Episode Number 242 / January 21, 2024

Before Applying For A Venture Capital Job, Watch This Podcast! I Blume Ventures Partner

1 Hour 38 minutes

Episode Number 242 / January 21, 2024

Before Applying For A Venture Capital Job, Watch This Podcast! I Blume Ventures Partner

1 Hour 38 minutes
Listen on

About the Episode

This week’s episode requires that you watch this podcast before you apply for a Venture Capital job, as we welcome Ashish Fafadia, Partner at Blume Ventures, to the Neon Show!

The History of Venture Capital in India!

Is Obsession Required To Be A Successful Founder?

What Is The Right Skill Set Required To Be In The VC Ecosystem?

All these INFORMATIVE topics and more in this MASTERCLASS conversation about the inception of venture capital in India, what the DNA of a successful fund is & how to succeed in the VC ecosystem… Tune in NOW!

Watch all other episodes on The Neon Podcast – Neon

Or view it on our YouTube Channel at The Neon Show – YouTube

Ashish Fafadia 00:00

Our’s is a job to make exceptions, you first make the rules and then you make exceptions.


Siddhartha Ahluwalia 00:05

You have 4 Unicorns today in your portfolio, which one are they?


Ashish Fafadia 00:07

Unacademy, Spinny, Purplle and Slice, when you look at these companies at the early stage you consciously need to make sure that you’re not scared by your failures. There is always going to be, you asked for one. I promise you will discover four reasons why you should not invest in a company and you will get those four in the first 20 minutes. Instant gratification and sense of entitlement both you have to do away with if you have to succeed in the ecosystem.


Siddhartha Ahluwalia 00:33

What is the sense of entitlement?


Ashish Fafadia 00:34

I am IIT, plus IIM, five years worked in two of the unicorns. Third unicorn is willing to give me a job so you have to give me a crore. Instant gratification is I don’t care about Carrie I don’t care about ESOPs and I want everything in the salary today that has to go. A sense of entitlement is that, It has been built but it won’t go, Then why not?(Speaks in Hindi).

Siddhartha Ahluwalia 00:53

Ashish, welcome to the podcast.


Siddhartha Ahluwalia 00:53

Hi, this is Siddhartha Ahluwalia and welcome to The Neon show. This episode’s guest is a chartered accountant who previously worked at SBI. He is currently a partner at a VC firm that raise more than $250 million in his fourth fund. Some of the VCs most popular investments include Unacademy, Dunzo, and Stage. It’s my pleasure to welcome Blume Ventures, Ashish Fafadia onThe Neon Show. I would also like to thank our sponsors, Prime Venture Partners for sponsoring The Neon Show. Hope you enjoy it.


Ashish Fafadia 01:24

Thank you!


Siddhartha Ahluwalia 01:35

So excited to have you.


Ashish Fafadia 01:36

Pleasure being here.


Siddhartha Ahluwalia 01:37

And it’s great that you know, I first pitched to Blume in 2014 for my own company. I had the IC in your Mumbai office in the ICS Investment Committee. And I met the entire Blume team, I met you, Karthik Reddy, Sanjay Nath and Arpit Agarwal right. And by 2023 now, like almost nine years Blume is a limited partner in the Neon Fund. So excited to come to a full circle with Blume and have that great relationship with Blume.

Siddhartha Ahluwalia 02:03

So for our audience today, right. I want to start with the history of venture capital in India, how venture capital entered India. Right? So do you remember the early days of venture when ICICI Venture Funds Management Company Limited was just formed in 1999? WestBridge Capital was formed in — 2001. And then slowly and steadily the Global Fund houses started opening up shops, or their partners keep on travelling to India and would like to do it in your memory.


Ashish Fafadia 02:30

Yeah. So I think if you look at ventures in India, we have to also have a small preface to the tech-ecosystem and tech-ecosystem, the way we see it is not what existed or that’s not how it started. Globally, there are three large ecosystems. One is the US. Yeah. Second is China. Of course, we are now number three. Yeah. But there’s a fairly active ecosystem with Israel. The deep tech and related side, when back, it all started with the services boom. And the offshoring that came along with the services. India had a pretty good advantage with ‘English’ as a language emerging mid market population. And it was natural for a fair bit of effort done in the 70s and 80s. By the software Manufacturers Association, Hardware manufacturers eventually NASSCOM was formed. So those 20 years-25 years of effort did create a fair bit of software boom in the country. And that was largely around offshoring of services. There was largely around software services being done. And in the process, you had the giants that TCS, Infosys, Wipro and the likes created, which meant that you started to have a very high quality engineering talent. You started to have hubs and centres developing around a certain diaspora, which is apt at coding, there was an infrastructure created to create more and more engineers, which is why hubs like Bangalore, they’ve started to see that, we cannot take care of our needs from Bangalore alone. So people started looking a little other direction: Mysore, came Hyderabad. So the hubs in India started developing. And you saw pockets, where a fair bit of tech talent, engineering education, and all of that bolstered. So it wasn’t that all of this happened during the 90s and continued to the next 20 years. And in that batch, in that vein, what was badly happening is also the entire Y2K bug and the hype. And we saw ICSA ventures, coming and starting up.


Siddhartha Ahluwalia 04:59

What was the Y2K Bug?


