How Top VCs Pick Founders, Evaluate Startups & Fund Them | Sasha Mirchandani | FO564 Raj Shamani

41:04In 10, let's say you can decide what should be the first slide? Let's go all 10, 1 by 1. This is a bit of a debate on the first slide. Someone says that team first or someone says that team end in the end. Tell me. I like the team in the front. I like to see who I'm meeting and talking to. Okay. problem simple second page is problem solution three yeah one slide on product if you can show how it works on a video okay product how it works demo simple demo click attraction

41:39if the company has a few months of traction competition slide okay where do you stand that's right one slide on how much money you want to raise we are raising one million or Joby way okay that's it okay I forgot two three times do you think time and all of that is important tailwind headwind why is it right time like why this why now why us yeah sorry I forgot that why now slide it's important why now is very important that's so after problem solution and then why now okay so fourth will be why now that's right okay and see time Raj traditionally what people are looking for is large stamps but I disagree because our point is we can even go to a small stamp but growing very fast a small, a new, because if you already go into cluttered markets, there's no interest but how do you know that new market will become big?

42:35there's a couple of reasons, one is we hopefully have our own diligence done, where we have a thesis that we think this is the way the world is moving obviously we're not gods so many times you get that wrong, but you have some thinking this is where we feel the future of this business will go. So wealth management is going like this. This is how it's taken care of. Sometimes the entrepreneur as I said has that insight where they have to convince themselves that they're going to be. And I'm like who will go from here? And I'm like oh shit he's right here. He's going to be. He's going to be. You get it?

43:07That's the insight. Game is there. Nice. So it's like you want to tell what is the small time that you're operating in and how fast is it growing or what are the signs that it will grow either way if it's brand new then only science can tell us our logic of the market if at least when it's a year business it's already exploding it's so exciting nobody else doing that right so suddenly the market is right there fair and then there's no excuse in a new TAM business then the company has to grow very rapidly to excite the next round of investors so aim problem solution why now TAM problem I love how it works then traction then competition simple competition slide you know and don't show me that 1 % of the market slides those are the worst what do you mean most fond of it this is it's a 50 billion market so we'll do 1 % to 5 billion market so give them the money that is the laziest slide ever I delete the presentation what's a good way to show time then no it's if not 1 % then what should a founder show like teach us what young founders are watching this they should know no actually for me it's better when I meet the founders because then they can explain fair fair but if if somebody's sliding in a deck and you have to decide whether you'll meet or not because after looking at deck in 30 seconds you're deciding whether you should give your 30 minutes see on the deck when I'm meeting people it's not on the time especially when I find the time to be small but it's more about the clarity of thought on the problem solution etc is much more important for me because I'm thinking okay this is very good but I'm not sure but this sounds interesting enough for me why would that work okay well fine let's meet Raj let's do that give me an example of what is a good problem like what is something that you've seen where founder has been able to explain you something very nicely like in just one or two lines the problem and you're like I'm excited I want to meet this is clear there's so many examples we can give and what happens is when you do meet the founder many times you realize not really most of the time not really fair but at the end of the day clarity of thought on the founder I won't give examples of companies but if I had to see 100 pitches 90 will be cluttered entrepreneur what do you think that if you add more data then the more excitement comes actually it will go the data will come when we start doing the diligence on the company not by reading that document by working with the entrepreneur how you thought through this let's do this let's do that that's a better way to do it versus creating a cluttered deck where the poor founder spent so much of his or her time and then getting a rejection from us so simplicity and clarity of thought I'm repeating again and again I want clarity of thought simplicity that is what works is there an example in your head like someone who came to you for some fund and you're like this is great what did I say one line I'm going to say I think so many other companies we've done in the last year itself would fit into this whole scheme of things right give me an example of one company you invested in so let's take I'm thinking Kunsak recently so let's say we did Supernova you know so it's a AI native language learning app okay young guys Maharishi and his co-founders from ID of Chennai the clarity of thought that they had on the pinpoint on language was phenomenal.

46:45It was just simple. This is what we're going to do. And young guys. Now, of course, as any business, they've also pivoted. But the nuance of the product remains the same. But just the use case has changed. But that's okay, right? But initially, this is a need. This is what we're going to do. This is why AI is going to make a big difference in the life of the companies. And for us, it was pretty simple. And just the way they articulated it. Another thing we liked about them and a lot of founders is when your previous companies have not worked, what are the learnings you had? You know, like, okay, this is what I learned.

47:18This is what I didn't learn. This is how I'm going to be different. And so we feel that, you know, we feel entrepreneurship is an overnight success. And suddenly everything becomes unicorns and everyone's talking. But the data tells us that on average, five or six companies you have to fail before the sixth one becomes the really large one. So it's a lot of grind. so do you invest in failed founders we love to why because the failed founders coming with we want to see how much they've learnt from the last couple of companies so if they haven't learned by asking a set of questions or at least we don't feel the feel that nothing is taught then obviously we won't do it but we see failed founders to be a big big market what is a good answer when somebody has has failed as an entrepreneur and come back to you that why they failed in a very precise way they can explain to us what went wrong and why this time will be different and what have they done differently this time to cover it.

48:15Could be anything. Could be that they were a single founder and they didn't have the right co-founding team. Maybe they went, they were founder market they went because they were let's say very articulate they raised capital but they were the wrong founders of that category but now we realize that this is important. So all the bricks are coming together, the pieces. This time we're ready. Could be a timing issue. So we feel this time the market is ready and they have to explain to us why they feel the timing is right this time. But don't you feel if somebody, someone has failed before, their competitiveness, their hunger, their speed to take more risk just reduces?

48:50No, I feel if you're built to be in that first category I said, hello, high water and Kimiko, I want to build something in my life. I'll figure it out. Then it's just a matter of time before you come back with something even better. And the grit and determination is what we're looking for. But don't they get slow and more fearful because they're like oh because we've failed at this point then maybe I want to be fearful. Yeah they do but we're not going to fund those people right. Aaj you're supposed to find the ones who are not slow and more fearful but in fact more excited. See the best founders are like okay now I get it this is the right way.

49:21Let's start buddy. So in fact energy is more than just. And you like them more. You like it more. Because boss this is what I do. And see when I used to work in my old days when I was at Nokia Ventures slash Blue Run if I was sitting in California office all those young founders used to come to us they would put on the first page Raj ki why we failed and what we failed nice samjha first page no nothing what I just said ki here I started xyz company he failed ho gya these are the reasons to a ghanda ka meeting a beasties man uda chale jata da and India may because of stereotype and this unfortunate fear of failure social stigma the poor founder would try to hide the point failure I'm a person ki kya ho gya kya sikha And I'm very keen to understand.

50:06I want to understand what they've done. I have no problem. My father failed in three, four companies before Onida took off. He never gave up. But does it scare you? Because the social stigma... The situation has improved, Raj. If you look at at least founders or founders could and their family and their close ones, look at someone who's failed in a business in a very terrible light. a lot of people I know who have been exceptionally good they are like hey you know what maybe I should go back to a job because this is if I fail again then it's it's shameful it's embarrassing you know glass half full half empty so I believe that what it used to be is there a long way to go hell yeah hell yeah it will take a lot time because in India the job is the most important people have struggled kids have educated and they say that you're sitting in a small office or you're doing in IBM or you're doing in Tata so that's still going to be there but has it improved a lot?

51:08I think so I can see the confidence level of entrepreneurs who come to me who failed and are okay to talk about it so it's not going to be 20 years or not going to be 10 years now it's happening is it happening with everyone? no because that's social it seems to calm down what should we do so that more people are okay with failures? just keep talking about it See successful people Have to talk about it Because people Don't listen to Successful people Like someone like you Suppose you think about Some failure you had In your life And you talked about it And how you overcame it And today where you are It motivates people I have a secret Like a diary Where I write Almost every week Other things are failed There you go So sometimes Like you You're so high profile And so successful If you started a podcast Where you learned From failures and you know when you come back it will be a great success tell me where have you failed I feel everyday I am failing everyday because what happens our business 30 companies we have done investments remember the business works like this 40 % will die no matter what we do and we find everything we find hello high water everything timing 10 times 4 10 times 4 4 decent exits okay payse ban payse ban but what happens that the fund doesn't have movement on the returns on the fund so suppose I'm making 10 investments out of 30 and my other partner is making 10 someone's making 10 that's a failure because you feel that you have so much effort and you connect to the founder you get to like the founding team and it's most like a marriage and then unfortunately for whatever reasons maybe they didn't go so that's a failure but we're always trying to figure out what did we do differently here that next time what do we do our business is unforgiving it's a business continuously full of mistakes or it could be a failure to move fast enough so many other startups we missed whether it be Grow Misho all come to us we didn't move fast enough that's failure correct you missed out on Zepto Zepto you passed no you know they came to us Kirana Kartha and remember I just said earlier in the show in the interview that best founders you can't forget the pitch I still remember when Adit was talking to me and my partner Gaurav and he was just 19 years old it was phenomenal but we didn't like the Kiranakart idea so we talked about after the call and we said he had approached Gaurav I remember and he said what did he do he said we really liked the founder but Kiranakart we don't think it makes sense and it did not but I just said it would be a pivot it would be a spike it was a spike so that's failure when I'm lecturing you know on this podcast and they said I didn't do it and what's happening with them now again what happened in the public market recently that is you know public markets are a different beast and private markets are a different animal but Adit I haven't been in touch with Adit but he is A plus I like him he is A plus he will figure it out and Raj you will see one day Zepto will be a bare minimum 10 billion listed company and it will be far more than that eventually It'll be 20, 30 billion.

