberger? How can it make sense for us? um and I would say,
00:16:51
Speaker
you know, I started, you know, so I became what I would say more of a general manager, ah you know, where I would sort of understand sort of the business aspects, but continued to provide technique because of the techie grown over techie. So techie turned CEO, you can say, in some sense. Okay. so good Okay. Okay. Were you able to solve the problem of not having leverage?
00:17:16
Speaker
Not really, I would say. You know, ah it was very challenging and because we didn't have any sort of the equity or debt ah of any kind. There was no leverage of any kind. Right. So, ah for example, even getting paid, you know, from Schlumberger PPCL was challenging ah because Schlumberger would pay us when only PPCL would pay them. And it was like, ah sometimes it would take a long time. The good thing was that our costs were very low.
00:17:43
Speaker
you know so I think the one-person team became two and then joined next year and then we became five. ah you know We hired a few people. and I remember we we took up a house here in Delhi in Malvi Nagar. The drawing room used to be the office, you know the bedroom, I used to live in that. The costs were really low. ah you know Maybe an entire expense was like less than a lack a month ah you know after a year or two. so But I do remember you know requesting number J to release payments, you know going back,
00:18:12
Speaker
saying that, okay, can you please pay us? I have to pay salaries, things like that. So this was very common in those days. Yeah. Right, right, right. Yeah. I mean, yeah, Indian MSME, every Indian MSME knows this challenge of paid.
00:18:25
Speaker
ah So, you know, I guess today Pine Labs is possibly the highest valued fit tech in India or somewhere in the top five, at least. um what So I have two questions here, really. One is that, what made you leave that journey midway? And second is, what happened for Pine Labs to build that ah leverage, or you know how did it reach where it is today? And you can answer it whatever sequence you want to. Yeah, so I think the story is, as I mentioned, I started in 1998, and Shlampaje was our main customer. And there was this guy, actually, number three, you know, ah who, his name was Glokuit Kapoor.
00:19:07
Speaker
And he was actually sort of, I would say, he became the overall program manager for this entire thing. I mean, in some sense, he was became part of that brain crust, you know, who was running this program, you know, who had the budget, he was paying us and and things like that. So he was like a senior guy, he was, you know, he was ITIM, I think in the 80s, early 90s, you know, so he was like a very seasoned operator, had been with Sanjay for 10-15 years, you know, so knew all the business aspects and things like that.
00:19:37
Speaker
So I started hanging out with him a lot and and he, I would say, started liking what we were doing. And he had his own entrepreneurial ambitions. He was thinking, you know can we take this out? And he had certain ideas that why can't my labs do this directly? Maybe get into credit card applications, maybe get into loyalty programs. you know There was a lot of possibilities that he saw from his vantage point because he knew the ecosystem much better. So him, I start started chatting over those years.
00:20:07
Speaker
And then eventually he joined Pine Labs as a CEO in 2003. So he left number J and joined Pine Labs as a CEO, which I would say was like a big achievement for me. I mean, I didn't know all these films back then and sort of this was unusual, right? But I could see that he was just much better equipped to take Pine Labs, build Pine Labs in a certain direction than I was because it was way above mine, not just because of, I think,
00:20:37
Speaker
There's certain kinds of products like, for example, if it's a product like Calendly, let's say, I'm just taking a random example, right? It's a simple enough product where like a product manager can run it. You know, there is not like a lot of ecosystem play. You build a good product, you know, it's saying you're on the Internet, things like that, right?
00:20:53
Speaker
But this was a very sophisticated, complex ecosystem play. but You needed billings, you needed patrol companies, you needed Fortune 500 companies that you need to conceptualize solutions. So this was way over, I would say, my pre-grade on understanding at that time of how this can be run. And he he got it. So I think you know so he joined. When he joined in 2003, we were still small.
00:21:17
Speaker
ah as a company. and Actually, I would say he practically built it over the following 14, 15 years. so He was there until 2017, 18. I think he ultimately left after that. so He became, in some sense, the key key guy, you know ah building it up over many years. and and Hence, I think in 2008, when Sequoia invested in it, ah in Pine Labs, Sequoia at the time,
00:21:43
Speaker
um you know There was an opportunity to sell. The company is still small at that time. It was not very big. you know I forget the valuation, but it was you know less than 50 million. Let me put it this way. ah you know so I think it was still early days and they came in. and so I sold at that time and the cap table was kind of reorganized.
00:22:03
Speaker
at that time because you know there were other people coming in. Actually, the guy I mentioned, Rakesh, from BPC, he joined Pine Labs as well over here. After a little quick game, he attracted. We moved upstream, went more towards the customers who understand the program. and so He joined and that became the leadership team you know of Pine Labs. I sold my stake in 2008 to Sequoia when they came in. so Actually, my involvement ended then.
00:22:30
Speaker
I wasn't a shareholder after that. But i i do I do know that one of the things that changed big time for them to make them what they are today is that for many years until 2013, 2014, they were a service provider to banks and to, let's say, Schlumberger-type of companies. so So they pivoted from the petrol card to credit card.
00:22:51
Speaker
and for credit card solutions, they were providing these solutions to banks. For example, they will go to ICICI bank and say, you deploy credit card terminals, we'll provide the solution. We'll provide the software and things like that. There, they could never take off. It was just banks, again, back to my first point where VPC had renegotiated, banks always renegotiated. They never paid too much to a service provider because they were the ones taking the risk. I think around 2013, 2014, just before demonetization, I think,
00:23:21
Speaker
they became competitors with banks and went directly to merchants. They said, we will deploy terminals at merchants and we will enable what is called a multi-band terminal. On my terminal, I'll have ICICI Bank, HDFC Bank, US Bank, whoever else wants, and we'll route the transaction and we'll make the money first from the merchant. I think that was the big pivot.
00:23:45
Speaker
And that enabled them to really deploy rapidly across merchants in India, obviously more risky as well because they had to incur higher costs. But you know then we had Sequoia by that time. So we had more funding and all that.
00:23:57
Speaker
So that, I think, really exploded them into the scale that they are today. And then they added more features on top of that, things like lending terminal, lending opportunities, and a bunch of other stuff over the years. And now, obviously, Enbridge is doing a lot more. So I think so that was a joke. But I think the big pivot was taking on the banks versus working for the banks.
00:24:19
Speaker
OK, fascinating. So essentially, Pine Labs decided to own distribution. Instead of the the bank distributing the machine, Pine Labs decided to own the distribution. And instead of charging a fixed subscription per post terminal from the bank or something of that nature, they decided to take a part of the MDR. you know Essentially, they moved away from being a tech business to a distribution business, from what I understand then.
00:24:49
Speaker
Absolutely, yeah correct. okay yeah Is there a learning from this for founders in general in terms of being a like being a product company versus being a distribution company? or I think the learning which I learned and i I now see actually many of our portfolio companies learn and I've seen this repeat many times is that you know compared to let's say the US, in India,
00:25:16
Speaker
it's extremely hard to scale like a cutesy tech business. you know Where you say we're just providing a cool piece of technology and we will people will pay us a licensing fee for it. It's very hard to scale it beyond a point ah because I think the pricing is
Scaling Tech Businesses in India
00:25:32
Speaker
low. you know Customers are unwilling to pay you know based on a ROI. you know they're based on They want to pay based on cost because people think of, okay, we can build this ourselves. Even if it's a cheaper, shabbier alternative, but people would go for that.
00:25:46
Speaker
you know ah When I say people, I mean enterprises you know versus this paying high license fee to companies. um Hence, I think if you're on the revenue side, you know where you can control either revenue for them and you get into that line, you know you're much more likely to scale, which becomes like distribution. so If you look at, let's say, the modern FinTech companies, right you look at, let's say, last few years, like Jupyter or Uni and all these large people in companies and many others,
00:26:14
Speaker
One simple way would have been to just write technology to the banks because the banks are already there, but I see how hard that is to scale. you know so Many of them launched these co-branded cards right or co-branded products where they took on the distribution burden. They said, okay, we will distribute it. Bank will be behind us, right which is basically the same strategy because it's you know theoretically, much you you know you can scale much more. you know You can actually get paid from the customer and then pay the bank because the moment you get behind the bank,
00:26:44
Speaker
The bank historically squeezes you with that. And then it's very hard to build a venture-scale business. Now, there are some exceptions. I see now, for example, I read i don't know what MPP, for example, but I read about it, that they are like a technology provider you know to banks and ah providing the stack. They also take the MDR only.
00:27:05
Speaker
i mean the ah and yeah There you go. So I think if you're providing a simple so ah version in the US, let's say, for example, you know we see many companies who are, let's say, providing technology to our Wells Fargo, JP Morgan, Goldman Sachs, and charging millions of dollars. And in the process, like for example, if you look at something like Snowflake, Snowflake makes almost like several million dollars a year from each bank that they sell to. you know And banks are okay paying that. Snowflake can do just that. you know They would never dream of getting into distribution or MTR.
00:27:36
Speaker
because that that that's banks business. right ah But in India, we see companies getting towards distribution to get a larger share of that pie because the license fee is not enough to build a larger business.
00:27:49
Speaker
What would be your advice to a founder of a product business? We spoke of Calendly as an example. and So if someone is building a product per se, what would be your advice to them? Keep it a lifestyle business, don't raise funds, or figure out a way to become irreplaceable. What would be the way to build a large product business?
00:28:13
Speaker
If you're a B2B business, if you're a SaaS business of some sort, I mean, I think the examples of success from India are the companies which have scaled more globally. So whether you look at Zoho, which is now a billion in ARR, or you look at Freshworks,
00:28:30
Speaker
you know or you look at sort of many company process stack, Lambda test and our portfolio, ah you know more recent successes than only, all these companies derive a vast majority of their revenue from global markets. so That's kind of the thematically what entrepreneurs are doing today. ah you know so They globalize much sooner ah because they realize that they can make these licensing fees. If you want to do just product, if you want to just do just India, chances are that you will have to end up doing more. you know if you can If you really want to scale, you'll have to get a distribution, you'll have to get into something else, solutioning, right and basically get into that. It's very hard for me to imagine even today ah you know that companies can really scale to, let's say, hundreds of millions of revenue just doing software. um There are no hardly any examples of that. like Even if you look at something like Cali, which entire India uses,
00:29:24
Speaker
right? Whatever, right? um Even that, from my understanding is there about 100 million in revenue. Think about it, right? That's kind of the highest end of software only, right? A company just been there for 30 years, everybody uses it. That's the highest end, at least today. yeah And then venture funded companies, I know of companies are now raised, gotten to 20, 30, 40 million in revenue, but that's kind of the extent of it. And this number used to be 5, 10 million, 10 years back.
00:29:51
Speaker
So it has gotten better. And maybe if you fast forward 10 years, more of these opportunities come up, but there's still fewer in poverty. Okay, fascinating. So okay, we've covered the Pine Labs thread. What did you do next?
00:30:05
Speaker
so um Around 2001, when I was kind of in the middle of building my labs, I met a couple of more people, Sanjay and and they came from the US. They were sort of connected through like an IAP connection and things like that. and and they were carrying They came to Delhi and they were getting this Mary Meeker Meeker used to analyze the Internet, and her sort of annual report was like the Bible.
00:30:35
Speaker
of what's happening in the technology sector for many, many years. She was working for one of the analyst firms, and she became the ultimate word in what is happening in technology trend ah you know for many, many years. People used to wait for her report every year of what's going to happen. ah and Eventually, by on her story, eventually she started a fund called Bond Capital two years back. The bond is like a massive fund that she started you know based on her credibility as a researcher and of technology trends.
00:31:05
Speaker
So in 2001, she predicted that B2B technology around you know supply chain integration, something called Maxwell, will take over the world. And it's like the next big thing. And these guys, Sanjay and Manoj, came to Delhi. They were having a copy printout of that report. you know and sort of And they're looking to find co-founders of a business that they wanted to start you know in the B2B space and in the technology space, basically building XML-based products.