Ashish Fafadia 05:01

So this was around the year 2000. Yeah, you are used to seeing DD/MM/YY as a format. So you say that okay, if it is 15th, August 1999, it is 15-08-99. And now the date change will happen on 31st December 1999, from (31-12- 1999), Year going to change to (01-01-00). And that is not something that the software would probably recognise as fear. And so it was Year Y, 2, K. That’s how that was a whole bug. There was a fair bit of attention around that. And there was a fair bit of hype around it, is what I will say in hindsight, back then it was a fear of the unknown. So a bunch of things started to happen where the Indian market started to receive a fair bit of attention as well. Apart from the ability of Indian talent to take care of global needs by way of offshoring, outsourcing, body shopping, software coding and all that, people started to feel that this is the time and age where Indian markets also are going to be big enough. And people would start having a plan to allocate capital into India. It is with that you saw the first batch of actual pure play VCs looking at it. We had some form of funds, allocating capital to India, but they will all domestic centric, looking at more private equity format, kind of investments, project based investments, SPV/SPE (Special-purpose entity) and all that, a lot of it will be government originated nothing on the VCs, per se. And I don’t want to dwell too much on the history. But since you asked maybe a minute more. It was on the back of this, that you saw some fund managers coming into India, in Bombay, they would stay in one of the Nariman Point, 5-Star. We didn’t have BKC(Bandra Kurla Complex) as an area developed back then, or they would look at Bangalore, and they would stay in a hotel, meet people, invite them over, make decisions, allocate small checks and go away. WestBridge was around the same time, there was ICICI ventures which came about and the sizes were tiny. Do remember back through that decade, also there were two digit IPOs hitting the markets, where people would IPO at 65 crores, 85 crores and 100 crores and it would still be big enough. That is how small and nascent the Indian Capital Markets were, leave alone the venture market, right. So that’s the journey that we have covered in the last 18-17 years. And in that same phase, there was a brief lull, because two-three things happened. India went through a bunch of nuclear tests, there were global sanctions against India, the Y2K hype was over. So the over allocation to tech software, and all that kind of started to fall flat. Because of the sanctions, there were limited investments happening into India and the market development was not going to happen. So it became like a vicious cycle, which was going to take a fair bit of time for us to come out. And post that when things start to look up. And again India went back by then you had the few other companies seeded what we see as companies like Naukri and Info Edge, and all that was seeded by then. And they were already doing their own bits to figure out, internet had taken centre stage over the next five years from 2002-03 to 2007-08. What also started to happen is a few other funds had kind of emerged. A few other foreigners kind of set up a shop, but you could all of this you could still count on fingers of maybe now not one hand but fingers of two hands. So what was looking at three, four, looks like certainly maybe 7,8,9,10, nothing more than that. And there was some bit of Angel activity also happening so people would congregate in a lounge in Bombay Yeah, 20-40 people and say that okay, let’s see some companies. So on a Saturday afternoon, I remember going to a party where there was this karma lounge. And we had four startups pitching back to back. Karthik and I, both were together at that time. Karthik was asked to represent the Times Group because both of us were working.


Ashish Fafadia 09:39

This is 2007-2008 Just before the global financial crisis. What enough people jargonized as GFC and all that. So, you would look at companies, Apps was not yet a word. back then. Mobile was not key and left, right and centre of development and ecosystems for selling marketing consumption back then. It was still around internet, it was still around computers and development and commerce centric opportunities. And people would try and look at those angel investors. Similar efforts sprung up in Bangalore, Delhi, later on Chennai as well. But this was sporadic activity. There were a few funds operating in isolation, some bit of activity happening, the likes of Flipkart had been seeded, you had the likes of Info Edge would have a little more clear fleshed out journey, Justdial had morphed into already on the path to what it is morphed into today. So those kinds of germination seedling kind of efforts have already begun. Fast forward 2010 -11 When we were still not having original grounds up India centric funds, we did have a little more effort from the 8,10 that I mentioned, fingers of 2 hand analogy. We had a few more were from abroad, or US or China, they would have some single GP, a single LP. LP means a limited partner, the borrowed construct from US, which I mentioned, they would have a single LP fund and say, Okay, I’m carving out $25 million or $50 million, have somebody manage it into India. They were those kinds of efforts, which were already taking shape, but no grounds up India centric VC capitalised from India. Yeah, you’re still banking on foreign capital? Because India didn’t understand that risk. Even if India understood that risk, I don’t think we were ready to look at something which is so binary even until four or five six years ago. I don’t, I don’t think, I would even caveat by saying take it with a pinch of salt, yeah, no exaggeration, people would say that it’s a(Inaudible) when they talk about early stage VC. So, people were not ready for that kind of a binary outcome where things you are going for all or none kind of risk. But at that point in time, there was a thought process when there was an activity which we could see with the angels etc. That after the angels, you literally had those half a dozen funds to go to so there was a value of debt, which means you could raise money from (fff) friends, family and fools and you would raise how much? Some people would put in 2 lakhs, 5 lakhs, 10 lakhs. I remember back in the mid 90s, when I would look at some balance sheets, because I was part of an advisor from trying to do my formative years of training and internship. The job was to audit, right. They would be in those pharmaceutical companies, in hospitality and distribution companies, you would see people who are given 10, 25, 30 lakhs. But for these kinds of tech businesses, when an entrepreneur is pitching, he is coming with no background. The examples I’m talking about are whether the entries of money 25 lakh on the cap table, cap table means the capital structure of the company, you still found entrepreneurs who were in their 40s and 50s. Some track record He is going to inner circle, He is going to a little bit of an external circle and trying to raise some money. But here you’re talking about entrepreneurs in their late 20s, early 30s, mid 30s moving out of a job, no business experience at all. And he’s going and asking money from people who are not known at all right.


Siddhartha Ahluwalia 09:39

This 2006 – 2007?


Siddhartha Ahluwalia 10:03

Completely strangers.


Ashish Fafadia 13:55

Absolute strangers. So, people who were used to seeing friends and family raise 25-50 lakhs and build 10,20 itemised cap tables and then kick start a pharma business like I said, because that was the nature that you are trying to create a business for exports, you are trying to create a business for serving the Indian consumer. So, the Indian market was always the way Blum has looked into the Indian market. These two parts are Indian talent building for India, which is building for the Indian consumer or Indian talent servicing the globe. That is, and it has translated on the tech side to Indian engineering serving the globe, which is b2b and Indian platforms servicing the Indian consumer, which is the b2c Right? This was not something which was, people were used to where a complete stranger will come and say I want money. So, these people would have an incredibly arduous journey or a tough journey to raise money. So if you will put in, guess how much Siddhartha, I have seen cap tables where people have tributed—


Siddhartha Ahluwalia 15:00



Ashish Fafadia 15:01

Those were exceptions, but single digit lakhs was very common. 2, 5, 7, I have seen umpteen number of entries. And there were equal numbers of 10 and 20 also, but what was the minimum for a conventional business entrepreneur, second generation guy to win over from friends and family? For a fresh guy, first time pitching business to a complete stranger without a track record, no business, no p&l No cash flows, that same 25 Minimum came down to more like five or 10. Yeah, right. So this is 2010-11. This costs the value of debt, that you will have 10-20 people who have given you 2, 5, 10 lakhs. So you’ve raised 50 lakhs to a crore after that you don’t know what to do. Yeah. So it was with that vision bloom was created, that you were going to come in at that value of debt, be the first institutional investor on the cap table of the company. And the fund kicked off with a vision of raising $20 million. Now, remember, we have reached 2010-11 in the journey of Indian VC. The Bloom journey has an interesting semblance with the Indian VC, we can continue talking about that for a few more minutes if that’s interesting.


Siddhartha Ahluwalia 16:15

Yeah, Absolutely.