54:26Now people are laughing because times are tough for him because public markets are not accepting his price. And therefore, he has to do what he has to do. He will figure it out. He'll probably raise a private round. That's my guess. And move towards a little bit more profitability so that the Indian market can, you know, digest it. But he's not going anywhere soon. He's going to be there for the long haul. He's the best of best. This will be a once in a generation company. So you miss Zepto. you missed Ola you said Grow and Misho Misho how many our list see if we're not missing iconic companies or amazing companies we're in the wrong business we're not in the mix okay you're not even considering not even considered I won't mention the names of sharks but 80 % of sharks pitched to me also and we didn't do any of them

55:18so in your fund one when I was reading you had 32 companies 30 of them didn't do really good two of them just gave you exceptionally great results so actually a few more did we they've already been exited for example Dr. Deepu 7 Daily Browns was a great exit for us we sold that Find Harsh Shah we sold that for a very large amount of money that was a big exit for us and we have three companies that are now we actually have four companies one is in the US so we don't talk about it's a SaaS company is doing really well called Serta. Okay. And teen company bache hai. One is HealthCart. It's doing phenomenally well.

56:00And I'm sure sooner or later we will want to go and do an IPO. By the time when it does an IPO this company will be worth billions. Okay. We have a company called Tada 1MG which is one of them HealthCart. That company also is doing phenomenally well. And we're very excited about it. HealthCart will eventually return our fund at least twice. And the third company is Porter which has done exceptionally well. and by the time we exit this business whenever that may be and there's no rush for the IPO as you can read an interview that Uttam gave last week but the company is doing phenomenally well touch wood and that should return our fund multiple times over so we call it the home run so our business if you get even one great company you're done we've been lucky to get three of which all three will be unicorns eventually so that fund is a great success we've been very lucky and why didn't the other work the other companies yeah like I said a variety of reasons we picked maybe sometimes founders that we maybe should not have invested in founder market fit too early founder was maybe not as determined see we also got better as VCs okay as the last 15 years before that 10 years privately right how to pay what to do so what I did last investment today and suppose you ever invite me back two years from now I will come with different insights on what other mistakes we made between today in the next two years.

57:23Tell me one thing that you used to believe before and now you don't. You know, I believe that, you know, you need a situation where

57:40You have to have founding teams. It doesn't matter. If there's a single founder, if he or she has a clear plan and can figure it out, you look at PTM, right? Vijay Shekhar Sharma has done incredibly well. So for some reason I had this thing that, I'm a single founder, so we should not do it. We should not do it. We did it here and there, but we broke that paradigm. So we've changed that. We did Foxtail in Fund 3. It's done phenomenally well. Yeah. And she's a single founder, Tigris, and we're super happy to partner with her. We have other single founders now too but I'm talking about a belief that I had in the past.

58:12So we got over it thankfully and which you know I always say never stereotype and we were stereotyping without realizing it. Sometimes those beliefs but we've done it and we've done it and we're very very happy. Is there a company you've missed because of single founder? Oyo you passed Ritesh one founder. Yeah Oyo Oyo also passed in fact now I'm good friends with Ritesh but I didn't get it I didn't get it I didn't get it I didn't get it I didn't get it I didn't get it I didn't get it and this is a 19 year old hotels how do I do you know too hard I just said hard problems so Ritesh also passed but one founder then probably one founder no but one founder was not a problem it was too hard a problem and he was just too young inexperienced the naivety which I said was madness and then I told Ritesh when I last met him I just knew my executive MBA at Harvard Business School so one of the cases was Ritesh so I in my subgroup I led that case so I was very proud to lead it and I was telling my friends that boss this company has been such an iconic business and he had 5 crore value to buy whatever the price made with that like that time he was not even he was incubated by a small incubator my friend Shravan Shroff he had started an incubator and he had got an amazing entrepreneur and he didn't get so much idiot and that main company from the incubator I forgot the name of the incubator here he had just somewhere five minutes from here was Oyo and then you you didn't even meet because you were like who's all the kids I got a colleague you can't get every company you can't get you are my younger colleague or older colleague doesn't matter you have to say I don't have a second guess so every company will take days and months let's say every six months and then we just say which are the companies we missed and then we go back into the future and say okay from last five years who missed because he was always good to introspect how can we next time an OYO comes or an OLA comes not miss it see after all we still did Porter right or we still did HealthCard we wouldn't be in business today we did a Zetwork what was the story of Porter I heard it was because of some strategic clause that's why you ended up funding Porter what was that it was a it was one of it was you know we had modeled 25 companies okay and I remember fundraise clause and I went and met one investor once and he was just talking to me randomly about stuff people were closed people have wired the money so you cannot change terms when you wire the money and he said Sasha so how are you thinking about your recycle clause I said what do you mean recycle so you understand me dude this is what recycle means is say you make an exit in the first five years mostly these exits are small exits because how big a company can be in the past time.

1:01:01So you keep the principle and give the profit back. Therefore, using that capital, you can then put that money back into the system. How much capital allocation is there. So that you can make a few more investments. As Americans say, more short-set gold. So I went back to my investments and said, guys, I'm so sorry, I never chained the gold post after this. But here's the reason. To the credit of those investors, LPs, we call them, they said, yes, we agree. This should be done. Because the data that investor who showed me, he said, Sashal, the data is overwhelming. Funds without recycle They underperform So I said Game is not going to happen And if I know that Already I'm going to underperform Or at least Have a You know Have my hand tied behind my back So this is going to happen So the credit of them They are great So they put their clothes back And We kept going And as you rightly said Good research you've done Company number 29 Became Porter In fact Because we were already putting X amount of capital per company now in K2, K3, K4 we've been far more scientific about the capital but it's time we're putting equitable so by the time Porter came along money was dwindling but my partner Naveen was the one who had met them and then he came and talked to me about it I said let's meet and the very first meeting we loved it and the rest is history we did it in fact the company took off then Sequoia didn't introduce they didn't do it continued to do really well and I remember there was a board meeting in 2015 market was very hot the porter was going to raise another round of capital and then trip never happened because normally when a market crashes there's some event black sunday or something happens Cleveland brother comes to that but that time there wasn't any particular event but over all the market just went south okay this is if you remember 2015 IIT Bombay was going to be entrepreneur and everyone ran back sub flip card sub flip card so there was a lot of excitement but when the market slowed down in the end of 2015, suddenly, travel, I remember, they said, no need to come because I'm not sure.

1:03:05So suddenly, now you have a cost base. And we were doing intercity and intercity. So we said, you know, we feel that it makes sense to, you know, take some tough decisions. Now, this is very important. Most founders push back. And rightfully so, it's their company. Our job is to say, this is what we recommend. But the cash is limited. so did Pranav Uttam they all said no but we think we should do this and do that because both business are doing really well yeah now this is a very powerful story because it teaches you focus and you think but if you're forced to pick what are you going to do right and this is the greatness of these entrepreneurs that they did it on Monday they called us and you know what we've taken the hard decision to knock off one we'll remain in the porter business but we'll knock off the other business and today they could have created a let's say a black buck out of that but they were doing so well but then we will do and whatever limited capital we have we will focus on this cut all costs cut whatever they needed to cut so within a week they were back in the game because a lot of companies in that period died Raj and what happened is the reason was entrepreneurs were so that they will do a job or do a tough decision but that's life this is business nothing personal they did it and the rest is history then the company continued to raise capital I still remember the story of Pranav annual days to happen in small small hall in Opera House and we were also a much smaller firm so Pranav had come to pitch that time again cash dwindle but he made the pitch and all the presentations went to the house and I was just last suddenly Pranav was still standing outside one investor said Pranav what's going on he said no I've been talking to all the founders all the rich people have come for your annual general meeting to go I can maybe consider 10 lakhs for you someone saying 5 lakhs no ego no nothing he said I need to be in Bombay and go and get this capital and I did it so just amazing humility boss my business I cannot hello high water no ego I will ask I will ask I will ask I will ask I will ask I will ask and then finally again capital tough then they convinced Mahindra to come in unconventional investor to come in right normally we normally go to traditional VCs or private equity funds but they convince Mahindra Mahindra has loved them Mahindra came and then after that no turning back after the Mahindra round true true and there was another story of Myndra as well right you were one of the first investors in Myndra yeah I was the first investor I remember so Mukesh Bansal amazing entrepreneur you know so we had myntra I remember the board used to happen in his house so my brother said he was and I still remember once Mokesh phoned me come and speak to us I said okay so I mean I didn't get the office so I was going to Google Maps so Mokesh said okay don't worry I will wait downstairs for you then you come so I finally see Mokesh standing there and I said Mokesh I said Sasha I look up there's a whole building and myntra is being created But the real story there was not what I did, but what was done by Lee Fixel, where he said, look, you know, Mukesh, you're an amazing entrepreneur.