00:31:34
Speaker
to be met. ah And by this time, you know, I was two years building fine labs, right? This is actually 2000, not even 2001. This is like a summer of 2000. So I think, so I built fine labs for two years. And I i had sort of sensed that how hard the business environment is, and also that maybe I'm not the right guy, you know, because of the whole ecosystem and payments is an issue and this and that, right? So while I saw the opportunity now more clearly,
00:32:01
Speaker
but I also doubted my own sort of capability to capitalize on that opportunity given the complexity of the whole thing. um So I, you know, and I found this whole B2B product XML very tech, very tempting.
00:32:15
Speaker
ah you know I felt this is like a good where I can really put my tech skills to use and I can you know build products and you know we build this global, maybe we're saying it, this is the next big thing. you know So we basically then combined and we started what eventually became Global Logic. Sanjay Manoj Tarun had joined by this time, Tarun and I you know started Global Logic, we became four co-founders. Actually, that's also further triggered the process of getting low-feed on board.
00:32:44
Speaker
You know, so discussions with locally were also going on in my labs to take over the CEO, which eventually took a year or two. So we joined in 2003, you know, but but I think that whole thing came together. So four of us became founders of of global logic. Our first name was E.B. provider, e-business provider.
00:33:02
Speaker
ah you know, because we were doing this e-business integration, you know, ah so we thought that's a good name. ah So that's how basically the global logic story started. I kind of ran both in parallel for a couple of years until we joined, ah you know, but but my focus then changed more and more words towards
Global Logic's Market Challenges and Pivot
00:33:22
Speaker
global logic. So that's how the EB e b provider slash global logic story started. Just to complete the story, by the way,
00:33:28
Speaker
Mary Meeker was completely wrong on B2B integration XML. It completely blew up in the following one year or two years. I think this is kind of the but one of the things that she got wrong. She got a lot of things right, but this is one of the things she got wrong.
00:33:45
Speaker
ah I'm not very clear on what is what was the business that it was doing. You you said XML products? Yes.
00:33:58
Speaker
It was a hardcore product SaaS business. so Think of it this way that, have you heard of this company called I2, which was a big supply chain integration company in those days, also an india Indian founders. Think of it this way that if you take a large enterprise, right any enterprise, BPCL again, they have a lot of vendors who supply them stuff and they have to send them information, they send them information. So there was this whole movement of standardizing how that information goes and then automate the entire supply chain.
00:34:28
Speaker
and and XML was kind of the protocol on which all of this was getting built. so Our product, which was called Xintegrate, was basically meant to do this, that if you want to you know give more visibility to your vendors around your supply chain and get visibility from them on when your goods will come and things like that, and you establish this language with your vendors, your our software has to be deployed at the enterprise and the vendors. you know and Again, in the overall ecosystem,
00:34:55
Speaker
provide better visibility to everyone. And then XML is the language through which all these systems will talk, you know kind of machine to machine conversation and give better insights and bring more efficiency into supply chain.
00:35:08
Speaker
Which theoretically is actually makes a lot of sense because obviously, you know, the more information you can give, you know, in the ecosystem, everybody can operate better. But practically it's very hard to do because it requires like an overall change. Only one company cant can't do it on their own, right? I mean, so, so you can take for example, textile supply chain and go into it.
00:35:29
Speaker
and automate the whole thing. ITU did a very good job, became a multi-billion dollar company, got bought by SAP. We thought we'd go the ITU way, ah but the market completely crashed in like 2000, 2001, and then 9-11 happened. you It was like a complete sort of, it never really took off in our case. ah What did ITU get right? but Why were they successful? I think they were ahead of us by a few few years. They started in mid-90s. They were a US-US company, well-capitalized.
00:35:58
Speaker
You know, I think the guy who ran it, I think, you know, I met him many years later, Ramesh Radhmani in Sanif, I think they're also much better equipped to run this, I think, versus like four Indian kids, you know, sitting in, you know, Delhi in Washington DC, and they were a few years ahead as well. We were late to the party for sure. By that time we started, the party was already kind of getting over. I think IT got sold, you know, within a couple of years, so we got, we getting started.
00:36:25
Speaker
This also sounds like an ecosystem play because as you said that you have to kind of get large scale adoption within one niche for it to add value. Absolutely it is and I think again I think i I underestimated it I mean I thought it's more like a product it's again not a currently type play that you just put a product out there do something it is a again sort of more complex the system integration involved you know you have to visit the company and do all that so I think you're absolutely right I don't think I thought it through and sort of you know that it's really sort of I was looking for a more tech tech product I thought this is what it is but it wasn't okay this ah this is also called EDI right electronic data interchange or something like that
00:37:13
Speaker
Yeah, so EDI is a let's say you know electronic and document interface is like a larger bucket which is both within the enterprise or like even within the enterprise when you exchange documents with each other, it's part of EDI. So this fell into the whole SCM if you dig the larger bucket with supply chain management, supply chain integration, you know that's what it fell into. OK, OK. Did you go after a specific niche? It sounds to me like this business will work if you dominate a niche.
00:37:43
Speaker
Yeah, so you know honestly, we just roamed around like Headless Chicken. So we started in 2000, four of us. We raised VC funding. you know So VC funding happened to us in December 2006, months after we started. And this was actually raised in. Indian VC or? I don't a year. Indian entire VC. So our company was headquartered between Washington DC and Delhi. So I was in Delhi. The other two founders were based in DC.
00:38:11
Speaker
So BC had an inventory ecosystem, and and we were funded by Draper Atlantic. So so drake you might have heard of DFJ. DFJ is like a full-time BC firm in the Bay Area, and they had started expanding to other parts of the US at that time. ah So they started an East Coast affiliate called Draper Atlantic. yeah knowt drip It was kind of after the Atlantic Ocean, and i basically Draper Atlantic put in like a $1.5 million seat check.
00:38:38
Speaker
you know in us in December 2000, because they believe the same Mary Meeker report and they believed in XML and our ability to write XML code and build software around XML. I remember we were going to XML conferences and talking about our XML capability, basically. So we were coming very bottom up at it. We were like, okay, we'll build tools around XML. We honestly didn't know how the go-to market will work, how we will take it to market. So actually for for actually for the good part of the first 12 to 18 months,
00:39:07
Speaker
you know We kept on building excellent products, I built out a team here in India, in Delhi, and I think we built a fantastic team. A lot of that team did very well over years. But I don't think we did a good job of understanding the ecosystem, taking it to the market you know in the way that we said that would have been the right strategy, you know to take a vertical, really go after it. But we were more horizontal, we were selling tools, you know and it never really took off.
00:39:34
Speaker
Okay, okay. ah Your role also I can see changed while you were within Global Logic. I guess earlier on you must have been more of tech and then you went into a different role. Tell me about your own journey within Global Logic. Yeah, so in Global Logic I was what you would call the COO, Chief Operating Officer.
Transition to COO Role
00:39:54
Speaker
ah you know So my responsibility was basically to hire engineers, build product,
00:40:00
Speaker
you know and work with customers on deployment and things like that. So I think the US side, Sanjay and Bernard took over all the sales you know because they were in the US and we were selling in the US. And Tarun was sort of the CTO, solving hard technical problems wherever we got stuck. you know so So my role was basically CEO, ah you know putting the whole thing on the road you know and all that. So I think ah we grew the team you know ah through 2000,
00:40:29
Speaker
2001, to 2030 engineers. ah We took up an office here in Delhi in Shri Maas Puri after we got venture funded. ah you know, and sort of, you know, build out the team, build out the product. So my role basically suddenly changed from what you would say like a techie techie, running small team tech lead, you know, to what you would call later, like a project manager truly, where engineering manager you can say,
00:40:53
Speaker
ah you know hiring teams, putting them to work, setting up the culture, um you know some sort of general managerial aspects to it as well, all the admin stuff, right everything else basically. ah So like a true COO type of role. So that's what I became. ah And again, you know these things happen more organically. right So you don't really put labels to these things at the time so I can I can look back and see it more clearly. But I think you know at that time basically you do whatever is needed and this is what was needed so I sort of took up that role and and kept building it. I think what happened was in 2001 we completely sort of
00:41:34
Speaker
you know fell flat in the sense what happened was that ah you know we built all these products. We thought you know that we build great products and customers will come, but nobody came. you know ah and And by the way, I see entrepreneurs making the same mistakes until today. I think the the tendency of the Indian entrepreneur, when the product is not selling, is to build more. you know it's ah I've seen it consistently. you know We go back to building whenever things are not working. because because we feel we can control that, right? We can sort of build more product and they'll come. But as the real problem, in most of the cases that we're just not selling, or we have not thought of our GTM strategy, you know, the kind of stuff that you mentioned, you know, how we sell, where we sell, because that is so uncomfortable, right? To figure out, figure that bit out, right? Versus building is very comforting, especially if you're an engineer, you know, you just go back to building.
00:42:25
Speaker
I think so so that's what we did. 2001 was a terrible year for us. I think by summer, we were already kind of running out of money. you know we We didn't know sort of what to do. At that time, actually, ah the good thing that we did was that, we again, we hired a new CEO. so and This was also facilitated through our VCs. and They never forced us, but you know what happens is that VCs get resumes from a lot of people.
00:42:53
Speaker
you know who want to join companies. So Peter Harrison you know came in through Draper Atlantic. you know He was looking to move to the East Coast. So we interviewed him. He liked us, we liked him. So he joined us as a CEO right after 9-11. At our absolute low point, we had barely like three months of capital left. you know We had like no revenue ah you know and things like that. And after he joined, our VCs gave us a small bridge, Draper Atlantic, for like ah some time to survive.
00:43:23
Speaker
And then we kind of started rethinking the business, you know, of of what we're going to do. So we dramatically changed after that, after he joined and he he was already 15 years in the industry. You know, he had been a sales head of a public company before. versata you know So he he was basically a GTM person. You know, and... you da in the next space in the tech space. So he had done that for 15 years already, ah you know taking companies to you know tens of millions in revenue. ah So he he understood the nuts and bolts of this, which honestly none of us really did. So I think after he came in, I would say we kind of rebooted the company and we started two things. So one is like you mentioned that we had to pick a vertical. So he pivoted our core product towards kind of mobile field force automation.
00:44:15
Speaker
So he said that, okay, you know mobile is taking over. So this is 2000 months. So again, we realized we were way early, but but you know but mobile was beginning. People were talking about it. like We had that farm pilot. you know He used to carry a farm pilot. We had Blackberry's. And we thought that basically you know everything is going to go on farm pilot and Blackberry. you know So we started you know building around that and integrating how you get data there and how you get data back you know for field force automation. So we basically We converted our product, what we call xintegrate to something called Synapse, which was just this you know mobile feed force automation. and Then also because we didn't have much money to keep the lights on, we parallelly started a services business. so We thought that you know we are like ah you know we have a good engine. I think that the big decision that happened was that because we had to cut costs, we had to let go of a lot of engineers in India, most of our engineers in India. I think that is kind of the first time I was doing layoffs.
00:45:14
Speaker
and Actually, just we thought that instead of laying them off, yeah we found some random customer in the US, our friends you know who are running another company. We said, can we offer them to them? you know and They can sort of pay for their salaries and you know we can make a little margin. so Actually, really driven out of necessity, we started this right and and and sort of so became a services. so We had a small services arm and we had a small synapse arm, which will free services automation.
Global Logic's Successful Pivot
00:45:40
Speaker
and Just to complete the story, while the feed service automation did okay for the next couple of years, it never took off, mainly because the mobile, we were too early. The phones were just not powerful enough. you know The bandwidth was not there. ah you know We were at least 10 years early in that whole sort of movement. you know ah so I think that never really took off. and The services business kept on taking off.
00:46:06
Speaker
you know So basically, over the years, you know as 2Dantoo, 2Dantoo came, 2Dantoo came, we basically became a full-fledged services company. ah And because we come from this product side, our customers became product companies. So we started selling to all other companies like us.