Ashish Fafadia 16:16

So, it wasn’t that the vintage exchange rate was what $1 was in the 40s. So, it’s apt for me to say that $20 million fund Yeah, 100 crore rupees, but it would still have been a little less than 100, if you got the full 20 Because you were not 50 rupees to $1. And today, when we talk about the dollar rate, we are at 83. Right. So it’s almost doubled. That means if we thankfully we were not having dollar capital, but if we had dollar capital, our returns would have halved. So that’s the impact of what you have to deliver as a VC. That’s why the VC expects what he or she expects from the founder. We can talk about that, anchoring a little later. Because that is an implication of when you take money from a VC, when you pitch VC to a founder, why certain terms came, there have been scientific reasons why some of these have been there. So coming back to history, in 2011 We pitched, people said, we can’t give money to a first time fund because, Who do you go to? You go to an institution, you go to a—


Siddhartha Ahluwalia 17:22

Which kind of institutions, you first go to?


Ashish Fafadia 17:24

US, because that’s a market that understands the risk, China was still a new and unknown uncharted territory for India. Barring a brief decade plus, China had a very healthy influx of Chinese capital, Chinese companies. Other than that, it has been an uncharted territory, or unmarked territory, nobody would even say that I’ll go and raise money from China.


Siddhartha Ahluwalia 17:50

If you can remember, in 2011-12, the limited partners which every Indian fund aspired to in the US, who were the?


Ashish Fafadia 17:57

The usual, so the institutions that the likes of Horsley Bridge Partners, and the Pearse Partners, or Endowment Partners LLC, were the typical bodies that people would want to raise—


Siddhartha Ahluwalia 18:09

What is Endowment for our audience?


Ashish Fafadia 18:12

You have a university, Stanford, you have Oxford, or Cambridge, they will have their boards and they’ll have the ports of capital where people come back and given them contributed by their alum contributed or they have created their own surplus by launching certain programmes which are customised. So, the pool that has been created by the contribution of these two, three sources put together is what forms the endowment pool, then they start allocating those for causes, which are in the charter in the document, and then those pools start multiplying over a period of 50-100 years, these are pools that have existed for 50 plus years, some of them have been even for 100 plus years. And these are the pots with which people typically Aspire because these have an infinite duration. These are the of course they will come in and force a 10 year life which is a typical VC life, but patient capital, long term capital, once these institutions come in, unless the manager really has messed up these people that are going to support you again Yeah, and come back and say that okay, now you’re raising a bigger fund I’ll give you more money, but size creates a big issue as well. So just imagine that you are today deploying out of a 100 Crore fund you will be happily cutting 3,4,5 Crore cheques or maybe even 1 to 2 crore cheques. Instead of a 100 Crore fund you have a 100 million dollar fund, are you still going to cut one, two and three crore cheques you will not. You will push the bar a little higher and, you will still do early stage, you will still do seed but you will go for a different set of opportunities. There’ll be a lot of those tweaks that you will do so that you are tweaking and delivering a $200 million pot and these are the pools which are 1, 2, 5, 10 $20 billion, right? Some of them are larger than that as well. So naturally, when you say that I’m a $20 million fund, they will say my minimum check size that I want to invest into you, is more than 2x, then your fund size. So your fund size is 20. Yeah, I cannot deploy 50 million, 50 is something which I want to deploy. So three things, one, your font size is too small, two, even if I can do, let’s say you will, I want 50. Okay, no problem, but you want to know about VC?


Siddhartha Ahluwalia 20:36

Managing 50?


Ashish Fafadia 20:37

You have not managed other people’s money ever. OPM and OPM, it’s very similar, right? OPM other people’s money. So, very similar in that sense. So, even if we could, we cannot deploy more than 20-30% in a single fund. So, if a $20 million fund the max I can do is for $5 million, or 25%. So, sorry, not the not the right thing for us. And then you go to the large format, family offices, and there are a huge number, if Today India boasts of a few 10s of those in a structured format, Azim Premji Foundation downwards or Premji, invest downwards. In the US, you have The Rockefeller Foundation, downwards. And hundreds of those, right. larger ones have a similar predicament. And they will also all of these institutions have been so scientific in that approach, because they’ve been investing for the last 30-40 years or let’s say 20-30 years for sure. They have seen the US ecosystem setup, go through a big phase, and then crash in the US ecosystem as well. In the 90s, and the post Y2K scene, they have seen the China ecosystem, and how that kind of reached a big inflection point and started to emerge. They have seen corrections in that market as well. So they are very well aware, it’s like a reinsurer, you and I feel that my life is 100 years guaranteed, but the insurer knows that the average lifespan is 72 years for a male 67. For a female, whatever the numbers have changed now. Reinsurer knows even more than the insurer. And a global reinsurer knows even much more than a local Asian reinsurer because of their exposure. This is data of 15-20 years ago. Now, of course, Asia is getting at par with its fair share of economic contribution, still lagging, but catching up. So as you go higher, you are seeing much more data, you’re seeing much more patterns, and they start evening out, rather than when you see from a distance as just one off cycle. So these people are not going to play a first time fund manager, they’ll say you please learn and come I’ll do it a second time. Okay. So then you come back and say, Okay, I’ll go to individuals, individuals don’t know you, they have no way to diligence you, it’s not worth for them to allocate 5, 10 crores and say will diligence and all that they don’t have the wherewithal, interest and time and patience to do all of that there is a validation that an individual will like to have. So then you’re back at your home base. Enough people gave good advice pragmatically, that you should go back to your home base. And just to give a context to everybody that this is 2011 that we’re talking about 10, 11 We got a licence in 11, 10 is when Sanjay, Karthik shook hands and it kicked off. And at that point in time, enough people gave good feedback saying they were raised from your homebase. Yeah, we would like to see you but with some track record, track record is good enough that you have created the first batch of portfolio Yeah, you can showcase to us as to how those companies are doing. All of that is fine. But at the end of the day, it is important for us to see your ability to create a portfolio and the cadence that you build to nurture a portfolio investment approach to support the portfolio’s ability to make an exit decision. So by the time you reach three, four years, you will reach that juncture. So come back at that point.

Siddhartha Ahluwalia 24:19

And they are in no hurry to deploy capital.


Ashish Fafadia 24:20

Absolutely. So anybody who’s sitting on capital knows very well that the best investors don’t have FOMO. It’s a different thing than in 21. VCs got a FOMO. That’s what happens at the end of the breed.


Siddhartha Ahluwalia 24:33

I’d like to take one example. Just forgetting the name. He’s early Google employee, he raised the first front of 8 Million in 2008, that he invested in Twitter, Uber, and all these—


Ashish Fafadia 24:48

I know what you’re talking about and I know who you’re talking about. I am not able to catch the name, but I know what you’re talking about and who you’re talking about. There are those kinds of exceptions and… If you look at our own case studies they are now a decent system, where we have a few interesting case studies. So they talking about Erasmic Ventures, which now is known as Accel, that’s the Accel India team. Their Flipkart story is something which is remarkably similar that, in terms of the returns that they generated for them. So there is a fairly healthy track record of having cracked two, three good companies in the same cycle. And the fund has astronomical returns and scale.