1:06:35We really love you. But the space you're in looks tough. He was doing like a cafe press for India. A cafe press for India, like selling cups and mugs and that kind of stuff. So the market was small. So we need to think big. So a ticket was bought. You'll have to check with Mukesh if this story is fully accurate. but I'm 99 % sure my memory is correct that go one time to Beijing on Wednesday and next week one trip to Brazil and you could see how businesses there have been created in the category that we had in mind and it came back and presented and that's what became Myntra right online apparel the rest is history nice so before when did he get to sell and you invested in that yeah but again the best was founder so what was his story actually very interesting when I met Mukesh yeah that's a single founder story so I said Mukesh I don't want to be a single founder as I said a few minutes back so he said okay it's not I said but I really like you your ref checks have been amazing so if you ever build a team around you please call me so one day 6 months ago literally 6 months ago that's what I remember you said I'm ready and he came and I was blown away by the team and the rest is history I funded now Now, very simple thing.

1:07:53So a lot of times, single founders come or founders come as, yeah, team ko enhance karo, get better people. Koi ni kar rahe sab job kar rahe ha. We are a startup after all. But what are we looking for? We're looking for that individual or individuals who have the the gravitas, clarity of thought and the excitement that they can create for other people to leave amazing opportunities and come and say, hello, hi, what are you? I need to be with this person. That's salesmanship, right? right it's the number one trait if you can't get great people why would I fund you it's a test and you got three amazing co-founders who all done very well post-Mintra so that was it worked out really well so single founder story is but single founder was not the dominant founder obviously and then two other younger founders joined him and people don't realize that the Flipkart became 17 billion dollars the enterprise value was broken up in two parts 11 billion was Flipkart but 6 billion was Myntra 6 billion it's an incredible story it's not 6 billion you can go on and check 17 billion enterprise value 6 billion was paid by Walmart for just Myntra just Myntra but it's nowhere there like people don't talk about it much Mukesh Bansal was Mukesh Bansal competitive super competitive then he started sports fitness level Mukesh physically compared to where he is today.

1:09:22Today he is full into health. Yeah, he is very competitive. And he has done so well. Charpa is coming to Chaluki and all of them are successful. But one after the other he is still going at it. He is very competitive. He is very clear thinking. He is the best of best entrepreneur. Who is the most competitive founder you have met? I have been lucky to meet only once. You won't remember this because it was years and years back with Sunil Mittal. But Sunil Mittal is you can't find a more competitive entrepreneur, right? The way he came back it's the most inspirational story Aytel Aytel and look at his age and still to have done this it's quite remarkable to have come back and where he has come to have that energy hello high water forget dying but he's thriving today that's inner competition he doesn't talk too much he of course speaks very articulate person but amazing Mukesh Ambani I mean come on we all have to respect him what he has done like you know of course the big man Mr.

1:10:19Dirubai Ambani he was a legend we all respect what Dhirubhai did from nothing but then to take that group people forget that when Mukesh Bhai took over it was only a couple of thousand cross 2000 now you don't know you don't know numbers have been zeroes it's become so big and for Reliance the game has not even started for Mukesh Bhai if you were ever lucky enough to meet him and ask him he is already thinking of multiple other things that are game on I've been lucky to meet Mr. Adani last year in Ahmedabad remarkable entrepreneurship he's also competitive ultra look look where they reached no are they do they love money money is zero interest then what do they not them I'm talking about founders because see Raj I'll tell you the founders who are the best are the ones who do it for the right reasons but what would be the right reason the right reason comes much later in life starting in money no I think that I have to do this with a clear purpose.

1:11:21It will work. And then these kind of people make so much money, they don't know what to do with the money. Like it calls from such founders. You see, let's say, I'll just pick companies that are not VC funded, but private equity fund. I'm just coming. Like Rizwan Koita and Jagdish Murjani, City S Tech. Simplest people boss. They sold their company about$2 billion. I can see Jagdish randomly walking past me on the street. I don't know if I live in small apartments. they hate me for saying this but they give crazy amount of money in charity right amazing 10 on 10 entrepreneurs no one thought they can be going in private jets they are remarkably well and the purpose was man I got this hard problem I'm going to solve it I'm going to go do it and they did it and for them that's their life's purpose we love such founders I agree like people who are on some purpose some mission oriented I want to do this yes I want to reach that idea is so compelling that people forget about everything else this pain point is so compelling to me I need to solve it and I am the right person I will do it everything else is irrelevant money is just a byproduct sometimes the pain comes in let's give it to me don't disturb me don't disturb me give it hopefully you give it

1:12:44someone who's come with like a phenomenal startup pitch and then us say why do you want to do this and he's like we'll get a lot of money, I'll get a lot of money, I'll get a lot of money, I'll get a lot of money because as you rightly said founders come and they say whatever they want to we see I think 7 ,500 deals a year A year comes Per year Let me repeat 7 ,500 deals through emails Or connections People calling 7 ,500 Yeah So if you knock that down And say okay 2 ,000-3 ,000 For whatever reason Not a fit But then So in such a large amount of companies Obviously Because there are only so many hours in the day how many do you meet in a year see I end up meeting the least because my younger colleagues and partners are in the meeting and then it comes to me later you personally how many do you meet in a year it still be quite a bit because every week it's quite a few if I do the math I've never done the math but quite because actually real energy is entrepreneur but would you be meeting 100 in a year 60-70 almost one a week boss it should be way above 100 earlier like in my early past my career early doesn't mean 20 years back even till recently way more Saturday, Sunday, Monday, Tuesday way more recently come my partners are so good that they're picking such great entrepreneurs that my job is just to support them so I'm lucky but I'm unlucky not to mean more you get it I'm lucky to have an amazing partnership and great colleagues but I wish I get more time to meet entrepreneurs that's my favorite part which I miss the most in my job true because I have a career because to meet the future Raj so I mean it I didn't do it to still do a work in a finance meeting but it's a business also fair so you mean almost one week no one week it's a lot mathematically you're right like 50-60 52 weeks that's right almost right so then okay let me know like let's say your founders came in they showed grid they showed everything they're amazing how do you decide that it's a good value or like whatever they're asking is good valuation because in the beginning they're just founders and there's nothing yeah very good question our business Raj it's more art than science what do you mean see science you can do a you know discounted cash flow there's some balance sheet there's some logic there's numbers to be discussed yeah like x is equals to y if you can do something that's what our art is because it's like art how do you figure art out so it's more about how the couple of things how the entrepreneur can convince us that this is the value he or she has in mind and how smart he is in negotiating so also sometimes some comp comparisons you have by and large met in the markets in these companies by and large in this category valued around that stage so there are more softer things like that pure negotiation and frankly it comes down to how much we really want to do the deal right if we really want to do it have we overpaid many times the answer is yes because eventually see our goal is simple we are looking at this business becoming a billion 2 billion 10 billion so if it's a little here it's going to be nickel and dime the only thing the reason we don't sometimes do the deal is because we do some math internally how much ownership we should have then what happens is sometimes when the partner comes back and says this deal can be but equity then we have to have a second discussion then should we still do for 6 % of the equity versus let's say 10 or let's say 12 instead of 15 and if the founder really is exceptional then the partner will say I think it's okay let's make an exception let's do it so we can't make the exception all the time because ownership fund is very important because seat check took so much then put it in A then put it in B so we don't do it so as the company keeps progressing we get dilution so suddenly I cannot be in an amazing company and have only half a percent of the company now yeah if it becomes 20 billion then it doesn't matter but our company doesn't make 20 billion So let's say the company is a half a billion outcome, which would be pretty good for a small fund like us.