00:46:25
Speaker
which were you know building IP, building software, you know and wanted engineering teams in India ah you know to support their product development and all that. So that's what basically the business became. ah We renamed it first to Indus Logic, ah you know and then later on, when we acquired companies and other geographies, we renamed it to Global Logic. So that basically was the story of VP provider to Indus Logic to Global Logic.
00:46:52
Speaker
and Did you need to raise funds again or once the services business got started, it was like the margin was good enough? The margin was good enough and I think we ran it very conservatively through 2002-2003. So we were able to build the revenue on the services side to to support everything else through those years.
00:47:13
Speaker
ah We and actually, ah the business grew and grew, I think by 2006, we were more than 10 million in revenue. I think closer to 20 actually. ah So it grew very rapidly. Our team in India, i because I was the CEO, ah was like the team grew to close to 600 people in 2005. So I was constantly basically hiring, is so my CEO became very real, was constantly hiring, firing, engineering, managing customers, and things like that. I don't move to the U.S. as well, so I was only one in India. ah By that time, we set up a big office in Noida. So it became, basically, it grew and grew. ah We raised more money into tonsticks, mainly with a view to M and&A, or doing M&A, basically.
00:48:02
Speaker
So you know we thought that sort of you know we should grow the business through acquisitions. ah And that's why we raised money. But ah we didn't raise any money in 2006. This money, by the way, was invested in us by Westbridge. I think Westbridge at that time was kind of an established fee form in India. Within a couple of weeks of investing in us, they got acquired by Sequoia US and became Sequoia India.
00:48:29
Speaker
you know so Basically, the news never really came out that we were invested in by Westbridge, it came out as Sequoia, and then Sequoia became an investor, and later on, they invested in Pine Labs, and I have a long time in Sequoia because of that, but basically, that's all.
Scaling and Differentiation at Global Logic
00:48:45
Speaker
Okay, fascinating. ah There are two or three questions I want to ask here before we wrap up this thread. ah Let me ask you this first.
00:48:54
Speaker
What did you learn about scaling a services business? Essentially, scaling a services business means scaling people. right I mean, that's your true asset at the end of the day. So what did you learn about that? So I will, before I answer the question, I'll also just quickly say what I learned about the software business you know but through our failures of Xintegrate and Synapse and things like that. I think you already articulated them, but just to summarize, I think that GTM motion is extremely important. you know like For example, let's integrate. We needed to verticalize, understand whether it's an ecosystem play or a licensing play right and and build accordingly. The second thing I learned was timing is extremely important. like We were early to market ah and my learning over years has been that more things are already to market versus being late to market.
00:49:41
Speaker
You're much more wrong in estimating. like For example, if I look at AI today and things like that, people are often wrong in estimating how long it will take. you know they They think it will happen much quicker. It takes much longer, ah you know especially enterprise adoption and things like that. um so I think that was learning on the software side. ah you know On the services side,
00:50:04
Speaker
People think it's a people business and definitely it's a people business. Hiring is challenging, but really the constraint to growth is sales in services as well because it's also a very commoditized business. you know i mean the value The PMF is quite clear. right You're providing a cheaper engineer in India, right so i mean there is nothing more to the PMF. But it's a competitive market. There are a lot of companies. Positioning is important. Sales is important.
00:50:29
Speaker
When I see companies, let's say in Delhi, in Noida, you will see companies, let's say if you go to even Bangalore or Noida, at Kormangla, if you go to, you knock on any door, there's likely a services business behind it. right There's like a lots of services business in all shapes and sizes, right from 100K in revenue to 100 million in revenue, you'll find the whole spectrum of companies right in Noida or Kormangla and all these. right and What differentiates them is basically the ability to sell.
00:50:57
Speaker
you know All of them, I believe, can hire people. you know They can put in the right engineers in place. We have a lot of engineering workforce in India, ah but they fail to sell. Many of these start like this, right that you know somebody in the US, they gave you one contract, you know you started like that. But many of them don't outgrow that. They stay there, they stay there or they add one more over years. They never have the sales aggression to be able to add it. I think we had it. I think mainly because of Peter and sort of how we came in and all that. dr i think So we sold ah we sold big time. ah So we grew both organically and inorganically later on. Stelling again has multiple components. you know you have to position like For example, we positioned ourselves as later on the space came to know came to be known as OPD space, Outsource Product Development space within the outsourcing space. If you look at Infosys TCS, we proved them already very big at that time, right and they they but they were mainly selling to
00:51:56
Speaker
like the CIOs organization, like they would go to a JP Morgan and say, send to a CIO, right? We were sending to CTOs in technology companies. So our customers for time were Google, Microsoft, ah you know, all these large product companies, startups, right? Who wanted to build their products. And the product development is slightly different beast versus let's say the CIOs department, which is more, you know, software, bug feature maintenance, maintenance, things like that, right? So that became our positioning.
00:52:24
Speaker
Uh, you know, and we stuck to that and we sold behind that actively. And I think that was a big secret to our success, our whole aging of our services and our ability to sell that, you know, incessantly. oars That was my pick. Amazing. Amazing. So what you're saying is that move tissues and to fast forward that like today, by the way, the narrative in the VC world is that there's a new generation of AI led services.
00:52:50
Speaker
are coming in and potentially will come in in the next five or ten years. yes Service and sorry and yeah but this is software. and i think and I can see why that is interesting you know and why I do believe it will happen you know if people sort of position it rightly but I think they'll have to further because there is a positioning opportunity here. There is an option already to sort of prioritize a set of services sell it against the incumbents, which will find it very hard to take this positioning because they'll have to cannibalize their own business you know to do this. So there is ah there is a window of opportunity just taking the same cue within the services space today you know to do to the do that kind of thing.
00:53:30
Speaker
But again, sales is what will differentiate the winners from. It's not technology, but it says which is going on. It's definitely not technology. but It's definitely because technology is a complete is very much a commodity. In this case, you know you basically comes on to engineers. People can hire them. You you know it's like it's not. It's not rocket science, so it really does come down to go to market which is a combination of positioning and sales.
00:53:55
Speaker
Fascinating, fascinating. That's ah an amazing and insight. ah But at the same time, you must have created some sort of playbooks or templates for OPD. We did over a period of time, you know, as we again, because we came up bottom up, right? So I think as we realized that this is the market that we're in, you know, we created more and more. So again, right from You know how to sell what what other what is the pitch right to how you deliver, you know, even sort of like, for example, we were early adopters of agile. So again, this was the time where in India, you know, CMM and all that sort of project management ruled right from Infosys DCS there was CMM level five compliance and
00:54:37
Speaker
PMI, project management certification ruled, and things like that. right So we adopted basically the product and development methodology, which was Agile was coming up. right We built a whole internal platform around Agile, we called it Velocity, you know and essentially built on top of that. So I think that actually our org looked very different from, let's say, if you went to an Infosys and WordPress, it was differentiated in every which way, like from like the way we sold to the way we delivered. So we we did that. and By the way, other players emerged in this space persistent,
00:55:06
Speaker
based out of Pune was like a big company in this space. You know, as Gartner later on defined that, you know, EPAM based out of Eastern Europe came up, so you know, this became a real space, OPD, Oreos, and, you know, but players sort of put themselves in this space. yeah Okay. Okay. The other question I wanted to ask you on this thread is about M and&A. What's the, I mean, when is it a good time to do M and&A? What should be the rationale behind doing M and&A?
Impact of M&A on Global Logic
00:55:35
Speaker
ah how should you identify that this is a good M&A to do or not?
00:55:42
Speaker
The backstory, I'll just tell you a little bit about our M&A story and then I'll maybe answer it a little bit more generically. In 2005, 2006, we found ourselves in a unique position where we were a services company which is backed by VCs, which is not the norm at that time. right Yes. ah and Because you are backed by VCs and also because of our own DNA,
00:56:05
Speaker
We were growth centering. We wanted to get to a certain number. We want to achieve 100 million. I remember our internal goal was to achieve 100 million by 2008 and things like that right ah in revenue. So I think you know so we and and and we thought that organically we can only do so much. you know ah We should look at ah ah sort of acquisitions and things like that. And it can be and again, sort of our board had seen that happen in other companies. you know our sort of Peter had seen that in other companies. And we were all kind of good learners. So I think so we felt M and&A is an interesting strategy for us
00:56:41
Speaker
to augment our growth. you know We also wanted to expand regionally, like we were mainly basically Delhi US, Delhi DC at that pro time. So we're looking sort of how we can get to other regions, both from delivery capability perspective and a customer and a customer perspective. So actually, that's where are our company, Globalogic, moved me into head of M&A role in 2006. So I replaced myself, I hired Prokol,
00:57:07
Speaker
ah He came from HCL, 25 years of HCL, and joined us as CEO. ah you know And I moved into M&A role because I think for no other reason that sort of people, everybody felt it's an important enough thing that one of the founders should be involved. And I guess, you know, they looked at me and for whatever reason, I took up that role. So literally from a Friday, when I had like a 600 people team, I went on a Monday where I was like literally alone. And my goal was to buy companies, you know, up ahead of the road. So it was a dramatic change for me again, you know, that change in drone in Python 6. So for us, our learnings in M&A were that
00:57:45
Speaker
we ultimately again went back to acquiring high-quality customers. so We tried a few things. you know We acquired six, seven companies during my time, ah you know two or three companies a year. We felt the most value for us was where we acquired you know high-quality customers because, again, getting into high-quality customer relationships is very challenging from a GPM perspective.
00:58:07
Speaker
you know and It has become more and more challenging over years because already there's a queue of companies. right and There's no dearth of vendors you know who are getting into them. To give you an example, um you know we we acquired a company in 2006 which had one large customer um you know in the telecom space. and At that time, they were doing 6 million a year from that customer. and Today, Globalogic is doing 100 million a year from that same customer, 14 years later.
00:58:33
Speaker
you know So I think as you get into these large customers, you can really sort of cultivate them more years and keep growing for many, many years. And that's been the key for large successes for the services companies. So for us, for service companies, our strategy basically became acquiring high quality customers and overview of time delivery capabilities. Like we set up a big Ukraine operation.
00:58:56
Speaker
ah you know So I acquired first three companies in Ukraine from 2006 to 2008. We had 2,000 people in Ukraine in those years, which is like really large. for you We were the largest software company in Ukraine ah you know in 2000. I tried to acquire a small one in China. you know we you know We did intentionally work out for us. ah We tried to acquire in Latin America. So our thing was, and that's where we came to global logic.
Regional Expansion of Global Logic
00:59:22
Speaker
So our idea was to set up these capability centers across the world ah you know and sort of have customers in the world as well. So that is our ministry. Why couldn't you service from India only? Why did you need to build capability centers outside India? We thought that the positioning itself will help us in different ways. um you know We felt we could service Western Europe much better from Eastern Europe. you know We felt you know Latin America would give us same time zone capabilities.
00:59:54
Speaker
Uh, you know, some of it was just, I think as entrepreneurs, you just start drinking your own Kool-Aid at support of time, right? So this thought somehow ah happened to us, I think in 2006 and I think.
01:00:06
Speaker
It's stuck in our heads and we thought this is a good idea. I'm sure that you can equally build it from India. Thinking back, I don't think there's no reason why you can't do it just from India. But we thought this is a differentiator. I think how it happened was we're pitching to our customers. He asked us that, do you have capabilities outside of India? Do you have capabilities in Europe? Do you have capabilities here? I think that planted the seed and then we thought, okay, it's helping in sales.
01:00:31
Speaker
you know and then we just made it a strategy. you know So these things start bottom up, I think usually, and then you know some companies wrongly write to make them a strategy. So that's what happens. Okay. Fascinating. So that is our M&A. I would say for us, M&A worked really well. um you know When we sold to global audit sold to APACS product in 2013, it was 100 percent acquisition by APACS.
01:00:59
Speaker
At that time, we had about 240 million in revenue from what I remember. and I would say about 100 million all of that was acquired. you know so It was a significant ah addition to our own let's say repertoire and our capabilities and things like that. ah so I would say looking back, it was extremely valuable and a creative ah for us as a company.