Siddhartha Ahluwalia 25:35

The fund produces that fund. I’m talking about the 8 million fund returned back 600 million to the LPs.


Ashish Fafadia 25:41

That’s a clear aberration and something which is going to be hard to repeat. But there have been enough cases where people have returned 8,10, 12x on funds.


Siddhartha Ahluwalia 25:52

You’re saying the domestic Indian funds have returned.


Ashish Fafadia 25:54

Yeah. So today even we, that happens in the back of two or three companies returning multiple of the fund, right. Even today, when we look at our fund one, we have one company that is one time the whole fund, okay. It’s a dragging outcome. Okay,


Siddhartha Ahluwalia 26:18

Which one would that be?


Ashish Fafadia 26:20

Give me a week, and I’ll tell you about it, we are on the verge of announcing it.


Siddhartha Ahluwalia 26:24

So this podcast would actually come out after four weeks.


Ashish Fafadia 26:27

So after four weeks. Okay, so this is Carbon Clean. And it has done incredibly well. And we are anticipating one more to go down a similar path. If we were not constrained by the time limits, and we had a little more time we would have had Purplle also deliver the same outcome for us. Similarly, Turtlemint. So imagine I’m talking about Blume. Which is a 12 year journey, where I’ve quoted, for example, where a full fund return can be generated. Yeah, you can turn around and say, Yeah, but it is 13 years. It’s true. Yeah. But in 13 years, there are four companies in that fund, which each have generated a full time fund. It’s a different ballgame that we have already exited Purplle out of that fund. Yeah, because of the time constraints that I explained. Similarly, Turtlemint, which has been exited, and the (Inaudible) are real. Yeah. So even if we had taken 12 years or 13 years, we still have 4x of the fund from four companies. And then there are another dozen companies, which are anywhere between point two to point 3x. Right. So now we multiply JollyWell, it is an 8, 10 bagger. So it is possible, it is not impossible. It needs a few things to happen, right? And a certain cadence to build out, it’s possible. The best breed is that, what we’re trying to do with a secondary fund is exactly to prove that said that. So in fund one, we basically were having visibility and conviction that there are at least half a dozen companies in the portfolio that potentially can deliver that kind of an outcome. Yeah, it was with that spirit, that we went and raised a continuity fund so that we could buy out those companies and not get… like Purplle and Turtlemint, So that we don’t have to get constrained by the fund duration, we can transfer and hold them into a new vehicle. And those investors choose to come back and continue to enjoy the upside. I am promising to you that the names that I said will deliver holistically on that aggregate fund size, the full outcome as well. So when you take a 15 year horizon, look at the compounding effects, and the multiplier effects that take shape. So it is in your I’m quoting these examples live. Yeah, I quoted one more example, which is another Indian story. ‘Globally, the ecosystem is a lot more mature. So there is more money’.

Siddhartha Ahluwalia 29:03

So let’s talk about that kind of investor, the fund have, when you mentioned about endowment, but endowment cheque’s are pretty large as a 50 million cheque size for an endowment and they will potentially like a 500 million fund, they put 10%—


Ashish Fafadia 29:17

If not 500, 300 for sure.


Siddhartha Ahluwalia 29:19

To put on 18% of that fund 16 or 18, but who are the next set of LPs below endowments in the food chain, because venture capital is a food chain.


Ashish Fafadia 29:27

It is so that at the top of the food chain sits mega large family offices, endowments together, then there are the next layer of family offices and fund of funds.


Siddhartha Ahluwalia 29:28

And so typically who are they?


Ashish Fafadia 29:40

The example that I gave earlier Horsley Bridge, and many others. These would raise money from family offices which are larger, these would raise money from these endowments, and they would deploy on their own Yeah. And then you would have another layer of the Western markets, particularly the US are so large, that you will have family offices in all shapes and sizes—


Siddhartha Ahluwalia 30:11

And what are the cheque sizes like 50 million cheque sizes, for a typically 300 million font size and—


Ashish Fafadia 30:16

The largest ones want to have now reached a point where some of the sovereigns, that’s also big—


Siddhartha Ahluwalia 30:22

What’s a sovereign?


Ashish Fafadia 30:23

Sovereign is a country’s Fund, which they have set up to diversify their exposure. So oil rich countries or for that matter, cash rich country—


Siddhartha Ahluwalia 30:34

India has a sovereign fund?


Ashish Fafadia 30:36

SIDBI is as close as income to so that’s effectively our sovereign wealth fund. But the sovereign wealth funds as a purist construct gets created so that you can allocate a country’s reserves into a separate bucket, call it a fund called an SPV/SPE. And you can use that to invest into other global assets, and therefore diversify. So let’s say God willing, India will be cash surplus in the next decades to come, you will see that I’ll divide my bucket into two three parts, where I will have a part of it into other countries infrastructure development, another part into other companies financial investments, third part into developing trade routes between your country and that country of various kinds, not just physical routes, but IP rights and permits and incubating businesses into those countries jayvees between two governments, so it can be at a strategic level, it can be financial level, it can be a goal based thing depend to suit the strategic needs, between that country and many other countries that it wants to. So that’s the sovereign wealth fund. So there are sovereign wealth pockets, there are DFI’s, which is Development Financial Institutions, the goal of these DFI’s is to take their state capital, again, it has to be a surplus state largely and park that money and into other countries investments so that they can create a slightly more inclusive worldview. So they are trying to do it for a certain purpose and cause and there are various agendas. So for example, there was a development agenda where the UK took this approach that every country that had once upon a time where we were ruling, we would go and deploy capital, which at that time was known as CDC Capital Partners, now it is known as BII. So there are various goals with which some of these DFI’s would come. But inclusion and a broad base world order is what you’re trying to foster. So there are these kinds of bodies as well. endowment, sovereign wealth funds, DFI’s all come around the same. So it’s a food chain. And below that comes the fund of funds. And then you have funds.

Siddhartha Ahluwalia 32:57

Tell us like you told about the first fund journey, in the second font of Blume, how large was it in which year you started raising?


Ashish Fafadia 33:03

Which year did you start raising the second fund?


Ashish Fafadia 33:03

Fund one was 100 crore. Yeah, it took us 24 months, two days, 2011 and 12. It was only at the fag end of 12 is when we finished the fundraiser. We ended with just short of 100 crores due to something because one investor simply said that, okay, I’m committing a little less. So we signed off and moved on. And no defaults. Second fund came in December 2015, 16 million dollars launched. First close. We’re done. We did the first close with—


Ashish Fafadia 33:46

Went to the market in H1 that year 2015. We went. So it took us about a good eight months to get to that—


Siddhartha Ahluwalia 33:58

This was much faster and much larger.