1:17:05But if we have only, let's say 1%, what's the point? But if 10%, not bad. 20 million. But do you look for this? That when you invest in company, do you keep this check in your mind that this company needs to become a billion dollar? Yeah, yeah. Any company we do, every single investment, we do 30 companies on average per fund. Every time we do the investment, it has to be the next factor, the next port or the next network okay next Nazara so you have this like billion dollar two billion five billion dollar every company this founder and founding team can they build a multi-billion dollar business if we don't do that for every single company we're screwed because the odds are so low to find one right we can't say yeh paach ko thora hall pass mil jaeenga 5x ko kush yeh paach ko 3x and these 10 will make it no no no every entrepreneur who comes has to wow us and excite us you won't fund like a very small D2C company which you know the max it will reach is like 50 crores that's right see that will be great for if you are an angel investor because I have my money I have added 2 rupes 4 rupes I'm happy it's better than let's say I make 3x it's better than the stock market so what's wrong it's my money I'm only looking at the x but we have to look at it as a fund and do the math and say how will the fund return x y z see winners have to return the entire fund bare minimum 50 % of the fund so fund is 100 million so 50 million so you should have only 20 minimum ideally the entire 100 should come from the company if you see our first fund Porter and HealthCard like I said have returned the fund not once but multiple turns yeah fund 2 Zetwork go dekho we entered the company at 4 million valuation and touchwood have been IPO so I can't talk much about it but you know the valuation is in billions of dollars yeah so you can do the math that how many times the fund will be returned just by Zetwork itself that fund was Nazara Nazara Games Nitish my immediate neighbor amazing story we have Square Yards which is another unicorn we have a company called NUA online sanity pads phenomenal business company has SnapMint buy now pay later her BNPL company but SnapMint is rocking latest news 100 million raised General Atlantic it's doing phenomenally well so does that mean that your filter to invest in founders is always from an optimistic lens not from saving your backside.

1:19:32Yes, well said. 100%. See, our business is the max. You can't have an industry which is more optimistic. We have to be. So you don't think that worst case kya hoga? You always think like best case kya hoga? Because worst case you know in your mind you have written off. Because worst case kya hoga then we won't do a single deal only. Because we have to do that and see kya what can go wrong. Right? And then if we feel that, okay, this is not going to work out the way the entrepreneur envisioned it, then obviously we won't do it. Fair. But if our goal is working, if this works, how big can this become?

1:20:08That's very important. If this works, how big can this really become? And you're like, okay, forget about all the things that go wrong. But if all the things go right that this worked out, I'm like, oh my God, this is ginormous. This is going to be the network here. Initially, it was like a head scratch, right? I want to put all this together and factories put together. But because I came from a manufacturing background, it made it a little bit easier, but still it was hard. And then me and my colleagues were talking about it and we said, oh my God, this insight that Amrit and Sinat had was quite compelling.

1:20:38Even for me, coming from, in fact, in its first ICB, he rejected it. Then my partner came back and said, let's re-look at it. Like, why are you saying no? He re-looked at it and said, okay, you know what? Got it. This is, now he got it. and it's a completely new category think about it what I said earlier it is a small time yeah yeah yeah whoo nein karra tha head scratcher tha you know we like head scratching yaar like why is it what's wrong with you factory and your seed fund kase kase kase so that is where the real money is made is when you go to the head scratchers yaar ye toh head scratcher yaar like why are you doing this opportunity true and interesting we call them the edge cases you know like what do you call them The edge case is like, what are the head scratchers?

1:21:24You know? Yeah, that everyone is laughing at this party, that what's wrong? What's he doing? What's he doing? He's making a factory, he's doing it, he's not idea, he's not background, he's not that. You know, people have always reasons. And our job is only to find these hell or high water founders. Are they complimenting each other? They've known each other from before. Are they going after a massive new time, which is all tick, tick, tick, tick. Here's the money. That's also a little pivot, finally, to what it eventually is. But now it's an unbelievable company. But do you think this is a good insight for a lot of founders when they come to pitch VCs?

1:21:58That they should, by the end of their pitch, they should give subtly the answer to how big it can become if it works. Yes, of course. Because then it helps you also envision and dream along with us and then you start thinking in a different way. You have to take me on your dream, right? See, exactly right. Well said. If you can't take me on your dream in one hour, then what's it going to do? I have to suddenly get enthralled amazing like without realizing it like oh my god this is looking so interesting and initially like I said insight should be so like to you that it's like okay okay tell me again maybe a call meeting be required like we need it for Z work but then we get it and then the entrepreneur says you know what now please look at this new TAM that is there all these factories are completely messed up they have no one to help them this is what we can do this is the software this is what we can add okay let's do it but then how do you know a founder is a great charmer storyteller versus a founder who's only a storyteller and bullshitter we do diligence we do because there I know so many people who come to a meeting and they will charm you they just know how to they'll make you dream big and you're like damn man like this is so good I'm stupid to not fund this so sometimes what happens Raj and then he's only a storyteller or she's only a story.

1:23:20So if you don't do proper diligence or lazy diligence then you can get sucked in. In the bullshit. Yeah. And what? And sometimes you drink your own medicine. Mistake sometimes is the founder is so good and so compelling which is a good example of that. Should I give you? Yeah. Let's say we work. Good example. Sab ko cham kalia na. One after the other after the other all the way till our friend. Even today the way he speaks it feels like bhai vok kuch bana da baap wapis. but he was a great storyteller just phenomenal compelling couldn't execute at that level that's right so maybe in a new company years like I said always give a person a second chance a third chance so let's be fair to Adam maybe he's doing well I haven't seen the numbers and you were talking about diligence and you said that we're doing diligence where to identify who's a bullshitter versus who's a great executor how do you do diligence yeah because you know now what is a step work like what is a framework to do a diligence?

1:24:19We will talk to at least 10-20 people per founder to go deep into each individual. And who would you talk to? So we talked to previous jobs, where, where, where, where, we talked to, if it's only from, let's say, a university, we talked to the professor if required, anyone close to the individual who's had some sort of capacity to work with him or her. So we need to do that and we've, over the years, gotten better and better asking the right questions. For example, this question I asked earlier, right? Can you tell me examples of when times came to fail, then we will say, okay, would you fund this person?

1:24:51And how much would you rate this person out of 10? And why would you give this score? Etc, etc. And then why are you not putting money into this guy? Give me examples of work when they worked with you, where you felt, apart from the not giving up point, but where were they collaborative? Are they very political, not political? Can they attract people? Would you like to, let me ask the guy, would you ever work under him? Or her? And you know, like, no, no, I can't work with him because this is how it is. Okay, interesting. Would you be willing to leave your job? No. It doesn't mean that they leave because it's their requirement.

1:25:25They say, you know what, if I had a choice, I would love to work with him. That's just some basic ones I'm saying right now. There are many, many, many more questions we have. But what are you trying to find out in ref checks and these questions? We're trying to find out the personality of the person. Is he really that hello, hi, what an entrepreneur? If you dumb it down. Do you look for integrity as well? No problem. No problem. without integrity no matter how good he or she may be if there's even a iota of doubt on integrity we will drop the deal right there how do you how do you find out about the integrity same thing put in directly what question do you ask to find out whether the founder we ask directly on the face of the of the ref checks are there any integrity issues please tell us and you know they know that god forbid they know they are aware of it and they don't tell us that's a big problem because you know we won't take that person seriously again and so people don't want to spoil credibility but they can give they may not say directly but signal they think

1:26:26and so integrity issues you'll ask you'll ask would you work with him or no what else no we'd work with him give me examples of what where they have succeeded where they didn't give up are they team players or not can they attract great people or not why are these guys the right founders for this market what I said founder market fit you tell us Naraj suppose you had worked with them we are thinking that they're making sense that there's a founder market fit for this individual or individuals for this business what do you think I said not really boss he's just talking a big game what is it this kind of business he's not suited and there's an example in our company where he was supposed to do this kind of work what is it in his own startup you know so you say okay he's saying something it's on paper it sounds good but maybe he or she may not do it when the pedal hits the metal so better back off right now interesting and is there some answer or something that turns you off completely is like no this is an off button reference you know if he or she is very political if they've had like I said you just brought it up so you know even the smallest iota of ethics whether it be maybe giving up too quickly jumping from project to project jumping from job to job these are some of the things that we realized that let's leave it we were talking about diligence and all these things tell me when will you overpay for a startup and when will you underpay for a startup the market has changed Raj today the joke in the US is a billion dollar startup means entry check enterprise value billion sounds laughable but that's the madness after AI it's a bit hot but that's what the trend is right now you know the entrepreneurs are so good they're leaving an open AI or they're leaving Anthropic and they're getting 1-2 billion dollar enterprise value to start the seed round is billion dollars because there'll be a 2 trillion company in less than 4-5 years like Anthropic open AI 8-90 billion 900 billion and people think come on 900 billion Microsoft Meta Google have taken 20 or 30 years.