01:01:21
Speaker
ah and it was um you know so i and That's why I personally became a big believer in M&A. ah you know, so after that, you know, things that I have done, you know, in our startups and in our sort of, ah you know, at new capital or price ranges, restaurants, I'm always championing M and&A wherever there are opportunities and possibilities, because I've seen it provide some multifold results ah to companies and I've done it myself as well. But having said that, I've also realized it's not easy to do.
01:01:56
Speaker
You know, so you get it wrong more often than you get it right. I think entrepreneurs need a certain level of courage and sort of conviction to be able to do it in the right manner. But when it works, it works very well. You know, so I think so that's been that's been my. So ah you didn't stick around till the private equity acquisition of global logic. ah What did you like? What made you want to move on? What did you do next?
Exploring Opportunities in Indian Market
01:02:19
Speaker
so you know By the time 2008-2009 happened, ah you know the our company had become substantive. right I mean, we were over 100 million in revenue at that time. It was a large operation, 4,500. I'd been running M&A for three, four years. you know so I had fully moved on from operations. i was not really you know M was a completely separate team. I'd had two people, so we were three people team, basically deal-making, so I i'll separated myself from the operation.
01:02:48
Speaker
I think there there was an opportunity to turn 8 to 9 and I think the company was actually undergoing an acquisition discussion at that time. so I was thinking, I think all of us thought that will happen in the next one or two years. you know Eventually, it took much longer and you know you know it happened only in 2013 with APACS. At that time, it was a different buyer in 2009, 2010.
01:03:11
Speaker
so I thought there's an opportunity opportunity for me to sort of do something else. you know I had my equity in the company. It was fully vested. right so I thought that this is kind of the right time for me to move on. The company doesn't need me need me in that sense. It's well-formed. The leadership team is fully set. I'm not really a part of the core operations. Also, what I realized was that Tough was happening in India. So again, remember, I was the only one based in India. Everybody else was in the US, right? All the founders, all the leadership team. So it was kind of like an outpost in India. ah So I think, again, I thought either I moved to the US and really take like become a more active role in the company. you know There were talks of sort of a change of CEO, things like that at that time. ah you know Ultimately, Shashank became the CEO, who's the current CEO of Global Logic.
01:04:00
Speaker
you know So there were stocks, maybe one of the founders take it, maybe I take it, maybe somebody else take it, and i just did it didn't excite me. At the time, I felt that this is like a ah you know ah India has a lot happening. Flipkart had gotten funded. Flipkart had just raised a million from ah from Tiger XL in 2008, 2009, somewhere around that time. So I felt India is very exciting. I'm in India, and I felt I'm missing out. I'm i'm um'm doing this global business, but India, there's so much happening, I should do something in India.
01:04:30
Speaker
ah So I think that's what led to my coming out. So i it was extremely amicable. It took an year. I came out towards I think end of 2008, early 2009. Also, Pine Labs exit happened around the same time. you know So I had some liquidity as well. So that kind of reduced pressure. you know I could see that money for a few years. So so I came out and did a view to doing something in India, basically. That was the whole thinking, go more domestic.
01:05:00
Speaker
It's an article because, you know, I start to best take my labs, then went to global logic and then came back to domestic. ah So so that's what happened. ah And then after I left global logic, I started working for Sequoia in India ah just because they were you know They were investors in both Globalogic and Pine Labs, so I had a great relationship with them. And they were also early in India. right This is 2009, so they were three years old. so you know they By the way, after Sequoia US s acquired Westbridge India, they had a fallout so in 2008. So then Westbridge became Westbridge again, and now it's Westbridge, operating as Westbridge. And Sequoia India came completely under Sequoia US,
01:05:41
Speaker
and and all the people got promoted, so like, Shalinder, who's kind of Shalinder, and all these people who are now the main magic partners, but prior to that, they were kind of mid-level VPs and all that, so they all got promoted to partners, basically overnight, you know, after that fallout, and the entire team took over GV, Shalinder, and all that, ah you know, so I think, and they did a great job, obviously, you know, running Sequoia India. So I think, so I joined Sequoia as what they call like an EIR,
01:06:11
Speaker
entrepreneur in residence. ah The idea was to mostly more than anything else just to hang out, see what's happening in India because they were investing in India and see what I want to do. So the options were either maybe join Sequoia after a year, maybe join one of the portfolio companies, maybe do nothing. So it's like a loosey-goosey position usually, which is I think like a hanging out time ah you know for a bit.
01:06:35
Speaker
so So I did that. ah And by the way, there I was deputed with Travel Guru, which was one of their online travels. At that time, there were three travel companies in India which were leading, which was Make My Trip, Clear Trip, and Travel Guru. So they were all funded. And ultimately, Make My Trip won that battle. you know And Yatra was the fourth one. So Make My Trip became number one. Yatra acquired Travel Guru.
01:06:59
Speaker
you know, and I don't know what happened. I think it still exists, but I think make my trip raised away from everyone else in terms of market share. i think flipcart acquired clear trip before i or mistake and ah Yeah, perhaps, perhaps. So yeah, something like that. So I think say so. So Sequoia was into Travel Group and I sort of consulted with them for a little bit, but then they got sold.
01:07:22
Speaker
ah Then what happened was that i while I was in Bombay, so this was i was yeah at that time, Sequoia Bombay office was the main office. I used to sort of go to Mumbai a lot and you know hang out with all that. I bumped into Avishkar, which was like an impact fund done by Vinit Rai at one of the events. I really got seduced by the whole impact story. I thought, you know this is really great. you know This is what I want to do. ah you know I can fix India's problems.
01:07:49
Speaker
ah you know So I really sort of again so overestimated my own ability of what I can do. So I joined Avishkar then. I left Sequoia and joined Avishkar again as a consulting in Bombay for a little bit. I had great fun, spent time in sort of rural areas, mainly of Gujarat and Andhra Pradesh. So I'd never really experienced India right because i I come from India, I come from UP, right but it's very different when you're working you know, truly, you know, in India and Blue Logic was all global. Pine Labs is mostly Bombay. You know, so I first time truly I saw India in a very different way, right? You know, Tier 2 India, Tier 3 India, villages of India. ah So I had a blast, I would say, of doing that. But I also realized that Abishkar was ah going to be a long journey. ah You know, and I think impact is India's extremely complex. it's ah I was still young, right? I was like 32 at the time. So it felt like a life commitment.
01:08:48
Speaker
ah at that time, you know, versus like nothing would happen quickly here. Like I thought if I have to do this, I have to come commit 20 years here, ah you know, to to do anything. And I just wasn't ready for that. And, you know, so I came out of our car. And then within our car, I was kind of investing in education businesses, one of the sectors that they because their impacts, that they're looking at education, health care, ah water, hygiene, you know, all these kind of areas.
Sunstone's Shift from Online to Campus
01:09:15
Speaker
So I got exposed to education.
01:09:17
Speaker
So I had sort of this thought of doing something in education. and I thought, you know, that's both impact and possibly a commercial opportunity. So, ah so that's how I came out and start thinking of education and then ultimately started, you know, a company which was called something else, Eddy Circle, eventually which became Sunstone, you know, in the, in the Aftar. So what was the original Aftar? The version zero.
01:09:44
Speaker
Yeah, so the version zero of fit was ah so again on the team, by the way. So I i had this guy, DK Dinesh Singh, who used to work at Pine Labs in the first year. you know He was like our first JPM guy. ah you know So he was great friends with me. And so he worked with us for a few years. Then he went to the US. He did his MBA at Cornell. Then he worked for McKinsey, the US. So just on that time, this is 2009, 2010, he was coming back to India.
01:10:10
Speaker
and he approached me and we start chatting that should we do something together and he wanted something in education as well. So he and I started, you know, so we became co-founders and we started thinking, okay, what can we do in education? So, you know, and this is really a fascinating story because I've seen this speech so many times after that, almost every sort of educated person in India who thinks of starting in education, and you'd be surprised how many there are. They think of like a finishing course,
01:10:38
Speaker
in the fourth year of undergraduates. So the thing that you know the colleges are not doing that great a job. you know So what we can do is in the fourth year, we can train students you know for a six month, three months, right and put them into jobs. Basically sort of like a finishing program, whether it's technology or things like that. And I've heard this at least 20 times, this pitch, for the last 10, 15 years. you know And i especially from people who return from the US, you know who are not as exposed to India you know as as people are.
01:11:07
Speaker
ah So I think and that's what we did. So that was the first version zero of the circle because it just made ah logical sense to us you know ah that there's so many students and we can do something through technology. ah we ah So we did that. That was the first a version to three years. We did that. again This was an on-campus program like you would sign up with a college and run it on campus or like a B2C. So our goal was to do it more online. So our first First pilot was on campus. So we basically went to campuses here in the Delhi region, the Noida, there are a lot of campuses, and talked to those deans and said, okay, can we run something, place your students and things like that. So the first idea was to tie with the campus or run it as much as online as possible. What we realized was running it online was extremely difficult because I think the labs at the campuses were just not equipped, internet didn't work, mobile internet hadn't really come at that time.
01:12:05
Speaker
So there was just no motivation. So it became more offline plug-in. In the end, we ended up going there, taking lectures, and then having people over a period of time to do that. Also, we realized that the relationships with campuses were extremely strained. They had very different motivations. If we did too much, they became insecure. If we did too little, they didn't want us. It was a very difficult balance to strike with these campuses. Was the college paying or the students paying? Who was the payer?
01:12:35
Speaker
so you know In the first version, we just did it free. We thought, let's prove it out. you know Then the idea was that actually the college would pay, which they were challenging. Then we tried the student would pay, which was also challenging because the student's parents would say, hey, we've already paid for a four-year program. What is this three-month magic wand now that we have to pay on top of that? and Then you know that you'll get a job. and Then the college would say, we looked really bad. that you know We charged three lakh for a piece, and now you're charging 20,000 on top of that. How do we explain it?
01:13:04
Speaker
you know, to parents that, you know, why why does a student need this 20,000, you know, to get a job versus what we did, right, for three years. It's like a, it's this complicated dynamic between sort of campus, student, parent, and us. So it never really worked. You know, so then I think we became B2C. We completely gave up the campuses after a couple of years. Around 2011, we became completely B2C. And then we launched like a full, like a one year online and MBA program.
01:13:34
Speaker
Basically, we called it PGP, ah you know which was on the lines of, let's say, like I'm like no distance program or some of these programs. ah But again, completely online with sort of some interventions physically. um So we ran that. ah So from 2011 in 2014, three, four years, we ran that. And it did okay. you know we We got up to four, five crore in revenue. We had, like I would say, 200 students a year, something like that.
01:14:01
Speaker
But again, we realized it was. Full-time courses, like people would. Part-time, no part-time. It was for working professionals. So somebody who's like like a techy, you know, a global logic engineer, so five, six years of experience, want to move into more product management or commercial type of roles. You know, ah so this was. learninging for um Basically, great learning. Mohan was a very good friend of mine. and so We saw him you know doing something similar in a different way. Then I think there was another one in Bangalore who was doing that. There were three, four companies. you know Northwest was doing like a best campus-oriented program, more expensive. ISB was doing ISB max, which is a 25 lakh rupee program. you know so There are many people coming at it from different angles. All suppose like a two, three lakh cheaper program tried to sort of you know make incremental changes.
01:14:50
Speaker
So, you know, I would say the product was successful. I think the students liked it, but we also felt it was really challenging to scale, you know, because I think, again, there was a constant and burden of B2C selling ah outcomes while they were there. But at scale, it was hard to envision how these outcomes are going to be. ah You know, more than anything else, sales was just a huge burden. It's very consultative sales, you know, talk to every student, you know, and sort of knock them down. That sort of network effect didn't seem to be sort of kicking in at least for three, four years. Maybe if you expect longer and deep learning did well in the end. ah you know But i think I think we started feeling you know more and more burdened by it in three, four years. and Then actually, ironically, in 2014-15, we went back to campuses. we felt that you know we had We said that one mistake that we did in our first version was that you know we were providing an incremental caption. Instead of doing that, why don't we run the whole program?