Ashish Fafadia 34:01

You had the track record, coming out. I will still not say it was a full track record. Our fund manager’s journey is 3x more complicated and harder than the company’s journey. Less binary than our founder’s journey. So one has to balance it out. In a company like you have seed round series A and Series B. Our first one was our seed round. Taking an analogy that Karthik used once in a similar podcast, our fund 2 was effectively our series A, where you could go around to institutions and say look what I’ve done with my capital so far, and it looks like the dots are joining up. And the institution comes in says yes, I’m willing to anchor you—


Siddhartha Ahluwalia 34:52

With funds too. Did you still qualify for institutions this time after four years?or You didn’t qualify?


Ashish Fafadia 34:58

No, we did. So fund too. was primarily institutional. So $60 million pot Yeah $40 million came from global investors.


Siddhartha Ahluwalia 35:08

And 40 minutes pure fund of funds or endowment?


Ashish Fafadia 35:11

Combination of no endowments. 40 million came from agri institutionalised family offices are people advised by individual professionals. Then corporate VCs were looking at an exposure and diversifying their interest into India. Then, we had a small capital from a fund of funds, a small experimental check. And then we had a little bit from institutionalised family offices.


Siddhartha Ahluwalia 35:47

What’s the difference between an institutionalised family office and a family office?


Ashish Fafadia 35:51

The family owner is taking calls largely that’s a family office, the family is an IC. Here you have a bunch of professionals running it, okay, they will get a charter or a mandate from the family this is how we want to deploy capital and they are in sync with the professionals who are running it could be employees with a share in the carry exactly like how a fund manager is doing. So in that kind of a setup, you will still have a family member on the IC they could veto things. But largely best of such family offices would come in to veto only in the event that there is something which is sensitive to the mandate or something which is against the principles, otherwise it will be a bunch of professionals making these decisions, along with the supervision and intervention by the family.


Siddhartha Ahluwalia 36:44

So you mentioned four kinds of LPs in fund 2 the first is can you repeat that?


Ashish Fafadia 36:49

There were family offices. Which I’m breaking that itself into two family offices and institutionalised family offices. Corporate VCs, yeah. And then you had HNIs(High-Net-Worth Individuals). And the fourth one is our own homegrown institution, which is SIDBI. Which is an allocator. Yeah, we also had a fund of funds. So these are the four


Siddhartha Ahluwalia 37:13

And you said 14 million of it came out of India.


Ashish Fafadia 37:15

That’s right. 2/3 came outside of India. 1/3 came from India. And that is one way to divide this. The other side of the two by two is how much was institutional? And how much was retail? So for us out of the $60 million, almost 85-90% was institutional. And the rest of the law was a longtail retail commitment. So we went from heavy retail capital to heavy institutional capital.

Siddhartha Ahluwalia 37:46

How did this DNA change because it is very interesting for fund managers on their fund to fund three right now to learn—


Ashish Fafadia 37:52

The ambition, from day one was to be institutionally dominated.


Siddhartha Ahluwalia 37:58

So you were meeting these institutions, right from 2011, you kept on meeting them, again and again.


Ashish Fafadia 38:02

The first of the institutions are met in that phase of 10,11, 12. And we did keep them at a fair bit of pace with what’s happening in the markets. There was a cadence of trips, it typically takes it at the fastest, I think we have converted an institution… There are exceptions, but the typical is three to four years.


Siddhartha Ahluwalia 38:26

The fastest you have converted into an institution is three to four years?


Ashish Fafadia 38:30

An exception would be there, where we have converted an institutionalised family office, I’m calling them as an institution just to simplify, then it’s four varieties that you asked me earlier. The fastest we have done technically is still four months. But that is an exception. Okay, because most have most others. The median has been four years. And there have been a couple where it has been seven years, there have been a couple where it has been more than 10 years. So, we first met these people during our fund one, post fundraise update. And could convert them only into fund 4. So, one should remember three, four things. Just as throwing a quick summary. Number one, you are likely to have somebody come in when you meet in a fund. It is a probability that they will come in the next one when you meet them in fund one will come in two, or three or four. And there are many who we have not got in fund five, find four also and might not come in fund five also. Second is, in that intervening period, the minimum number of engagements that will be required will be at least six to 10. Okay, so if somebody has taken 10 years, you can imagine that there would have been 10 meetings, and nothing less than that. But the minimum is half a dozen plus Yeah. There was some LP who gave this insight that there’s almost like a rule of seven hours. So unless the GPs have engaged with an LP for seven hours, yeah, that’s hard to convert, because you need that kind of time and depth to understand the whole thing very well. Yeah. And it’s not that you do a morning evening seminar thing, that seven hours has to come spaced over at least a three four year cycle, yeah, sometimes 14 hours over a six to eight year cycle, depending on how things have shaped up. And the last thing I would say is that the institutions who always come with a dual yardstick, the minimum threshold, they need to cut as a check. And the maximum threshold that they will not cut as a percentage of the fund size. So some institution which has a minimum threshold of $25 million dollars, and they won’t do more than 20% the fund, by default, it means 120 $5 million fund size. So it is important for the fund manager to know that I cannot get money from this during my fund. If I’m raising less than that. However, we learned the hard way. That’s once in a while everybody does have a programme, like funds will have a programme like we have a programme of BFF. People do out there equivalent of a BFF and may allocate to a fund


Siddhartha Ahluwalia 41:27

For our listeners, what is the BFF?


Ashish Fafadia 41:29

BFF is Blume Founders Fund, which is our way of making sure that we’re able to keep our relationships and nurture them through in case we are not able to do a core million to $3 million usual check that we like to do, it’s a much smaller check. It’s a check just for the sake of preserving our relationship. It’s a check, which we will never be able to follow on and I go deeper. And some aspects of work that we do as a part of the platform, we may not be able to do the same. But the idea is to signal to the founder that we care enough that there is some amount of capital, which is still on the table for us to have a relationship. We will still be meeting at the Blumes sponsored events, there’ll be some parts of the team engagement still available, but it will not be a full suite of things that are impossible. So that’s a BFF.

Siddhartha Ahluwalia 42:18

What do you think went right for Blume, that the 60 million came from large institutions?


Ashish Fafadia 42:26

3, 4 things. Fund one had a few companies, which was starting to look like decent sized outcomes. So one could look at the portfolio and say, Okay, your robotics company looks real. And these outcomes are when I say look real, it is the combination of two things, Performance plus validation, performance alone ain’t cutting it. When I say performance is validation and a portfolio of a fund, it means the company is doing well. And there is another VC after you have come in and given you an up round. So it takes a combination of both of these two, really for you to markup. So there were a bunch of markups which had started to emerge in the portfolio. Second, we had 15% DPI, we got to that point where some small exits had happened.