1:28:42Amazon, you're doing it for 3-4 years. It's unthinkable. So do you think now in states or Silicon Valley, if you're not building a trillion dollar, then VCs are not excited? Like the large ones. You know, the good thing about America is there's thousands of VC funds and private equity funds, VCs. So there's different strokes for different folks. There'll be some people say, boss, I only want to go after those 50 billion. But on the other hand, enough when most think, okay, the billion to 5 billion, 10 billion is still meaningful. As long as the fund size is small, there's a big difference. As the funds get bigger, then you have to go after bigger outcomes.

1:29:17That's the reason that we've kept our fund size small. The key part of our insight that most VC funds don't perform over a certain size. So we came to the conclusion that in India, a venture capital fund early stage, maximum 100 million is enough. After that certain number, the performance starts coming down. So if you see our history, none of our funds like last one was 760 crores a new fund will launch maximum of 800 850 we've always kept this sub 100 million and that's why performance has been top of the market why simple math that small VC funds outperform large VC funds simply because what happens that you have to forex and if you're let's say a 400 million dollar venture capital fund I'm just giving very macro numbers 1.2 billion right right?

1:30:08How many companies can do this portfolio? Let's say you find two, three amazing companies. That itself is very, very good achievement. Then those companies will dilute as you start funding, right? So let's say you have 6 % in one company. It's reached$2 billion. You have 7 % in another company. That is$3 billion. So$500 million is over. But your fund is$400 million. Your two best assets are only barely maybe 1x, 1.5x, or whatever the math works to, right? Eventually. now where is the other one point let's say you want to make let's say it's 400 million so 1.6 billion to do it correct so you have 500 million I showed you but where is the 1.1 billion going to come from your average so those are your best assets yeah then average how can you get that 100 million 200 million that's 700 remember what is another 40 % zero so where will it so 2x but then don't you feel because if fund size is small you don't take very risky bets like the risk capital in US is very large the risk capital in India is very small and you don't end up funding very deep tech random companies where you know that the outcome is the probability is probably zero to thousand zero or thousand our whole business is super risk we're coming only to concept stage yeah maximum entrepreneur so you don't give like very risky you don't take very risky bets that I'll make space and you have to see India has a very different market than the US.

1:31:35So it's changing. Now you see how space companies have taken off, etc. But we do, like what does that work? At the end of the day, it's an extremely risky bet, right? So all the bets we take, when you're coming in at that stage, by nature of the stage itself, the risk is extremely high. It's a super risky business. The mortality is the highest. So we're already taking that risk. We have no problem with that. But I say, what kind of companies in India are not made? deep tech now deep tech deep tech deep tech deep tech deep tech takes longer to factify not enough venture capital who can delay the gestation of getting to revenue because fund size not enough capital not enough understanding lot of entrepreneurs in those days were not classic CEOs they were more nerdy IT tech guys but tech guy cannot run may not in most cases.

1:32:32We're able to build a large operating business. So complementary skills says there's so many different agendas. But now government as you know has become very serious about deep tech. So I feel that there's going to be some very interesting companies coming out. There'll be space though. But would you fund? Of course. We have looked at many companies and we will fund. It's a matter of time. Like defense, drones, all of these. Right now we're doing a lot of ancillary businesses that sell to defense companies or sell to drones or sell to whatever. And those are doing really well for us. but if the right founder comes why not but then because your fund size would be smaller you won't have you won't take very risky bet don't you think sir of course we'll take because in the beginning small check our work is done that 2 million 3 million check that we put is enough to get a company off the ground then like Zetwork is hundreds of millions after that right but like in US it's a very large complicated problem and then someone raises like hundreds of millions of dollars for day one so then that's out of the game for pretty much all the businesses in India who is in India because there's not just K capital but nobody can do it so why that kind of thing is not there access to capital we have to raise larger funds but do you think founders are thinking like that are there enough founders who want to actually build such very complex companies and want to solve very complex problems they don't even come no there is Raj and there are if I think I'll give you examples in India itself and on the other hand many entrepreneurs have then moved to the US and they build global businesses how many Indian diaspora entrepreneurs are sitting in the valley today have built amazing companies because they realize the access to capital for the kind of business they want is better suited in the US and it's better suited to start the company on day one in the US in certain companies so many examples you just gave one right now now too many Indian startup founders are there in fact every CTO it's like before CEO now CTO Indians see because America is a very meritocratic society so if you can make money for someone you will get an opportunity so color brown yellow brown all that is forgotten here Raj Rockstar capitalist society boss make money we are too much see again I don't do stereotype of course in my office it happens we do it but in India we just get too fussed into there's so many stereotypes and this and that and this is the first religion.

1:35:02Why? Better focus on the person. But rank risk capital from 1 to 10 or the ability to take risk of America versus India. America is, there's no country better than America. But 1 to, let's say out of 10, how risky, how, like how risky can they go in terms of putting a bet on new startup versus how risky an Indian VC goes? America would be 9, 9 and a half. India we are still at number four. We are still improving. We are still improving. We are still improving. But if you ask me, is it going towards five or going to three? It's going towards five. What kind of space company has done so well? Pavan, Skyroot.

1:35:43Skyroot. So it's true innovation, right? With small capital relatively, they built something amazing and the game didn't even work. It's still a long way to go. It's very exciting. So you need, see, what you need, Raj, is you need only one entrepreneur to break the block jam to become the trendsetter and all you need is like okay like classic story four minute mile right when Roger Bannister did it after that Raj came and Sasha came everything life is belief if you don't believe nothing can be achieved the minute you believe magic happens sometimes you need a role model you need an example it's easy to say that it's in US but it's in US this was also that was also capital so you tell your mind but suddenly Raj came and did why not now you come from a small town indoor but you're in the middle of Mumbai where you reached so there's so many people that you have inspired without you realizing it but now there's infosys for example it broke the paradigm that you can you have to work your whole life maybe entrepreneur simple middle class people they broke the paradigm and so so many people

1:36:55they're so revered that what made it. But don't you think people with money should push extra rather than waiting for someone to break all the barriers and become an entrepreneur or the star to inspire people because you guys have the capability to attract money you guys can put money on so many people why don't take like really risky bets and be like okay out of this 700 crores or 800 crores 200 crore full bet what's happening that industry is making money not making money so when something is going well nobody wants to change it's going but my life is a saying which has helped me a lot is change is important when times are good so what happens when things are going well what do people do you continue then suddenly something starts going badly so shit he has scared I have a lot of food I put on too much weight or whatever has gone wrong then you try to correct it and hopefully you correct but it's much harder but it's much better I believe when things are going well how can you disrupt how can you change because you might as well correct yourself because it's a matter of time before something goes badly or doesn't go the way you want it so the best of best is change when times are good and I've done that 50 % of my life in 50 % of my decisions and I've seen that wherever I've done that 50 % it has been remarkable very hard to do when I'm doing it I'll change it because the podcast is working so well why should I change why should I change the narrative why should I change the guess but that's life so you feel because everyone is getting into the money people don't change but there will be somebody who comes along and says you know what it's okay if everyone is doing well I'm going to change and I'm going to do this differently and that really becomes remarkable because he or she then pulls ahead we'll come to talk about founders let's say because a company that will break barriers that founder needs to be extremely delusional and have self-belief what point at what point in entrepreneur's life if you have seen and noticed the delusional becomes self-harming rather than actually a good thing yeah you know the delusion is great at the beginning because you you really want to think of this and go out and go do this you have exceptional belief you just talked about it a real belief but when market it's a fine line between being stubborn saying I won't give up hello high water and just fear of failure that you don't want to stop because you feel what will be public so are you doing this for the right reasons right that's why you see a lot of companies many companies rolling along so I say the opportunity costs for the entrepreneur the fact that we funded him or her at least our decision said that he or she is excellent so 10 years the company is now rolling along at some minuscule numbers at least what we believe to be risk to be fair to them may not what time is being leave it move on it's one thing to be determined like Srikant they say I'll never give up and by the time AI came it still took so many years but or Pranay for that matter is co-founder and the rest is history but on the other hand you can be hanging around and waste your life the opportunity cost is too high so I always nudge people leave it go do a job if you have to or leave this and come and have another shot at goal refresh your brain but sometimes people are scared and and then this delusion of grandeur where you are kidding yourself to your original question that's the most dangerous trait you know so we've seen that in founders where sometimes they go into that crazy mode and we're going to exit from exit and we're going to leave here what are the telltale signs that you know that founder has a little delusion it's just the way they behave in the conversation you can make out like tell me tell me a trait of a horrible founder like stupid business plans where we know that chance or blaming everybody else but themselves for the problem right it's easy to blame other people but you have to fix this problem nobody else going to take your problems or blaming the investors blaming everybody but themselves blaming the market blaming competition manufacturing it in their heads and saying that the whole world is against me but I'm the greatest person in the world if it's not the maker the best founders have just take it as reality as to something's gone wrong no problem we'll move forward and fix the problem I'll find a solution and I'll move forward that's what it is from like I give you the example of Porterite so many different ways they've figured it out we were in the market what's going on I'll fix it but do you think the arrogant founders they win unfortunately yes sometimes they win right sometimes you know founders are not the nicest people who's a fantasy the founders are amazing there are many founders but and they continue winning somehow yeah I may not like that individual or individuals I may not like the way they behave but they're doing just fine what was Travis he was an arrogant founder he's done fine maybe some people didn't get along with him in their company which is documented but it didn't matter he was a hell of a high voter founder arrogant as hell not so liked but he was on a mission so

1:42:29Steve Jobs similar most hated Steve Jobs so many stories Elon's hated Elon is hated like anything best of best so you can have a very loved founders like Larry Page and Sagi Brin at Google but on the other hand you got Elon you got a you know you got Steve Jobs the ultimate legend many founders are not liked it's okay as long as you're not bending the rules do you look at when you look at a founder and that founder is like arrogant this is how I'm going to do this is how things are going to work and with his team also he's like my way or highway and this is how we're going to be and at least till the time I take it to like couple of 10 million 100 million dollars till the time my vision is there until I need professional help.