01:15:48
Speaker
so So the new solo version became that you know we will go to an MBA campus. you know We will do admissions, we will do the entire teaching, and we will do the placement. And all that campus needs to do is to just provide the infrastructure and the license, basically, because they have the license and they have the infrastructure. So this started working well in 2014-15.
01:16:08
Speaker
So we took over one full campus right ah where ah we basically were responsible for everything. you know And the campus owner was only responsible for the license and the and infrastructure. right And that started working well. So around 2015-16, the company pivoted back to campus and we actually abandoned our online program completely.
01:16:29
Speaker
Uh, you know, and actually now if you eight years later, that is the one that is working very well. So that is what sunstone does today. And I think that model, uh, kind of, uh, I would say, you know, after that, what happened was that 15, 16 happened. I think I started thinking that this is too much ops, too little tech. You know, I think, uh, DK moved on. He had to do some, he joined another startup.
01:16:54
Speaker
you know in the travel space, he went back to the US. So I think all that happened and then you know my personal life changed, my wife you know decided to start a PhD in the US. So we started thinking of going to the US and all that.
01:17:07
Speaker
So all this happened and then I felt that I should sort of put a different team in place. So around 2017-18, the current team that runs Sunstone, Ashish and Piyush, they came to me and they said, Raju, we're looking to do something in education, give it some advice. So I basically sold them Sunstone. I said, look, this is really working well. you know Why don't you sort of take this over and we'll sort of recap it, you know make sure it's attractive to you as founders you know and we'll become shareholders in it.
01:17:35
Speaker
That's how basically the Sunstone story happened. So Achesh and Piyush took it over, I think in 2017, 2018, around that time. They had been running it ever since. Now this is for the last six, seven years. ah So I'm i'm a shareholder, the nation's a shareholder. And then eventually the day's capital from Prime, Sama, and Westbridge. ah you know So it all comes back to Westbridge after 2006. So I think, um and so that's been the Sunstone story. So at this point of time, I continue to be a passive shareholder.
01:18:04
Speaker
uh in the company uh but the company is practically run completely by ashish and purish with best business support that's the central story you uh you know you shared a couple of learnings on b2b sas and software and for example you need to go to us building b2b
Reflections on B2C Business in India
01:18:25
Speaker
sas in india will not work unless you are monetizing through transactions or something like that. So what's your learning on the tech space? Like what will work in India? What will not work in India? Whom do you see as successful at tech companies in India? Yeah.
01:18:41
Speaker
So look, I think there are tremendous learnings. One, because this was a very India-India B2C business, right? Pine Labs was, again, very different B2B, right? We were sort of isolated towards BPCI, Schlumberger, and all that. This is like you're out in the market, right? Your elements, you're directly exposed to the elements, right, of product, right, and everything. So this was very, I would say this was truly, truly formative. It's ironic because, honestly, when I started Sunstone, I thought,
01:19:07
Speaker
I know now everything, right? I've been two time entrepreneur, you know, i would kill it and all that, but it was very humbling because this was a very different business, you know, and sort of they were completely new learnings, you know, for me.
01:19:19
Speaker
I think some that I've stated is that, again, business model is really, really important you know of how like we tried different things, right small capsule, big capsule, B2C. When you're again, all these are ecosystem players to some extent, right when especially in a tech and it's a regulated industry, government is important. right so Basically, making sure that you have the right piece in the ecosystem that you can run ah is, again, extremely important in a tech particularly.
01:19:47
Speaker
Within B2C, I think one big learning I think Dinesh and I talk about all the time is the you know think of like our our model in in the first but in the second version of Sunstone where we were doing, I think, this one year MBA program. There is a constant sales burden every year. like Let's say we did one crore revenue this year. Next year, we have to start from zero. We have to get fresh ah students, right, to give us, let's say, one and a half crore or two crore revenue. So we have to do twice the sales next year, you know, to meet this year. Then the third year, we have to do four times the sales that we do this year, you know, and all from zero. There is no sort of carry forward, right? It's like ah there is no recurring customer because the students would graduate, right? And then you have to sell afresh.
01:20:36
Speaker
And that is true for nearly all ed tech companies out there. Think of Bijouz again, right? So they're selling afresh these programs, right? Because the last year sales finishes, right? You go to an academy or you go to any of these large businesses, right? We later invested at Eureka. So sales business and tech businesses, ironically, are extremely sales heavy.
01:20:57
Speaker
And that's why you see, like why is Biju employing Shahrukh Khan to sell on TV? It does not stand to logic. And then we analyzed that lovely professional university in those years in 2013-14 was the largest advertiser on TV. They spent like a thousand crore on TV ads in 2013-14.
01:21:13
Speaker
Right so i think so are learning which again we didn't realize is that i think is it marketing and sales business you know again and i thought i was getting away from that you know in some but this is even more of that because you think you know you know essentially you're sitting in the front.
01:21:31
Speaker
right And I think all let tech companies suffer from this. And also, you will see, hence, there's a lot of misselling, there's a lot of internet, sort of big bats, right, of Kim Jie, this was told to me, this didn't happen, things like that, right? And this is all part of the same package that you know it's like a yeah you're trying to convince a student and sell them a dream, you know which are which when kids can be very easily misinterpreted you know ah in real life.
01:22:00
Speaker
And I think, so that's the, that's a big tech story. Why we like campus is again, is that it's an imminent market. You know, we know that there are one crore undergraduates, people who graduate from class 12 and they have to do some sort of undergraduate and some of them do MBA, right? Things like that. So I think that's, I think a very, a pipeline, which is already set. And all you need to do is that you get into that, you do a better job, you raise your hand, you say, okay, we are like a better version of a product that you already understand.
01:22:27
Speaker
versus it's a completely new product, you know which i I have to sell you the dream, I have to and make you understand, and I have to do much more of that every subsequent year.
Importance of Lifetime Value in Consumer Business
01:22:36
Speaker
so I think the big learning consumer business for us was the value of LTV, right the lifetime. Again, it's kind of obvious, but again, I see sort of customers, ah companies making this mistake. ah like However you much you charge, right sometimes people think of payback, say okay our CAC, they say our customer acquisition cost is 10 rupees.
01:22:55
Speaker
I make 20 rupees, so it's a great business. But the point is, if you make that 20 rupees in three months, but then you have to sell afresh, right then growth is really challenging. yeah Every year, you have to sell more and more and more and more. To build a 100-floor business, you have to sell immensely. right So I think that's the one learning, I would say, for consumer companies. that the And that's why businesses like Flipkart, Misha, Amazon are so sort of awesome or Zomato because the lifetime value is just
Challenges in Edtech Sales and Branding
01:23:23
Speaker
immense. Once you're on these platforms, you just keep buying and buying and buying and buying, even if it's a small ticket. And even if they have to spend a large amount of money to get them on the platform, but the lifetime value is immense. Versus some of these tech businesses, you have to spend a lot. It can get paid back, but the next year you have to spend even more you know to get a fresh set of customers. So I think that was the big learning for consumer business. Okay.
01:23:47
Speaker
ah the The word of mouth and brand reputation is pretty strong in education sector, right? Like it's a complete misnomer. It's a complete fallacy. It's a complete fallacy in my experience actually. It takes years and years to build that people and there is no there is no word of mouth brand recognition for many, many years. You know, like the the large institutes have it today after like 2030 40 years, you know, also because their government so they're not selling actively.
01:24:19
Speaker
You know, the moment you sell actively, all that brand recognition goes out of the window very, very quickly. You know, in fact, there is a negative connotation to scale. People, you know, students often think, you know, how will they place them, right? It was okay when they were small. Or you often hear even like when I talk to my IT seniors, right?
01:24:38
Speaker
They say, you know, IT is now sold out. Now we're taking every everyone, right? There are tens of thousands of people coming in. So they actually feel bad about it. You know, what's this feeling good about it? ah You know, so actually, it's a complete fallacy. I think the I think the brand building is really difficult and the world takes decades to kick in.
01:24:57
Speaker
you know ah you know but in any meaningful way. And that also, if you're doing it the right way, continuously. So in Indian, I think landscape, I see zero companies today where let's say the word of mouth is driving growth. you know It's completely sales and marketing driven ah for all the companies that are out there today in the Indian landscape. Fascinating. What's your take on the test
Ethical Challenges in Test Prep Market
01:25:20
Speaker
prep sector?
01:25:21
Speaker
like lets scrap this a little bit Test prep is a little bit easier in the sense that, again, since it's an imminent market, you know um you know again, sort of let's say you take IT test prep, then there are a million kids studying for it, ah and you know and only whatever 10,000, 20,000 get in as of today, but you can charge the whole million. so I don't like the characteristics of it just because it's so sort of I'm not a socialist, right but it just somehow doesn't, something feels wrong to me in this picture that you're charging 100,000 kids,
01:25:53
Speaker
a million kids and only 10-20 thousands are getting somewhere, ah you know but but the market is imminent. and Again, sort of you if you see the test prep market has been propelled and you go back to IT and IMs, it's not ITs and IMs who have sold themselves, it's the test prep companies who have sold them.
01:26:10
Speaker
you know They've been advertising now for 30 years, right? ah you know Right from the first generation of companies to today of like how great these institutes are. So that pool of people you know who are investing in that has just swelled and swelled and swelled. Just as a social model, I don't love it, but as ah as a capitalistic model, it has worked because we are a large population. It's aspiring to get into the same places.
01:26:37
Speaker
ah you know and and it does provide for make for good business in that sense. It's easier than actually learning, training, you know degree degree program or things like that because outputs are fuzzy there. Here, the output is very sort of binary. right You get in or you don't, then you don't really blame you know the test prep company one way or the other. Okay. okay Fascinating.
Sunstone's Income Share Model
01:27:00
Speaker
I know Sunstone has flirted with this income share as a business model. What's your take on that? That you monetize once student gets placed, right? Yeah, so we stayed with income share in 2015-16. That was our first model ah because again we wanted to align our incentives. You know, we thought that again the whole part was to dramatically change the education system, right? How can we make it more accountable? You know, how do we give more value to students and things like that and share in that value, right?
01:27:30
Speaker
ah so So that was our first model and that stayed for many years. I think over years now, as the as the company has gotten bigger, the school has become bigger, it's also harder to enforce income share. You know, attribution is not easy. That did my job get placed through the institute, some people get placed outside. You know, ah so it's harder to collect after two years right of like changing students and getting that money, even if you know the attribution is clear.
01:27:56
Speaker
So I know that actually the company has moved away from income share model. So it's less income share today, more what they call placement guarantee of money back type of things, you know things like that. i think but But I think it very much started with that. I think it's still part of ah you know the offering at Sunstone. But I think now it's been replaced much more by money back guarantees and things like that. so okay Okay. So you're saying income share is not a good business model because it's a leaky ah leaky bucket. I do think in a country like India, you want to avoid conflict versus creating conflict. It does open up to, let's say litigation, right? A student can always, even let's say if you're on the right, right? Let's say the company is right and the student is wrong. But if a student complains, chances are that everybody will favor the student because, you know, he achieves the student. So it does open up to conflict.
01:28:53
Speaker
And at scale, you know it is very challenging to run because of that. It's very easy for like a student to bitch about a company and say, hey, they took my money, they didn't even place me, this and that. And nobody has the patience to understand what has actually happened or detail what the truth is. right I think the student's version will be considered the truth and inevitably at scale, more and more of these things will happen.
01:29:14
Speaker
ah you know so I think especially in education, you want to minimize conflict, right make it as streamlined as possible if you want to achieve some numbers. you know Otherwise, you'll just get the bombard by this. What do you think was the secret we behind Great Learning's success? Was it that they went global? yeah no Yes, I think so. Great Learning has also evolved over the years. Again, I know the company closely because Mohan has been a very good firm mind for many years. so i think um you know Yes, I do think part of their success was bringing in these global university programs to India. ah and Part of the success was also their acquisition or the partnership with the school in Chennai. So that became a part of their fold, so they were able to greatly, so they were able to sort of partner with it in a much more meaningful way. But it's not been easy. look I mean, months started in 2006. So again, this is now an 18-year-old business.