Siddhartha Ahluwalia 43:24

That means for listeners, 15% of the 100 Crore were returned back to the LPS.


Ashish Fafadia 43:28

That’s right. It was a net return that went back to the wallets of the LPS. So now the investors know that these guys are investing, and there can be exhibits, which come their way. And there are still many more companies, which are having bigger outcomes in store, then what has been exited, second factor. Third factor, all of these institutions came down to diligence heavily. They would meet with the wider ecosystem, they would talk to our top 5, 7, 10 portfolio companies. Some of them would be okay talking to the anchors, who are putting in very large checks as a percentage of the fund size, will lead in that sense wouldn’t maybe meet five or seven or they will, also the fourth thing that came about was that there was a team in place. It was Sanjay, Karthik and me at the time of the fund one. Here we also had added a few people. And also we had Adithya Santhosh in the fund one and also who was there still a team that was there during fund one stayed. Plus, there were a couple of more people that had got added. The attempt was that we will not try to just keep running. We started to think about our platform seriously and our corporate effort. We didn’t put names that exist today or tag them as much but When somebody talks, they know that okay, there is a person who is anchoring all LP conversations. There is a structured effort to have somebody dedicated manage finance, there is a vision on portfolio support and anchoring as well. Because at that point in time, there were three things that we were doing very, very actively, very, very consciously. One was supporting companies with opening up our Rolodex, a proxy for a go to market. The second conscious effort was to augment fundraising, even a small 100 crore fund, there’s only so much that we’re going to invest into those companies. So you were going and opening doors on a consistent basis, taking that company’s story to the rest of the world. The Indian diaspora is largely a little bit outside, then we are also setting up these support arms of ours, which is constellation and has come into force full time. That’s a form that we set up outside, we incubated that, and this was the effort which was consciously done between Sanjay, Karthik and me in literally owning each of those three pieces. And even almost like a newer order of engagement with the founders, until then, India’s template was, you will have quarterly meeting board meetings or whatever. To a younger company to have a board meeting. If by that logic, you are on the board, as are the other two board members, every time you catch up at a coffee shop, it’s a deemed board meeting, isn’t it? So we didn’t kind of give a lot of seriousness to that. So called cadence of the board. But we engaged much deeper than that. And each of the conversations, whether it was around GTM, whether it was a whatsapp conversation to make introductions, or it was an email, to open doors or support services, you were engaging with the companies not once in three months, but probably more like thrice in a span of 45 days. Yeah. So that kind of engagement was showing and resonating, where when these guys come to due diligence, they were able to really see the founders need these guys, and are vouching for these guys, and the support that they get. So now that four point checklist gives a peek, that these guys can invest reasonably, Okay, looks like their portfolio will shine fairly well, along with some exits, and all that it’s in the works. And they have built a fair bit of cohesive chemistry with their founders. Yeah, which means two or three things. One is that they will be able to stay on and support and engage deeper and have a better visibility on how to structure exits, etc. Second, it was also evident that the goodwill in the founder ecosystem is a small ecosystem that spreads heavily. So they will be the becoming, if not first, the first, second, third, fourth choice to be on the cap table. So they will be by invitation kind of a thing that will belong to Blume. And you will be in a position to have a hefty pipeline for them to choose and make better investments. That’s what it comes down to.


Siddhartha Ahluwalia 48:15

Can you summarise for audience the four points again,


Ashish Fafadia 48:18

one, you are going down the path where you know to create a decent portfolio 40% was a b2b, 60% person was a b2c portfolio and that has remained consistently even now. Fund one to fund four. Second, there are exits which are coming. There are following investors who have come in so little bit of movement on your marks, which is… Multiple on capital invested, DPI. So TVPI(Total Value to Paid In) all are moving portfolio construction moments. On the portfolio performance, portfolio, team. There is a team that was there. These are not just three GPS partners or two partners and a CFO running around, they have managed to retain a core set of team along with them and add it to the team as well with a proper vision. So I’ll talk about just finishing the fourth point. And there is a founder goodwill, in terms of the rippling effects. So it’s all the four that matters. Somewhere in each of all of these four combined, there’s a platform vision of Blume. So it the, why Blume was coming out a lot more clearly. And there are going to be people who are going to say that, if not anything else, I will get a healthy four or 5x return in dollar terms on these guys. And if it is a little lower, I’ll still be able to get a very healthy learning because these guys will invest in 40-50 companies. They will get into a lot of learning by just pursuing their quarterly reports and getting access to the portfolio will make us richer for an Indian strategy in the long run, we will be able to co-invest hopefully, not a lot will happen. But people will have their own ways and means to rationalise and enhance their investment memories. So all of those things kind of were looking a lot more clear than what fund one would have shown. So that’s what matters. And what I was meaning to say and highlight earlier is on the aspect of the team and the platform. I think some of these things we have stuck to very heavily when in the fun one, we were five members. Before we even went and did the first clause, we had moved the team strength and we’re eight members. So when we moved to actually nine in fund three, by the time we did the first clause, the nine had become 18. By the time we did the fund four, first clause, we had moved into the late 20s, early 30s. So what am I trying to highlight here? We were continuously ramping up the team, not for the sake of checkboxes. It is an unusually large team. But this is what was validating what we were pitching as a platform vision of Blume institutionalisation of the firm. Where today when you look at it, the team still has stayed. Sanjay, Karthik and I continue to be there. When firms were, they have been imploding or breaking up or restructuring or whatever. It’s one of the few teams that have stuck around and expanded the base of partnerships with people who have been there long enough also. Arpit Agarwal, has been with the firm for almost a decade. Similarly, Sajith Pai, for six years, and the relationship goes back even longer. So Sajith, Karthik, myself, Alok Mehta four of the top 10 members of the leadership had worked together for a bit of time pre Blume. So it is all coming together and out of the other six, there are three who have stayed for a long enough time. So that kind of approach to building the team nurturing the portfolio, the platform that I’m referring to, was kind of looking like that has been seeded. That’s exactly the reason I gave the example that it’s like a Series A, where there is something which is looking like we’ll work. Some of these may not stay as relevant, but are the most crucial things that are required in terms of getting the best pipeline. But why Blume, you can answer it a little better. Your founders can answer it for you as well. You don’t need to answer every question. Can you create a structured portfolio in a performance when numbers are showing. So if past performance numbers and track records and anything to go with, you will be able to do it, If you continue to keep your basics and head in the right space. That’s where the four point sum.

Siddhartha Ahluwalia 52:54

And right now, by the time you went for your fund three, which was 120 million right?