1:43:17I am just gonna be hell bound, arrogant about it and take everybody and they continue winning. Do you back them? Yeah. See, at the end of the day, we are not the ones running the company. We run K capital. I'm talking about just people who end up becoming a little toxic. See, on the other hand, other extreme, some founders get love feedback and want feedback from teams, etc ratings are so high everything is great they're winning best place to work but the operating business is doing badly so what's the point absolutely so which one would I pick then as a capitalist I'll pick the founder but is it is that fair I agree with that you as a capitalist you will pick up that one but I'm telling you net net if you have met 100 founders who are winning have you seen that out of the majority will be that's why they're winning majority but there's quite a few like the outsized returns will be given by let's say mostly mostly out yeah I mean mostly example of gentlemen Uttam and Pranav they are very cute and sweet people they are the sweetest yeah so you know you can't stereotype so are we telling the next generation to become more arrogant and self-absorbed no we're not I mean we're not we're not saying anything we want people to no I'm just asking like when you look at examples this is how it is and even today in the world where people it's hard to win Raj Steve Jobs I'm sure must have been a sweet little cuddly teenager and a nice kid right but as he grew he must have realized how tough it is and how he was treated in his career how he got fired how when the company was doing badly no one looked at him and he must have realized boss fuck this I need to build something unbelievable I need to be all blinkers focused and the rest is history and every all take no prisoners take no prisoners everyone get out of the way right and no nonsense but the people who resonated with him he treated them very well you don't see any stories of him shouting at Johnny Ive or any of the others the Tim Cooks of the world he built an amazing collaborative team and he did succession everything was done phenomenally well how much succession you couldn't have picked a better successor and they go where did Apple come today many times the next person that comes especially for Mercury people like Steve are not that great yeah Because there's no work that's all gone down.

1:45:44But the fact that he could still be this behavior with most people and still have a Tim Cook under him showed that he was the best of the best. True. If you don't get succession right, it's a disaster. Because what's the legacy again? The company has been closed. But today Apple's shining. He's benefiting. To his credit, he picked an amazing successor. I think all these guys at the top, the ones that we know as an inspirational entrepreneur, they've all picked great successes. Not really. Microsoft, look, Steve Barmer picked but Barmer destroyed value. Satya. But Satya came later. Bill. Bill picked Bill picked Steve picked then he retired and he became chairman.

1:46:23Satya was picked by the board. So not all. In fact, logically you think Bill Gates will pick the better successor or Steve Jobs. But Steve did. Bill picked now. It's been a job. At some point you can calibrate. Bill was not a absolutely it was like ruthless. take no prisoners Larry they are all the league Arrogant Rapala Larry Allison yeah this is extreme hard working and ruthless ruthless right I remember there's a story I don't know how true or false that is but it's like there's a story that he goes up to the group of coders and said this is what needs to be done and they said no this can't be done like in next two days he's like all of you are fired the whole floor was fired and he started sitting there right then and started coding and he shipped the product he shipped the product he shipped the product 10 people and he shipped it alone and shipped it in one day possible character that's where he is right so him so Zerk Steve Jobs Larry Allison Bill Gates these people are all the whole school for our answer and what's his personality is lot of arrogance and lot of ruthlessness and competitiveness competitive to another level you have to be boss life business is easy we made this right tell me top 5 most competitive founders in India and I'm talking about not the family legacy chairman people like you can't include Reliance or Tata or whatever in this you can only tell founders the first generation founders who we know now today I would say Sachin Bansal he was very competitive he was ruthless in the right way he was thinking big and he built an incredible company so and he built and nobody can beat him right 17 billion exit going no one's come close agreed and then to leave everything and then start Navi again and rebuild another unicorn best of the best yeah okay no nonsense Sachin then Bhavish I've said it before yeah he's super competitive I love Ritesh said oh yo look at his journey it's so hard just think about it if someone says that I will build the largest one of the largest hotel chains in the world just laughable 19 year old kid and in a capex heavy business and to come in with no founder marketing experience with nothing and with a few crores or rupees few lakhs and then to go through so many ups and downs and today hopefully on the cusp of listing his company for billions of dollars you can't and whenever I met him only a few times in my life but he's a quiet confidence but he's a sweet guy he doesn't come off as arrogant competitive at least no the question is not arrogant competitive the question is he competitive?