01:30:13
Speaker
you know And again, sort of obviously, they got acquired by Bijouz two, three years back in a peak
Leo Capital's Operator VC Model
01:30:18
Speaker
market. It's so good for them. But again, they also got Bijou equity as a part of that acquisition. And I know it's probably not very valuable as of today. you know So I think it's ah it's been challenging. but you know But they still, on the whole, did a fantastic job. Part of, I think, the team, Mohan is just, again, a fantastic entrepreneur and all that, kept persisting and then did all the things right that they needed to do to make it work.
01:30:43
Speaker
Okay, okay. So let's talk about leo capital now Do you? see yourself now as somebody who is Enabling startups and supporting startups or do you see yourself running a financial services business? Because in in a way a VC firm is also ah like a financial services business in private wealth management kind of a space So what do you see yourself doing?
01:31:10
Speaker
So I think, and maybe before I answer the question, I'll just give a little bit of the origin story. So after I came out of Sequoia, I started angel investing of my own, right? So I started on 2011, 2012, you know, and then picked up pace more in 14, 15, you know, after I became freer from Sunstone, ah you know, so I think companies that you invested I invested in all sorts. I think I was in Delhi. The market was underserved. I started this breakfast meeting in Delhi every Sunday, and it was very well attended. A lot of people showed up for it and threw up a lot of opportunities. i think I think the bigger successes that came out of my Angel portfolio, the biggest is Mijo.
01:31:50
Speaker
So i was the first check in the show it started sort of ah ah in and you know literally i i promise them and when the mission book gets published i will give them the physical term sheet that got signed of the angel round because i only have it.
01:32:05
Speaker
ah you I think so that was the show and then I did one mg. You know, which got later on. soul So Internet's a lot of Internet because Internet was kind of coming on. I ended up doing a lot of health. I can't remember. I think from average card is had gotten exposed to education and health.
01:32:22
Speaker
So these two sectors I was particularly looking at, and since education has started my own business, I got interested in health a lot more. So I did a company called QuickWell, which was bought by Practo. It could exit for everyone, cash exit. ah you know It's still a big part of Practo today. There's a whole hospital appointment booking system.
01:32:41
Speaker
um I did a company called, my first angel investment was a hospital chain called Cygnus Hospitals, ah which is ah which what it does was, it was doing the same thing actually that Sunstone was doing with campuses, it was doing with hospitals. It was taking over you know hospitals and aggregating them and running them.
01:32:59
Speaker
ah Eventually it got bought out by a group of guys a few years back and and then just last year or early this year, it is a large round from general panther. I think I've exited fully. So I just did a lot of healthcare and a lot of internet. I think if I had to do if I had to pick ah you know these two.
01:33:19
Speaker
and I think while I was investing, I think that's where I realized when I started enjoying the process of investing because earlier when I was at Sequoia, I didn't really do enough of it and sort of I never really got in the thick of it. ah B, I also felt the gap in India.
01:33:34
Speaker
a lot of these entrepreneurs would come to me because of my past entrepreneurial background. you know They would feel that I had more to offer. Even companies which had large VC funded ah funding you know would sort of come to me for advice and things like that. you know They felt they were not getting enough. They needed more you know from somebody as an operator background. so I think the thought of behind leo capital starting Leo Capital was you know basically that, an operator VC, because I felt that gap was kind of there in the market.
01:34:03
Speaker
So 2017-18, I combined with Shrutank. Shrutank was an entrepreneur also in India. ah did Angel invested in his company in 2013-14. So we got him to know each other. ah So we started the fund in 2017-18. And the idea was basically that of an operator we seized. The point of how do we basically help entrepreneurs succeed better?
01:34:25
Speaker
ah you know, through sort of more real life learnings that we've had as entrepreneurs. And I think now over the years, maybe there are a few more funds like that. I think Greece started together, there's a couple others I see, you know, but I think still there are fewer. If you look at the larger pool of capital, ah you know, I think it's more less operator type, it's more, it's a financial services type. um So that's been our journey over the last kind of six, seven years, 2018 until now as Leo Capital. To answer your question,
01:34:55
Speaker
Look, I think we started purely as operator. I would say, like everything else in my life, as you've seen, you know we've learned through the financial services aspect of it. And i ah today, I do think you know all VC firms are very much financial services and businesses. you know we have to you know We are accountable to our investors. We are accountable for returns and things like that.
Venture Capital Business Model
01:35:16
Speaker
And that is a very important sort of strand of running a VC business of any kind. But I think, hopefully, we can stay true to our original DNA, which is that of operator and building companies ah because that's what we enjoy the most. I think when you asked me the other day.
01:35:33
Speaker
I think when people ask me, why am I doing this? right i think I think the big reason for me, personally, is to help create large companies. I feel if we can help, I've been fortunate to be part of a lot successes fine lives of Find a lot of people like Sunstone, Micho, in our portfolio, LambdaTest, Beto. I'm hoping if I can look back 10 years later at a portfolio of companies which were large enough to have a global impact,
01:35:58
Speaker
of some sort I think that would give me a lot of satisfaction. you know so I think that's why I do it, and I think that's an important part of a DNA of our firm. But we are very much a financial service business. We're subject to the same rules, we're subject to the same ah you know limitations, and that's the game we play. So we have to play it by those rules.
01:36:18
Speaker
ah What is the business model of a VC fund? like Typically, wealth management means you take a share of the assets and their management. so it's exactly the same It's exactly the same. So let's say your fund is $100, then you take a management fee, which is typically 2% every year. you know So that pays for your expenses and things like that. And then you get a profit share, which is called a carry. So let's say you generate $200 as a return on that $100. So you take 20% of that $100 profit. So the 2 by 20
01:36:49
Speaker
Is the sort of baseline for most we see from some in a little bit make the face a little bit lower carry a little bit higher you know some basically go the other way you know something that is that small variations on that but predominantly set to buy twenty.
01:37:04
Speaker
but Okay. What is your fund strategy? And where I'm coming from is, for example, someone like a fireside has a very different strategy from a Sequoia where fireside wants every company to invest and to succeed. Whereas a more traditional VC model is go big or go home. They are okay with the eight out of 10 companies in their portfolio not succeeding as long as there are two large outcomes. So, you know, what is your fund strategy like?
01:37:36
Speaker
I come from the Sequoia school because I think that's the firm that I've seen most closely. When I was at Sequoia, a lot of Sequoia US folks used to come down, Mike Morrids and Doug Lewin and all that. So I've sort of grown up listening to the story, even our own VCs, Draper Atlantic, and then later on, you know, we had NAB and a bunch of others, NEA, you know, so I mean, they all follow that sort of go big, go home, or go home type of thinking.
Go Big or Go Home Strategy in VC
01:38:04
Speaker
Even when you look at returns, let's say if you look at the last 50 years of venture returns, I think the best returns have generally been produced by, you know, large bins. If you think of secure US, right, 50 year old history again, I think their entire history would come down to maybe 15, 20 companies at at most.
01:38:20
Speaker
you know, like, I mean, maybe if you take those like 15 companies out, the returns will be dramatically different, right? The whole form will look dramatically different. you know So I think, so my sort of and again, going back to sort of the personal mission of producing large rents, i think I think that's what we are into. That's what how we look at the firm. Rightly or wrongly, maybe maybe the venture ecosystem is changing. People talk about it. Maybe you know you can run it different ways. um And Fightsight has certainly done very well in the last five, six years. And again, sort of the team knows this business very well. Kanwal has been doing it much longer.
01:38:59
Speaker
than I have. you know so think um um So I maybe their strategy is a legit strategy. And you know I think they should also do well. But at least for our from our perspective, we think of it sort of you know our strategy is more closer to the classical ah venture things, which is you know to help produce large banks. And that's what produces most of the returns. OK. So how does that influence your choice of which companies to invest in?
01:39:29
Speaker
it It influences greatly because we can't really invest in stuff. Let's say something was pitched to us, which is like a short short 34X, let's say. right ah We would not be able to invest in that and entrepreneurs often get puzzled with that. So think of it this way. So right now, let's say our fund a third fund that we're investing on right now, the $75 million dollars fund. but let's And we normally write one and a half, two million you know at the same stage in a company.
01:39:55
Speaker
Let's say a company pitches to us ah you know and we invest around a half million in that. and Let's say four years later, the return is five million, which is, I think, a great return, 3x, 3.5x in five years. But from our fund perspective, you know from $75 billion, we have to review we have to return $250, $300 million right or an ADA period to generate, let's say, 25% iron hour, let's say.
01:40:20
Speaker
so So that $5 million doesn't really contribute to that $250, $300, and that's what we are measured on. right so So while it might be ah very attractive as an individual investment, but as a portfolio, it doesn't make any sense to us. And this is very hard for entrepreneurs to understand many times. they say like This is like a short shot three, four eggs. There's very low risk. And we find it hard to explain why it doesn't make sense you know for us. ah So we need wins, which are ideally $50 million or more.
01:40:49
Speaker
right when we invest, ah right? And I think, or at least 20, 30 million, so that if you have a few of those, right, we can sort of make a dent on our overall fund portfolio, right? so So that's how we look at businesses. We're looking at businesses which can which have the potential, even if it's a lower chance, right? And it's obviously a written investment, but who have the ability to return larger terms to us. And over a period of time, we can double down on them and put more money into them. And that's basically the ah you know the classical fund strategy.
01:41:19
Speaker
Okay.
Investment Strategy of Leo Capital
01:41:20
Speaker
How did you go about building your thesis? I mean, one approach could have been to say, okay, I believe in these four or five opportunities and I will hunt companies which are operating here. Or the other could be, let's talk to a lot of founders and we will find the really interesting good ideas through that.
01:41:38
Speaker
to get definitely more bottom up, I think, and also when you look at, but within tech, so one, we don't do anything non-tech, right? Because I think, like for example, Fireside does a lot of consumer brands and investments and things like that, right? And there are other funds to do consumer brands. We don't do any of that. ah you know um So we only do tech. But within that, we are very bottom up. ah We believe there is a seed fund because we're writing you know usually eight to 10 investments, new investments a year.
01:42:07
Speaker
so When you do that, you know ah it's hard to be sectoral and say, okay, we'll do just this, we'll do just this. right i think we have We are looking for more breadth as well. With each one, we are writing 25-odd investments. so you know it's We need some breadth in that. We are more bottom-up. We look at our job basically as to find sort of solid entrepreneurs in large spaces.
01:42:32
Speaker
you know So I think where businesses can be built in the next five, 10 years, and then basically work with them you know to help create these businesses as much as you can. So that's how we look at our lives. So I think we would sort of meet a lot of entrepreneurs in Bangalore, in other parts of the world, where we feel you know these these these folks can build you know large businesses, have the ambition, and have the you know jobs, have the skills, ah you know and basically partner with them. So we're more bottom up. So second category in your so description.
01:43:02
Speaker
But we do learn through that because we meet so many, right? So we then, over a period of time, we formulate our thesis in certain things. And we have we have like a portfolio of 60 companies. So we have now real experiences right of what worked, what didn't work, you know, sort of what is. So that that obviously also informs all our decisions, right? So I think and and that. So we have more sort of, let's say, we have more thesis in certain areas where we invested versus others we haven't done.
01:43:29
Speaker
Okay, I had interviewed Rahul of Stellaris. he He told me one of his mistakes as an early, ah like early in his career as a VC ah was over indexing on the TAM and he felt that good teams will find their own TAM. Don't worry about the TAM. What's your take on that?