Ashish Fafadia 53:00

The fund three was 102 Million.


Siddhartha Ahluwalia 53:02

Okay. And which year was this? You started raising this?


Ashish Fafadia 53:05

2018, We started raising an h1. We did the first close in September 2018.


Siddhartha Ahluwalia 53:13

And when was the final close done?


Ashish Fafadia 53:15

Final close, was done at the end of ‘19.


Siddhartha Ahluwalia 53:22

So almost 24 months again?


Ashish Fafadia 53:25

You’re talking about marketing plus the closure. But broadly, if you take the fundraise period, that is actually from the point where you’ve done the first close till the final close that has been shrinking significantly. what it looked like almost a 21-22 month period for fund one came down a little in fund two. Fund three that came down a little bit. Fund four that was in a lesser period, we raised 3x, that money.


Siddhartha Ahluwalia 53:54

Fund three was 102, closed in 2019.


Ashish Fafadia 53:58

That’s right. So it took us a good 14 months from that phase of first clause to final clause.


Siddhartha Ahluwalia 54:06

And the same things that worked in fund 2 the four points work. Exactly the same in fund 3.


Ashish Fafadia 54:13

With a little more intensity. A little more validation. The four point story what looked like the fund two. You were able to corroborate all of that. Plus, you were able to enhance the story as well, because you had added to the portfolio successes, your DPI in font one had moved even further higher up and it looked like your fund one rest of the MOIC(Multiple on Invested Capital) that were built out looks like convertible to a DPI it doesn’t look like a flaky vision 2 or 5x. It looks like yeah, you can build it out 2 or 5x. So there was a lot more validation to the story. It is exactly like a series B and now you’re moving into the acceleration and the growth mode. And that’s what it showed the LP base, completely institutionalised here in fund two, there were still some corporate leases and not only 10-15%, they were out of the institutions also not everybody was like perfectly IRR driven institution with the proper diligence expectation you had about another 10-15%, who were still following on and making a judgement call on others who had led around. Here, in fund three, six investors constituted $82 million. So in fund two, you had $60 million. In fund three, you had six institutions, pretty much rounding off to 82 million. So it is a big, significant difference visa via fund two.

Siddhartha Ahluwalia 55:55

And then in 2021, you kick off the 290 million fund, the Fund Four.


Ashish Fafadia 56:02

  1. That’s right.


Siddhartha Ahluwalia 56:03

And how much time it took, like from 2021 to 2022?


Ashish Fafadia 56:06

So roughly about the same 14 months.


Siddhartha Ahluwalia 56:10

From the first close to the—


Ashish Fafadia 56:11

Final close as it was. But the important point is that with raising 3x the money, also critical for me to highlight here is that while it took a year, not 14 months, roundabout.


Siddhartha Ahluwalia 56:29

How much amount was the first clause here in the fourth fund?


Ashish Fafadia 56:32



Siddhartha Ahluwalia 56:33

Okay, that was quite significant, we’re almost the size of the previous fund.


Ashish Fafadia 56:36

More than the size of the previous fund. And the other point to remember is, we raised this fund and kicked off this fund while we were in a lockdown. So you’re not in a position to go to any new investor, check, you will not be in a position to checkbox, a seven hour rule that I mentioned a few minutes ago, you were not able to go and showcase and or get them down to due diligence for you. So it was against significant odds.


Siddhartha Ahluwalia 57:07

So what worked here in the 290 million fund that you’re able to raise.


Ashish Fafadia 57:10

I think the platform looked much more complete. Everything that was being said, not only looked believable, but it kind of looked at from here on, it’s about focus, we will not need to expand. So it will, I’m saying this, that in fun five doesn’t look like we will now go and pitch for a $400 million fund. It was a steady state that we had reached in terms of team. We were sharing with the LPS that yeah, while it is the three of us but eventually we are going to add two more partners, the two partners are in the firm. Those partners are also basically saying vouching that we are therefore together now. I think when you talk about the 290 million fund by then one had gone ahead and completed some more exits.


Siddhartha Ahluwalia 58:05

The 1x?


Ashish Fafadia 58:06

1x had happened. Okay, it looks like the rest of the exits are visible as well over the next year or two. So the fund one story will be complete and mature. The team built out the investment leadership fully matured. You were not only three partners, but a very convincing five partner story was emerging. And that’s what we mentioned to the LPS as well, that these are the five people who are driving the cheques. A template of that had been tried out in fund three. Because we had a five member IC in that sense even their Sajith and Arpit were cutting independent cheques. So now it was just a formality. So whatever we were kind of indicating in the previous fund is now looking like a new valid point. The other thing is that even more validation from the portfolio. We had a few unicorns emerge as well. When we were talking about the fund three by the time we closed the fund three we still had one unicorn.


Siddhartha Ahluwalia 59:08

Which was this one?


Ashish Fafadia 59:09

This was Unacademy. And then later on we managed to have Spinny, Slice and Purplle. It helps when the unicorns are not necessarily all but some of them do have a certain DNA of managing the growth. It looks like a manageable path from here on to marketable exits. Also dragons were looking strong. So when I say dragons, I mean, each of these four unicorns are dragons also. Yeah, so if sold at that point in time, they return the full fund. So what you’re talking about in terms of 8x and 10x funds, fund two looked like that kind of a promise. And even today in spite of the environment there it is depending on when it corrects, I do feel that fund two is in a position where it can be that kind of an outline fund. So it looked like fund one is on the verge of completion, it is just about a year or two away. Fund two is peeked pretty well. Fund three, the portfolio construction has shaped up well. So from a portfolio construction of 60 companies, almost 70 companies, we are now at fund two 45 plus. Fund three, not even 30. Okay, so you were having more and more accurate outcomes, because your success ratios, we’re talking about those and find one that success ratios are less well, less than a third. Yeah. Whereas in one, two, it was almost half. Whereas in fund three, we still have almost 3/4’s of the companies just still bustling. So we are not in that zone where there’s vulnerability for an overwhelmingly large portfolio. So that’s the whole part. The other thing that helps is when you have investors who can repeat. So fund three, every single of those six institutions came back and repeated, similarly fund two, also almost half the I would say cheque writers increase their amount, the other institutions consistently put that same amount. So there was that signalling, which was very strong, that there is a repeatable LP base, which is moving on. And there’s a consistency in building the rest of the platform as well. It is, while we were talking about a five member partnership, within each of them, there is a small little pod, which is kind of building up. We’ve moved forward even now. So now we have 21 members on the investment team side, and a full fledged team build down. By then the offshoots were very, very clear. So it’s like, effectively, a Series C. Yeah, we’re using the now I’m just required to get to start getting to a profitability mark from here on. unit economics was visible last time. So now you are basically saying that fund four is 290 need not be 500 million. You will go with a 250 to $300 million story at that point in time, maybe as well. So people know that there is a sense of semblance of predictability and the instant and repeat. That will happen from here.