1:49:19hell yeah today I find him so sweet and nice I just love talking to him I have never met a more I've never met a sweeter founder in India you never he is super competitive and not for the right reasons you can't build a company of OYO scale without being if you're not competitive and look at the scale it'll be one of India's largest homegrown hotel chains with a global brand and now though a lot of revenue comes from US and abroad incredible you have to grow mouth shut super competitive unbelievable company you have to look at Vidit and look at Misho amazing and in the future young people like our friends here you see the founders of Zetwork this will be a 5-10 billion dollar asset in the next year or two and how can someone who's not networked reach out to people like you they have to boss you have to find a way we want hustle all these people any of these names I mentioned and you mentioned how do you know anyone when you started indoor now you can sit I am calling you that I will help that means you are a highly networked interviewer today right but you started from zero that's why we are looking for the trade but someone starts just starting I had zero connection but you found a way so that's why I am looking for you my goal is if you have to come to me suppose you're not Raj as you are today but you were Raj 10 years back it's not that hard 4 or 5 years back nobody was saying yes but if you can get to me that is half the battle that's the trick that's the key if you have figured out a way to reach me then probably and if you're smart enough to reach to me through a good reference that's key for someone who's phone for me that's why I give you credit sometimes you may not know but you have to be smart enough that you don't have to do a little girl that will influence the person what is something that you like when do you look at company and you're like this is finished see we never give up for us it's finished when the founder gives up big difference we never give up because if the founder can convince us that's all we need Fractal has gone through so many days of no cash this is not in 2001 and 2002 but I'm talking about even 2007-8 tough times Lehman Brothers came up issues but Shrikantar Praniv are never going to give up and I can go through so many examples in our portfolio Porter Porter in Mobi multiple times I can go through every one of my other businesses have gone through this tough time whether it be Healthcard 1MG all of them went through tough times Network went through tough times we have so many interesting companies but why do you but you don't have have a time where you like written off this person because the founder is too late he's not understanding yeah so what we do is we realize some founders don't want to do and scale and I'm not angel investor we're professional venture capitalists so if we don't see the company break out or at least get to a reasonable scale where we can break out so one is a quarter another at least 10-20-50 100 million then we'll pay a little bit and give money back to the back in M &A we'll get the third bucket the company isn't closed it's going to go but it's going nowhere so those companies and we tell the founder that we're writing off we respect your decision to run your life but we are going to tell our investors that whatever residual stake we have is worth zero you don't do it and you will remain my friend whatever work is I'll help you but as far as coming to reviews helping you in any way I'll only help you if you call me but I'm not going to proactively follow up in most cases I do because we want to drive value together but then would you pick up phone or someone you have written off 100 % why isn't it like waste of your time and be like I just invested but I do but what I'll say in some cases I'll call you or Sunday less priority less priority but still enough that I said I'll call you two months and I'll call you and if it's genuinely issue that is urgent I'll take it yes do you hold grudges against someone who's lost your money no no no chance I will not hold grudges I'll just feel that next time I won't fund it especially if they've done it the wrong way I just said we'll fund second and third time pounders and fourth time pounders so no grudge but if they've done it the wrong way spent crazily and not listened even if you're given good feedback but no grudges I can think of one company that we lost millions of dollars even last year two years back millions but the founder was in this crazy growth mode and I was trying to convince him he's out of control I remember I got him and he came 10 minutes later to the meeting so meeting started he was exhausted he said I'm going to meet him he's in the office of WeWork so I said how many people in the company he said I don't know a couple of thousand he said I just come from meeting the landlord and my intent was that the company was losing too much money so my whole strategy was to explain to him why I thought it was too much burn and how we should cut down before I could speak he is telling me that I'm taking the whole we work so he was going to take half we work the entire half he had negotiated deal the entire we work so he was going to reduce the money and he was going to take the money and he was going to die and sure enough he was listening to me but meeting was going through his head you know like leave it we are exploding what are you talking about and then unfortunately the company closed now do I hold a grudge no it was a learning experience for him so obviously that time I'm not going to be happy but will you fund him again yeah seeking a brilliant guy 100 % I'll fund him but you won't hold him that he's got my money no chance experience at least bad credibility bad word in the VC world that he's got everything nothing see in the way you do it and he did it maybe where he was hubris grew too fast but that's life that was an inexperience that's it okay so genuine mistake is fine what is a bad mistake where founder did you dirty if you are using money for your own personal requirements and enjoying yourself with our capital that's a bad example that you are going to be first class or business class or company or company or company like this one day I saw a founder I was sitting in a lobby of four seasons I was not in the funding in four seasons checking in so I said maybe I don't have four seasons nothing wrong with four seasons right one day you buy four seasons boss Bill Gates who owns four seasons Bill Gates was he staying in four seasons no who is that he's been buying a whole chain no one room you deserve it are you creeping that Bill Gates owns four seasons or a large stake his investment company cascades no he just made a hundred billion don't do it but don't do it save the money it's beautiful for this value for money lovely place isn't it if the founder's salary and all of this is a bad sign for you guys yeah you'll be hungry equity now you see what I don't take it as serious rather VCs take it as take a salary that you can just about sustain it should still be pinching you but you're not thinking too much about this it should be nowhere near your market price like nowhere close that's why you're a rock star again I'm making it up everything is relative so keep it tight but basic amenities don't have any tension everyday wife that's not the food stupid that's$20 ,000 or something stupid after that boss calm down you'll be the richest guy among all of us eventually but only the equity in your business so how much salary should a seed founder take series and series very hard to say that because it depends on the age of the founder also some 40 year old founder two kids school costs that salary definitely be more than a 25 year old founder so everything is relative okay tell me a 25 year old under 30 founder we ask seed I'll make two three buckets seed seed is A N okay so B 20 million plus you know okay so seed would be what valuation let's just say anywhere from 5 million to 20 million seed valuation enterprise value okay let's say money raising like money in the bank would be better how much money in seed 1 to 2 million okay so that's B scored 1 to 2 million okay and series A how much would be raising seed would be at least 5 million series A okay then after that 15 million 15M okay then what should and then there are two founders 25 year old founder 45 year old founder so seed in what salary should a 25 year old founder get 30-40 lakhs a year yeah again again I haven't seen the numbers recently I'm just giving common sense it's a good salary for 25 year old 3 lakh rupees a month is a great salary it's a really good salary 25-30 lakhs say maybe maximum 40 lakhs then for the older guy it'll be maybe 50-60 lakhs because of more responsibilities 2x 50-60 lakhs take it then and then as you go higher let's say a increase because a is just 5 million round so I'd say just 10 % more you know maybe best then the bigger jumps comes in that 20 million plus rounds where at least you can get let's say 30-40 lakh up 50 lakhs 50-60 lakhs and let's say the older person goes to maybe 75-80 lakhs after that it gets tapered see SNK continuously up to it then only small inflation but like do they take double salary somewhat double in series B20 million no I'd say eventually 60-70 lakhs in the work as they go to after that let's say closer to IPO then you can even get one two couple of crores even if you don't have more value it's all relative someone listening I'm like what are you talking about you come and survive with me because if you want a founder you basically pay his or her bills like you're struggling so much that you think but not feel comfortable at all because true wealth is coming from ownership, right?

1:59:56See, you can be rich or you can be wealthy. So the goal is, we only want to go after people who want to be wealthy. What's in rich? Wealthy as an entrepreneur. And then, let's say 70 years, okay, this, again. At what point founder should start doing secondary? A little bit. I think sometimes some basic lifestyle should be that someone's 40-45 and doesn't have a house. If they want a house, I'm not saying it's the most important thing. We don't mind if some small pieces of money is taken off to pay off just yesterday we approved a one unicorn founder he said that my one third shares is the best I need money and I need money now it's 45 I think so I didn't blink in a second approved but what series B should they start series B is too early because then they're selling too fast their own company I'd say much later pre IPO type The idea of founder is like for 8, 10, 12 years.

2:01:03We want the founder to be so obsessed about his own company and loving his company and building so much of his or her net worth in the company that that is very exciting for us because in our selfish interests, we align with that. What do you hate? What kind of expense do you hate when a founder does it on a company account? I think any expense is excessive, right? Like, why do you need to go to the best restaurant in the world and eat? Don't do it personally. And company expense. Yeah. You don't have to joke about private set. Go to a yacht. I don't know. I don't care. It's your hard-earned money.

2:01:43Run the balance sheet and run the company like a temple. Like, really focus on every rupee. Because you've got so many shareholders. And eventually you're going to go public. Even more so. Run it responsibly. privately do what you want to do there are so many examples I can give who are doing very different lives and the examples of people very public companies we both know I won't mention them because they are friends of mine who spend insane amounts of money on the public expense private they are doing they have no need they have to do they get away because shareholder rights in India are minimal rubbish but we all but US are more compared to India way more like the founders on company expense spend way more than India even in a seed company their salaries and their money spending habit are insanely but the market company becomes bigger market is so big but let's say both seed both of them have raised couple of million dollars not big the US founder is living a far better life it's a consumption lifestyle most Indians have been far what you say New India but by nature most of us Indians are very still let's say more discreet in most cases yeah now there's a little change but in America you can talk about your net worth also publicly yeah but there's Series B founder you can make out with the Series B founder it's difficult to make out here in college once one professor asked us who has$500 in your pocket so I think one or two people say you're only 18 years old you're among the middle class of America we're young everyone's living in debt it's a debt obsessed country everyone wants to just live beyond their means here's here's my last question to you which is when if i give you let's say 100 crores today what are the and i show you five sectors how much money will you put where okay so i'm gonna do i'll do an exercise can you give me chips so we'll give you chips and you put the poker chips on five sectors which are hot and booming in the VC world right now.

2:03:53Okay, so these are the only options I have. These are the only options you have. So I have to do what now? So you have 100 crores. Let's say you have 100 crores. Each, let's say a chip is 1 crore. Each chip is 1 crore. Whatever color doesn't matter. And you have to build your portfolio 100 crores for maximum returns looking at today's sectors. So let's say I picked 50 % for one sector. You can do whatever. Up to you. these are the 5 sectors where would you put how much money so each chip is how much 1 crore and I can put 5 crores you can put 100 crores 100 crores so each okay got it so you can take like 10 together put it somewhere so 50 % I have to put it here what are you talking about how much is it here 3 4 okay man

2:04:45So you are telling me 4, 5, 6, 7, 8. So you want to put all your money here. 50 % out of the 100. 50 crore you want to put? So full here? Here you can put 100 crore total. Yeah. Put 50 here please. Give me more stacks then. Another colour? No, whatever colour is okay. And the rest is up to you. So this is your saying 50 crore you would put in AI technology. Out of these five categories Okay What else I'm putting in within this And only putting in startups Okay You're not thinking about Yeah yeah So right at the beginning Right at the beginning So if EVs You think the startups Are not gonna be big Yeah Only large companies Are gonna be big So then you want Example like that Give me five crore Yeah five euro Okay 55 crore Then there's 45 Okay

2:05:48How much is it? 20 crores. Why? Because health is a huge opportunity in India. This is 15 crores. Rest. So why did you put, I'll come on this the last. EVs and mobility why did you put the least? Because we are you know seed stage fund and at the end of the day most of these categories require a lot of capital and therefore we feel that most of them don't fit into what we want to do in most cases. Secondly, India is actually at a very interesting phase at 5 % of EVs is when actually EVs take off. So logically, I should be putting more there and maybe next time I come, I'll put more because it'll probably suddenly explode.