01:43:51
Speaker
you know This is a really tough one. we We still find it hard to invest in spaces with less time. I do agree with him. That's a tough choice because there are examples of companies where entrepreneurs started somewhere else. Even if you look at my own journey, right we started one place in all three companies, Pylax, Glorologic, Sunstone, they all ended up very differently from where we started. so I was thinking back if we were investing in my own companies, we would struggle because the time is limited. Let's say if I go back to our end of circle days and all that. but so It's a tough one. I personally think that we still over-index on time as a firm
01:44:31
Speaker
ah because I think we do worry a lot and we feel that everything that happens you know from one time to the another also destroys a lot of value and we're a small fund. So you know let's say if our money is not utilized you know in unlocking the dam, ah then we can actually lose. It can be a bridge round, it can be a down round. you know We should sort of invest in the next round versus the early round. So we I would say we still over-index on that, which may be a mistake and I have seen this. I think there are funds which are or indexing on just entrepreneurs. and They say, okay, this is really a plus entrepreneur, we should invest. I would say we do both. We do time and entrepreneur. And in our head, actually, market is first. So we struggle to invest in sort of markets where we don't see the time or you know where sort of we we worry about that too much. So so i both agree with them, but we're also guilty of that, I would say.
01:45:23
Speaker
Okay, interesting. What are the large markets? you know You said you formed a thesis after running this for a couple of years. So you would probably have like some clarity on these are large market opportunities in India or to build out of India yeah or teams today. What are some of those?
01:45:41
Speaker
In India, at the highest level, you know if you look at the just the GDP itself, right and all the core sectors that are related to the GDP, right so which is financial, the FinTech, EduTech, HealthTech, logistics, PropTech, these are sort of large sectors in India. Obviously, you can take multiple approaches and then you can make marketplaces, ah you know you can make content, commerce. right so i mean All these are large sectors in India, usually sort of consumer facing, usually sort of, ah you know, like, for example, we discussed at the beginning, it's very hard to imagine your SaaS business in India has achieved large scale. So either they have to be like FinTech with their enablers distribution, this and that, with the tech with the tech angle. ah You know, so those are all sort of large spaces in India. I think we also do a lot of software SaaS, but it tends to be much more global.
01:46:35
Speaker
ah you know so those Those are companies which are building global software companies from India, but there's an inherent talent advantage.
Focus on SaaS and AI from India
01:46:42
Speaker
I think there are plenty of examples now in like Freshworks and you know so many others. iSert has done very well from India. I think so that's a theme that we also invest a lot. and I think right now, driven by AI, there's a lot more happening in that space.
01:46:58
Speaker
Also, ah so that is a space type for investment in our view. um So I think we do that combination. So we do India India, which is sort of GDP related core sectors, and then we do India to the world, which is more software, ah which is more across sectors, these days more AI and stuff like that. Okay. ah I want to go a little deeper on AI, but before that, so There are two things which you look at. One is the TAM and the second is an A plus entrepreneur or the team which is building it. um How do you identify that this is a great team? What are some of those characteristics or some of those decision-making frameworks and that you use to identify that this is a great team to work? Again, a very hard thing to do. you know I think these are the truly sort of the subjective parts of
01:47:50
Speaker
decision-making, which is you know hard to prioritize. We've actually tried. We've tried psychometric tests and things like that, but we found that none of it is obviously definitive. you know They all just give you more inputs, but at the end of the day, part of it is just having more experience. I think like if you look at me, like ah I've literally interviewed thousands of tech people ah you know as a part of my global launch journey. so i think i I personally feel that I have a view on the Indian tech,
01:48:19
Speaker
person, ah you know, and I sort of can cut to the chase and get a sense of, you know, how capable they are, you know, how good their problem solving abilities are, things like that. ah You know, and generally, our team is very experienced. I think a lot of it is just experiential. Unfortunately, it's very hard to parameterize it.
01:48:37
Speaker
Some things are obvious, right? Like, is it a well-formed team? Like, for example, two founders are better than one. ah You know, ah three is also a good number. ah You need to have a number of founders. If you have somebody in the founding team who has who is more GTM is a huge positive versus ideal founding team in some sense is GTM product and tech, you know, it was like other three founders. So I think you get some combination of that.
01:49:02
Speaker
you know in different bonding teams. Sometimes two people might have all three skills. Sometimes one person might have all three skills. Sometimes three of them are all tech. So even though they look like three, but they usually have one skill out of the three. So I think ideally we're looking for you know some combination of the three. And you know then I think working history between themselves. like we we worry about and The team has just gotten together three months back. You've seen enough founder divorces and things like that. you know I think ability to learn, ambition, right that they want to do something big. you know They have the ability to persist over years. It takes many years you know to build a business. so I think all those i think things ah you know you would hear about, ah you know we look at. and but But at the end of the day, there is obviously
01:49:53
Speaker
chemistry also, right, that can we work with these people? You know, do they value us? Can we value them? You know, do we see ourselves in the trenches with them over years and years and years? You know, so I think, I think those parts are also important when you're investing. What is proof of skills like product tech, GTF, like like prior experience?
01:50:13
Speaker
Basically, prior experience. So I think tech is easy. right If you've been like a tech person for a little bit, right you sort of do that. gdm Prior experience, I would say, mostly at this point. I think the good thing in India now is that there are a lot more entrepreneurs coming out from successful businesses, you know like Flipkart, PTM, Zomato. So they actually have a lot more skills versus, let's say, 10 years back where there were much fewer examples of entrepreneurs coming out from these companies, I would say.
01:50:41
Speaker
You know, ah today the top profile of entrepreneurs is that people who have been employees in these large startups and have seen that grow, you know, and brings these skills to the table. So in your model, you would probably miss out the guy like you who straight out of IIT with his batch mates started a business.
01:51:04
Speaker
we we can i mean we do we like we just Our latest investment is is a company just like that. you know The guys have graduated just now. It's a database company. um you know They do biopharma, computational infrastructure. But it's harder for them. ah you know I think it's harder for us, I would say, to make those investments. you know I think um we have a particular focus on this particular space right now, so this kind of came through. ah but But it is harder. I would say not just for us, for everyone,
01:51:34
Speaker
you know, all VCs just because I think, or there are specialized funds like campus funds out there, right? We're doing just this. So maybe we can catch them a little bit later more in sort of their seed pre-A round versus like the pre-seed type of round, you know, where they're just kind of getting started. So while we do do some of them, but it is harder for us no doubt, you know, because I think our bar is a little bit sort of, we're looking for more.
01:51:59
Speaker
Yeah, I think there's this big gap of perception between the VC community and the aspiring founders, where as aspiring founders, you hear stories of college dropouts building large businesses. But from a VC angle, those businesses are rarely, I mean, they are the exception rather than the norm. Like it would be very, very hard. i agree but two back I agree with you. I mean, you know, it is. it is I mean, somebody who lets a drop out from college pitch to us, it would have to be a very high bar for us.
01:52:29
Speaker
people but Either we just love that space or something you know we like ah you know something has to really sort of appeal to us to be able to invest in that. OK, the last thread I want to talk to you about is AI and how that is changing the way startups are getting found.
Potential and Challenges of AI Adoption
01:52:48
Speaker
There is this whole set of businesses which some people have somewhat derisively called as wrappers around AI, like a wrapper around open AI.
01:52:58
Speaker
ah What is your take on that category of businesses?
01:53:04
Speaker
Look, I think if you just take a step back, and you know we were earlier talking about Cloud businesses, right and Cloud as a term was ah coined in 1999, Cloud dot.com, and Cloud adoption has been happening ever since. right and I think now we're in 2024, 25 years later. ah and I think I would say,
01:53:24
Speaker
Cloud adoption is in the late majority stage, maybe 60 percent of their box. The big moment for Cloud was when Internet came, which is 95. So we're actually now almost a 30-year cycle you know for Android adoption. I would say if I look at AI adoption, you know if we let's say take chat GPT as the pivotal moment where it's available to everyone on the consumer side, then I would say just taking a cue from that,
01:53:51
Speaker
It's easily going to be a 20, 25-year adoption cycle, even if it's quicker than cloud. you know It's still going to be 20, 25-year. There are also obstacles. There are regulatory obstacles. There's general fear of AI. you know There are security obstacles. When you put it all together, it's going to be a long, long cycle of AI adoption. so That's kind of the first thing. so it's not Again, my learning back from like doing mobile sort of field force automation 2001, you're always too early in these things. you know So I think it's going to be long enough cycle. That's the first thing, right? ah At the same time, in my lifetime of working as a professional,
01:54:29
Speaker
have not seen as much productivity gain in any of the technology. Even with Cloud, it's not like your productivity gains become 3x for it. It's actually for all your work increases, and then their back-ended gains, and security, modularity, and things like that. There are no real productivity gains on day one when you adopt Cloud. Similarly, I think when you go back to the 90s, automation happened, 80s and 90s, and historical forms came up. When you move from file to computers, it was a real productivity gain.
01:54:58
Speaker
right I would say that AI productivity gains are similar to that. So today we have portfolio companies which are seeing productivity gains of four or five X, like a 10 people team job can be done by two people, three people, right? That is like really, most people have never seen that, you know, unless you've been there in the eighties, right? When sort of you were doing basic time sheet automation, you know, things like that, replacing files with computers, you know, and that kind of automation has never been seen. That kind of productivity gain has never been seen.
01:55:29
Speaker
at this generation, I would say. you know So it is very exciting, but it is going to be slow. So our belief is that this is a fantastic time to invest in what you would call AI applications. ah And there's going to be massive adoption over over the next 10, 15, 20 years. So as a VC, we can invest you know over the next five years a lot. I mean, our goal is to invest as much as we can you know in sort of AI enablement of enterprises.
01:55:58
Speaker
Now to your question, wrappers can be of multiple types. So some wrappers are more horizontal. you know So horizontal wrappers are things like let's say security layer on top of chat GPT or analytics layer on top of chat GPT or some sort of enablement layer yeah which makes the chat GPT usable or any of the large language models more usable in a particular context and things like that.
01:56:20
Speaker
I do think there will be winners in that, but there'll be few winners few large winners in that ah you know because enablement is important, enablement is not easy. you know I think you can almost equate chat GPT to AWS or Azure today. right like I mean, it's like an infrastructure, it's becoming commoditized, Nama is supporting that now, Google is supporting that now, others are supporting that right now. I think that's a quality infrastructure. right so But enablement takes time, it takes contextual understanding,
01:56:49
Speaker
So there is, I would say just calling them simple wrappers is a lax nuance and I think is understating their value. ah But I think understanding the context and putting a wrapper on that, making it more usable has value. Then there is, and enterprises are complex, right? Think of again implementing like a in a JP Morgan, right?
01:57:08
Speaker
It's really going to be complex, right? You can't just they can't just start using that GPT, right? It has to be integrated with the 1000 systems that they have. It has to pass 1000 checks, right? It has to provide real values. Somebody has to sell it, somebody has to manage it, somebody has to run it. You know, so there is a lot of work to be done to empower it.
01:57:24
Speaker
And then there is vertical applications, which are completely vertical, right? So you take anything, you know, and you can just have a AI, like think of CRM, think of but financial applications, right? Think of logistics applications, think of any any vertical, right? All of them can be redone using an AI first approach, you know, in a far more efficient way, ah you know, and that is also happening. So these are vertical things, travel, yeah and I think
AI's Impact on Go-to-Market Strategies
01:57:49
Speaker
all this will happen. so I think if you look at next 10, 15 years, 20 years, we'll see a new generation of winners across the board you know in vertical applications. Those are also exciting places to invest into. so I would say both horizontal wrappers and vertical wrappers, I think wrapper is the wrong word, but the implementations of AI are both sides exciting and we're investing in both.
01:58:09
Speaker
We have an investment in a company called Promptly, which is an enterprise enablement platform. At the same time, the investment in Decover AI, which is like a legal AI, you know just taking legal vertical and taking one application, which is evidence detection and resting on that. so i think so We're doing both, but we are super excited about it. We think it's like a major ah wave and and it's a great opportunity for both entrepreneurs and investors who are to transform in the next 150 years.
01:58:37
Speaker
ah Is this again a game of best GTM wins? Because the cost of building an AI application, I suppose would be a lot lower than like say three years or four years ago if you wanted to build something for the legal a community like a product versus if you want to build something today. It'll be a lot cheaper, faster today, so which means that more competition.