2:06:47Like in China, it's become more than 50%. Yeah. So maybe I'll be completely wrong and I'll regret not putting more in EVs. I'm thinking now only 10. But maybe I should put 10. But from where will you take out? How much was it? It was 20. It was 10. You have to do 3. 5 so 5 so 1 more is there so all 5 is so you are making this 10 and renewable energy 5 why renewable energy because again exactly the same reason I believe India is well well tuned for renewable energy because just one kind of energy is not going to make us self-sufficient and therefore you can see a lot of money going into renewable energy in companies in Inox etc have really scaled up in Suzan etc etc but it's not a VC game it's not an early stage VC game and so for more for an opportunity I'd put more money but if I had to put the money because of the constraints of a fund that's what renewable energy is because the small money won't be able to survive here that's what it is I mean in a sense it doesn't move the needle in this process therefore there's certain categories like when people say will you not do this so like for example we won't do alcohol we won't do you know cigarettes we won't do sin industries why?

2:08:10because why not alcohol? because our investors many of them don't like us to do these categories so then they won't give us money and it's okay and we don't want to really you don't want to be in sin capital category rather not right there's enough opportunity in India there's a whole opportunity so why bother betting, betting all of that betting can be allowed but now betting is allowed now it's okay so but then renewable energy you feel like the reason there's a huge need for India see India which is not got a big headroom every category has a massive but this is more like PE and large conglomerate that's right so that we are out of that for now okay then you can pick health tech then second was EVs and mobility EVs and mobility I believe that this will change that number will change dramatically from that even that 10 I put to you know maybe 15 or 20 or 3-4 years because EV scale comes once it reaches 5 % of overall cars and And India is at 4.5 or 4.8.

2:09:08So we're almost on the cusp of explosion. So as long as the government keeps supporting EVs, we will see a big opportunity there. And then across mobility in the entry businesses that come along with EV. But do you think large conglomerates will take over this market? They're always great entrepreneurs. You look at Ather Energy, right? What a great company. There's so many conglomerates, but Ather is doing phenomenally well and they continue to execute. I can give you many more examples within EVs and mobility. just recently we almost funded a company called River they make these amazing bikes great entrepreneur amazing entrepreneur I'm sure he built something phenomenal we will regret missing out I told him that so I feel that's another big opportunity in India and that's why I moved from 5 to 10 do you think a car company can be built in India just by an entrepreneur it's more difficult it's very very hard with very capex heavy but you never know you saw how Elon came along and in China there was an entrepreneur who built it US entrepreneur built it there's a person I know Li Jun and he created a company called Xiaomi which of course everyone knows now because the Xiaomi phones in India but who would have thought he'd create a car and that car is the hottest car company in China today that car is so beautiful I'm waiting for it to be launched in India I'd buy it the first day it looks 10x better than any Tesla maybe 100x but then in India do you think anybody could do it why not like a young startup I'm not Xiaomi was a big company when they entered the car nothing Raj is impossible it's only the belief either you're waiting for an Indian entrepreneur to prove it to you or you've been living in the US or been living in China or living somewhere and seen other people there's always a first person so my business is about that being before the market talks about it then you see fintech and digital payments in the government has done a great job Indian founders have done multiple businesses have scaled in fintech it's very exciting one of our most exciting companies is SnapMint buy now pay later fintech business we should be able to return that whole of K2 multiple times thanks to SnapMint so we're big fans of fintech banks have become legacy right so you can see digital assets really scale and so I'm very bullish and we will continue to invest in fintech companies whether it be payments businesses, you've seen how big they've become.

2:11:36You know, there's several of them are multi-billion dollar businesses. Many of them I met when they were just starting up and see whether it be Razorpay, whether it be, you know, M swipes the world. Everyone has done really well. Okay. So that's why you continue to battle. Don't you think it's been oversaturated? Well, there's always new innovation. Even now we're seeing new companies, new edge. There are enough pain points in the businesses that they're coming out to create and more that we have thesis across multiple years fair and then health tech I think this is completely under underpenetrated India anything in India with health whether it be hospital beds which is infrastructure physical infrastructure to digital health mental health the penetration levels of health in our country are abysmal so the need for more health whether you call it health tech or you just call it health related businesses is immense isn't it one of the hardest sector to crack yeah it's very hard but like I said earlier in the conversation we love hard problems that's why we wake up in the morning to crack hard problems if it's so easy then what's it fun fair and then AI and technology what do I say why like full money you've put here isn't do you think AI is a bubble you know there will be lots of companies that will die Raj because like any hot category will always have entrepreneurs who are opportunistic or have the right reasons but have failed.

2:13:00And there's too much money coming in. But this will be the biggest category of my career. It's almost infinite time. It's giant. It's the largest time I've ever seen in my life. Every company will have to have some version of AI. Whether it be a firm like K Capital, whether it be your firm, any company in the world without an AI strategy and execution of AI will not survive in the years to come. Right now, there's a lot of negativity like, oh, but company is not really using it and so on and so forth i agree but it'll come and when it comes if you're not ready god forbid and so that if you read anything about any company in the world today which company is not an ai company today there is no company left that cannot have an ai strategy yeah so like i said there will be some burnout there is happening burnout there will be deaths that's part of our lives but that category AI and tech combo is very very very exciting it's huge and as VCs we are very excited to be part of that journey.

2:14:05Tell me one specific startup idea or an opportunity which a young person can take it from you and build it today. Well now I'll give you an example of one company we just did recently at the beginning of the year super living right young founding team amazing founders they had founder market fit because it came from Misho so they knew how to sell to that TG and my partner Sunita was leading the deal she loved the founders from day one when she met them and you know the rest is history we funded it they work with small towns think of it like an open AI for small towns you know they consult people I want this issue this L traded issue that entrepreneur that TG is not comfortable using a let's say a fancy AI like ChatGPT or whatever but they're much more comfortable here and those guys understand that TG is paying it's a phenomenally exciting company and it's already exploded Lightspeed has already given us 7 million dollars in the business it's literally exploding and we call it consumer AI that's our thesis we are big fans of consumer AI companies because the larger companies in the US are globally not interested in this market yeah very small for them secondly the entrepreneurs understand this market much better than any of them would understand.

2:15:16There's an edge. Why should K win the deal and why should an entrepreneur win in their respective categories? So consumer AI is something we love. What is a personal problem that you're going through today for which you'll pay someone if they solve that problem for you? I'll answer that. And before that, I'll come back to your original question. In an ideal world, I know it's late, but I believe India ideally needs a large language model of its own. So some founders are willing to think very big and willing to go out and say, okay, you know what? I need 50 billion I need 200 billion I will do it there is money available somewhere in the world I'll go do it and build an Indian you know deep seek or whatever that'll be amazing because India needs sovereign power around this because we're dependent on global companies we're dependent on Chinese companies so I would love to find such an entrepreneur maybe we may not be able to get into the deal because they may require lots of money but I'll be clapping on the sidelines for sure for such an entrepreneur got it and pain point oh there's so many pain points I have, you know.

2:16:16For me, pain point, if someone can, you know, launch software, drinks, I love drinks. So I like, you know, healthy drinks, low-calorie drinks. So I don't see enough options in India. I love to drink all kinds of drinks which are healthy but low-cal. So now I just phoned up Neeraj at Hector Beverages. They've created this very healthy soda. Okay. So I love it. I'm drinking four or five bottles a day now Oh interesting Did you try Zero by Karan Aujla? Karan bhai launched it with Veeba's founder Yes yes I haven't tried but I've heard it's very good things about the company I'll check it out Give me an idea which has not been built And you think it's a problem that somebody should solve The pain point I would talk about is mental health Mental health has got a big stigma in our country Having said that in the last few years Slowly people have started to talk about it But I've known people who've gone through mental health issues in our country.

2:17:16And the level of support and help is nowhere near where it needs to be. Agreed. So that's the one I would look at is mental health and say, for God's sake, we need thousands of more mental health specialists in our country and entrepreneurs can build companies around mental health. I think can be incredibly successful because it's a pain point, not just for you and me, but for millions of people around the country. I absolutely agree. And I'm so close to it because I've seen it in my family. and there's absolute no support you agree it's horrible so you can see what a big opportunity it's a big opportunity plus if someone's actually building a good thing I would fund it regardless of whether it works or no I would put my money behind it because I want it to be that's what I was thinking I got so many but this is the one I would say number one and I would fund it like I'm sure you would too just in a minute just for the bet that it should work it should exist because it will make the world better that's right Thank you so much.

2:18:14My pleasure. Thank you. It was pleasure having you. Thank you so much for doing this. Thank you, boss. What's up, sir? See you once again. Beautiful room, by the way. Thank you. Thank you. We're trying. Something to do, something to do. Boss, it's an understatement. But it's an amazing story. Who should we do this podcast?

2:18:41Nice one day One day you're ready Now we're getting another big Now we're just Exactly The point is Whatever you do It's phenomenal Thank you Great journey Thank you for watching this episode till the end We would love to know what you liked Or disliked about this episode And which guests you would like to see on the show Let us know in the comments your feedback help us improve and make every episode a little better. I'll see you next time. Until then, keep figuring out.