01:59:04
Speaker
So is it again that like you said, there'll be few winners. So is it like a GTM? Yeah, unfortunately, in most cases in my views that general product in most cases in the end becomes hygiene, you know, like it's very hard to imagine your product means there are few right and they happen every now and then, you know, but but in general, I would say.
01:59:27
Speaker
GTM is where sort of there is a lot more work ah and it does win in the end. you know i mean like like it Let's say there are two startups. One has a stronger GTM and one has a stronger product. I would say the stronger GTM is more likely to win ah you know versus the stronger product because I think you know the product spends are also not high. Let's say product needs to be fixed. You can copy your competitor's product. right It costs some money.
01:59:52
Speaker
you know you can fix it, right? It costs some money and time. But the GTM is very hard to fix. If you don't have a good GTM, you just you you have no idea what you're doing up, like going back to my EV provider days, right? We just didn't know what we we could build any amount. We would not win because we had no clue what was happening on the GTM side. It was not a function of money. So so i I do think that GTM is often underestimated and often a bigger point of failure and success than the product itself.
02:00:20
Speaker
oh What kind of GTM strategy do you like? I mean, i mean there is like a PLG and ABM, PLG product-led growth or ABM account-based marketing. I believe these are like the two broad approaches in GTM. So, you know, what's your take on? On the B2B side, I think there are some sort of playbooks which have become sort of clear to the industry at large and to us as well. So if you're doing large enterprises,
02:00:47
Speaker
you know which are large ACVs, 100k or more, 50k or more, let's say, you know then I think it's a slightly different GTA, which is more field-oriented. You need like a person to sell. If you're selling in the US, then you need that person in the US. In our company, Decover AI, we have like ah one of the founders that's based in the US and it's part of this legal world. so That gives us a lot of comfort that they can sort of approach law firms and you know sell this large ticket product.
02:01:14
Speaker
you know If it's a smaller ACB product, which is, let's say, 15, 20K ACB, you can sell over the phone, maybe give a demo, you know things like that, then that's different than the than the playbook there is online lead generation and then conversion on phone, you know and sort of then you i'll go from there. If it's an if it's an even smaller ACB product, less than 5K, then it should go on the internet. That's a currently type of product right where you can just purely sell on the internet. And that's where I think the product itself is a big ah is a big part of the win. I think the GTM is still important, like how you reach out your tax and things like that, right? All that, how you bring in virality and all that. But I think the product itself is a big part. you know But the moment you go from there towards the enterprise, GTM keeps on gaining an important side. Do you see AI making GTM cheaper, faster, easier, and any of your portfolio companies ah using the AI for GTM?
02:02:13
Speaker
They're beginning to, we have a portfolio company called GTM Buddy, by the way, which does just this. GTM Automation using AI, which is doing very well. So I think there's also a lot of companies you know making a play in this space because GTM is such a large part of the spend. So for sure, it'll make it easier, simpler, faster.
02:02:33
Speaker
ah you know cheaper. So I think all those things will happen. um But I think still, GPM still has a part to it, which is strategy, which is closely sort of related to you know the core aspects of entrepreneurship, like product market fit, you know who to sell to, what to say, you know and things like that. So while the pace of experimentation should increase, but I think it's still an indeterminate problem. it's not like a You can't say that, you know i'll I'll get up today and I'll fix GPM.
02:03:01
Speaker
You know, you will set off, you can say today that I've been night out, Mark, I'll fix these features. I'll fix the product. I'll work hard and I'll fix the product. You can still do that, right? But you can't say I'll do two night outs and I'll fix the GTM, right? It still tends to be, you know, uh, uh, you know, indeterminate and experimental. So that aspect stays in that in some sense, keeps the entrepreneurship adventure
Inspirational Potential of Entrepreneurial Conversations
02:03:21
Speaker
alive. Right. I feel, I feel that the way, the day you make GTM deterministic, I think that's a big life altering thing for like a lot of companies and funds out there.
02:03:31
Speaker
because then it's sort of automatically. What do you see as proof of product market fit? Like, how do you determine when this business has found PMF? Again, I think at different stages of the business, it's different proofs. At a very early stage, like if it's E2B software, then we look at very early need of validation. need ah yeah like The needs is validated. Whatever you're selling, there is a you know a demand for that in the market. So let's say you send out a LinkedIn message, right?
02:04:01
Speaker
then how many people are responding to you based on your LinkedIn message, you know even before buying the product. right But if they're getting attracted, that means that they have that problem and they're looking to get in touch with you. right The next is whether you can solve that problem or not. right so Right from that the need exists, you have an ability to engage with these target customers, you know and then you have an ability to solve this problem. and Then fourthly, that you can sort of make money while solving this problem. right so That's, I think, the order of things.
02:04:29
Speaker
I would say, and fifthly, that this is large enough problem, but that there's a scale and to be had here. right So i think I think these are the five aspects of it. and i think ah Since we come in early, usually we look at the first one or two, we look at the size, possible size, but we also look at just if the need itself is there. You know, we feel that's where sort of long, like again, going back to my days, for EV provider, there was absolutely no need. You know, nobody's looking for it. You know, it was just like, a ah you know, our own, we dreamt it up and kept building.
02:05:00
Speaker
i thought
02:05:04
Speaker
There's this popular narrative of grit, but at the same time, grit can also, like it can work against you, right? when When you feel that I need to have grit and make this work, but you're not chasing the right market or things like that. That's always like a hard thing to figure out where to draw the line.
02:05:26
Speaker
No, it truly is. i think um you know and and And the other learning is that many times, grit is great for the entrepreneurs. It may not be as good for investors. you know like i think I think sometimes, see what happens is that, let's say if you have a small bin, and this is the point of, let's say, where investors and entrepreneurs are misaligned. Let's say a company gets sold for $20 million. Let's say you invest in a company at $600 million, $8 million, dollars right and you own 20% of the company right as an investor.
02:05:57
Speaker
And let's say the company gets sold for 20 million and let's say the two founders, you know, they can still make like four, five million each, right? Three, four million each, which is like a very interesting amount of money for them. Right. I mean, they it's a significant amount of money for them. But as an investor, you would not call it a successful exit, you know, because you invested five million, you got six million back or seven million back kind of thing. So but so so great. Sometimes what happens is that entrepreneurs see this opportunity get a 20 million output, right? And a grid might get them there, and it's still a good output for them, right? But as we see, actually, you see that this is not a good output for me, you know? And hence, you know, there is this and conflict as well. So ah so again, I think things are very contextual, and it depends on the vantage point you're looking at it from. You know, I think if if the grid leads to large outcomes, and obviously it's been win for everyone, but very often, this is what I've seen, that it leads to smaller outcomes, which are good for on-product, may not be as good for investment.
02:06:56
Speaker
So what leads to large outcomes? If it's not great, then what are those qualities? ah You know, just as an entrepreneur myself, I want to figure out what should I over index on. It's not just great. I mean, great like again, if you say that sort of just great will not get there, but it is an important component. of On the other hand, you don't want to give up at the first opportunity right when things are not working, right? So I think I think it is important, but it's not everything.
02:07:22
Speaker
The formula, again, is a combination of many things, but I would say the big thing is finding that space and a viable business model in that space, right a way a viable approach to that. bill like You can say education is a large business, right but until we found that viable way of approaching that market, which is the current central model, we kept on studying for five years. right It was not going anywhere, five, six years, right as even as seasoned entrepreneurs. right I think same thing with any business that you take. I think a combination of large space, largest space, and a viable way of approaching that space. I think that's kind of until you have that, you're still sort of pretty far away from building a large business. you know i think I think those two, and until you found it, you have to, I guess, keep looking and and then you know how to approach it. and Which is where the grid comes in? in terms of Which is where the grid comes in. so If your grid is targeted towards that,
02:08:19
Speaker
I think then I think it's a good grid, right? But if your grid is towards, okay, I build this, I have to make this work somehow, right? ah And which is many entrepreneurs feel that way, right? That I have to just somehow, many entrepreneurs feel guilty if you're taking this money, we should return this money at least, right? And I get that sentiment. But I think it's not ah it's not about that, right? I think in many cases, they have to really think sort of what you really want, what investors really want. And I think if you direct your grid towards that, I think that obviously makes no sense.
02:08:47
Speaker
Okay. ah Let me end with one last question. How does valuation work at early stage? ah You said you invest a million, two million and a half. What is typically the valuation at which you invest and what determines it? It's very market driven. So I think I would say like for us, for example, we are looking to take our goal is to try and take like a double digit ownership close to 15%. That's our fund model. You know, we're looking to basically, and so we reverse work. So we tried to write one and a half, two billion.
02:09:15
Speaker
you know, that gets us close to that kind of ownership. So by corollary, we're looking at companies which are in that 10 million, 12 million post money kind of valuation. And that gives us a certain kind of company. So we generally stay true to this track, you know, we can go a little bit up, you know, we can go to 15, 16 sometimes you can go a little bit down, you know, six seven and sometimes, but we stay in that sort of and I think most funds are like that.
02:09:38
Speaker
ah you know So they usually have like a model that they're trying to solve to. So that's ours. And and I think the seed valuations in India are in that range today, I would say between 8 and 12, 6 and 10, I think in that range. And in early stage, honestly, it doesn't make a whole lot of difference. like In the sense, let's say a valuation is 10 million versus 12 million. If you have to take 15%, the decision for us is whether to write 1.5 million, 1.6 million. yeah you're answer so It's not a huge decision. If you like the company, 1.6 million, right and it's a $75 million fund, it's not like by saving that 100K, I'll achieve something. right so Actually, the valuation is a much bigger factor many times in entrepreneurs' minds than in VC's mind. you know I think for us, we are more solving to, can this be a large one? Can we get enough ownership?
02:10:25
Speaker
you know i think and so so that's why that's That's how the algorithm works. But you said that because you're looking at companies which are valued between 8 to 12 million. So you get a certain type of companies coming to you. What are the type of companies which are where there is a legitimate reason to value them at between 8 to 12 million? Do you need to have a certain ARR already or like what?
02:10:49
Speaker
usually yeah Usually, in the SaaS space, these companies are one to two-year-old, so let's say 100K an hour. Let's say if you take the next level, just pre-seed a company, which is just starting, fresh entrepreneurs. They're usually raising at like three, four million, five million, you know like an angel round or a micro VC round. right so I think raising three, four hundred K, five hundred K just to get started. right so That's kind of usually the first level in India these days. and Then the same company, when it has existed for one or two years,
02:11:17
Speaker
but it has some early support for 100K error, 20K error. I think that's the right time for a firm like us. I think the consumer companies are a little bit more complex, consumer internet content, because the metrics are different, but I think SaaS is easy to understand. I think that would be the typical range. You invested in consumer internet and content kind of businesses also? Yes, yes. Consumer internet logistics. We did Bito, which is like a devotees care, consumer internet platform. It's a bunch of like that.
02:11:46
Speaker
Yeah, we did social commerce, didn't work out, got so into good number. And in content, what have you done? We actually have not done much content. We have done very little content. ah You know, we've done gaming. So we did, which is also considered part of content. So we've done boundary play, which is like a gaming you know guys in gaming studio. We've been by starch. It's not a gaming company. So you didn't gaming inside content, but you stayed away from. Let's say the share charts of the world and sort of the real sort of content content type of place so far. OK, OK, OK, amazing. Thank you so much for your time, Rajul. I took way more than what we had scheduled for, but I was having so much fun. I couldn't stop asking you questions, so thank you for doing this.
02:12:31
Speaker
No, thank you. I enjoyed the conversation. and And I hope it's interesting to people. I always think that my entrepreneurship journey started from a conversation that I overheard from new gen founder. you know So I always think that hopefully someone will hear this and get inspired and you know hopefully we'll have more entrepreneurs. That's amazing. That's amazing. That's a good way to end the show to remind me about that first conversation we had. All right.