Siddhartha Ahluwalia 1:02:26

But a 3x fund size of 100 to 290, I think you would have been the only Indian fund to do it.


Ashish Fafadia 1:02:32

I guess so.


Siddhartha Ahluwalia 1:02:34

Ashish would love to talk about the top five portfolio companies of Blume and a brief about your journey with them?


Ashish Fafadia 1:02:42

Sure. So I think when you talk about the top five, it’s not an easy one. We have invested in about 100 plus companies. 7580 are currently living as of now. They’ve always been that number at a given point in time. So I’ll still make an attempt to talk about Five. For me, I think Slice, Purplle, Turtlemint. In terms of companies, I would just try to diversify so that we can talk to a slightly different audience. Therefore, I’m consciously deviating from your question of not talking about five of the top, I’m talking about five different heterogeneous examples, all of which I have a very deep appreciation and learning set that has emerged. So these three are in that zone where they have reached a pretty healthy scale. And then there is a Jai Kisan which is on a very healthy track. And then there is an Exotel. All if you observe very, very different journeys. A Purplle was not the darling of the investors. If at all the questions used to be, there’s no female in the team and you’re trying to solve a problem in beauty, how you’re going to crack it. These are the kinds of questions that have been thrown at the team and credit to the three of them between Manish Taneja, Rahul Dash and Suyash Katyayani they’ve done a phenomenal job. They were also combating an era where customer acquisition was the only big game, we emerged into the GMV era, where valuations would be how much x of GMV run rate, and all that so they kind of were, in that sense, a different script in the portfolio. So the ability to discount was not there, and the willingness to not be crybabies, and so VCs don’t get it. If I spent I would have got it was never the discussion in (Inaudible) board meeting. And it is not just about the fact that, we often glamorise the ability to fight back against all odds and all that, and kind of undermine what happens behind the scenes. In their case, they were very, very focused on making sure that you move on to exclusive brand partnerships, which are on your platform, get higher margins for them, use data and go ahead and pick out what’s the next brand that you’re going to put out there. Create an own brand portfolio, not get carried away and say, Okay, that’s the big thing now. Yeah. So we will suddenly have our own brand story only. So it was not a topic, it was the ability to resist the temptation of not getting caught into narrative creation is a clear pattern amongst the biggest success stories of Blume. If you look at each of the five examples I gave, and maybe the 10 others would have qualified, you would realise that this is a pattern, the same thing I would say goes for Slice, as well. I would even go on to say that it’s still early days, I’m not going to really Jinx him. But I would definitely say that he’s done well, in spite of the ecosystem, not because of the ecosystem. So when I look at the journey, at any point in time, you look at it, he never had more than a few 10s of crores. And it was only post COVID scenario where he raised that large unicorn round he got an infusion, which was like a four digit, crore rupees of capital coming in 21 million dollars flowing in the balance sheet. So it is a journey against all odds, and obsession around product and the customer on how you prioritise that, and de prioritised everything else. And that you were doing without going into like, huge amount of discount for an inordinate amount of time. There were discounts given, there was a customer acquisition, but it was on the banking of a product and the willingness to say that from here on, I might still expect you to be there and not keep buying your time on my platform. Then comes the likes of Turtlemint. Uncool businesses, b2c is a cool thing to do. There is a customer you talk to and you get the margins in your pocket. But there is a template to building uncool businesses: the more unsexy and uncool the business, the better the sustainability and sanity. It is not about just being a poster child, like I said earlier,Dhirendra Mahyavanshi and Anand Prabhudesai clearly exhibit that. So willingness to take a tough, gory problem working setting up a platform for the agents, and that has stuck with them. So it is a financial services play. Having a larger vision, each time it was a moving goalposts with the rent each time you talk to him, and he moves the expectation to another 2x, 3x, 4x then what he had kind of said in the previous years review, kind of so that hunger and obsession about trying to be relevant to my TG was very, very high. Talk about Jai Kisan, again, a fair bit of odds, caught up in COVID, just in the bank of the fundraise, including a broken term sheet, where investors did develop a little bit of a cold feet, to bounce back from some of those things is a Herculean task. And once some of these things do happen, everybody else is going to for a while ask questions as to why did others not come in? And at that point in time, we consciously went out and said in our first introduction, that there has been a situation so would you like to come in now? Yeah, we were there, we did wire. And we did support as we have done with many of our companies. And then to kind of say that, okay, this is not just another financing business in the play, we will build an engaging rock solid tech backup, to make it look like a scalable platform from where it can really be sustainable. So that orientation to keep the burn in the check. Again, zealously fighting the situation hard. And then there’s the Exotel, it’s a story which has been told many times over by just a couple of crores of capital, literally little little above two crores and riding it for nine years and paying advance tax which is more than the funds that you like, it’s as great as it will get from a tenacity point of view. We have, believe me, we have a dozen such stories. fund one, there are still a dozen companies in the portfolio which have not given up, these founders still come to work, they have employees, they are running a team, they are still having legit customers, and they have not raised around for minimum five years. And there are dozen of those. So it’s a very different audience. We were never short of inspiration.


Siddhartha Ahluwalia 1:10:03

What about the likes of the unicorns? You have five unicorns today in your portfolio—


Ashish Fafadia 1:10:03



Siddhartha Ahluwalia 1:10:03

Four. Which ones are they?


Ashish Fafadia 1:10:05

Unacademy, Spiny, Purplle, and Slice. And we have a couple of more dragons. GreyOrange is a dragon. That’s the difference. It is not a unicorn, but it returns the full fund.


Siddhartha Ahluwalia 1:10:26

Yeah. And so any learning from these companies, which you are now applying to your selection?


Ashish Fafadia 1:10:35

It will be two things is something that I would consciously avoid, when I’m looking at look after the FinTech, early stage side of it, or even the growth side, there’s a two hats that I wear—


Siddhartha Ahluwalia 1:10:49

Growth for everything in FinTech only for the early stage.


Ashish Fafadia 1:10:52

Correct. So that’s apart from the fundraising. Everything else, right. So when you look at these companies, at the early stage, you consciously need to make sure that you’re not scared by your failures, there’s always going to be, ‘You asked for one, I promise, you will discover four reasons why you should not invest in a company’. And you will get those four in the first 20 minutes. The more well researched you are the more thesis driven you are which we have become sharply, you asked me some time ago as to what in a $20 million fundraise helps people were able to see that when to your thesis reports that were put down? And how kind of a depth of work and scientific orientation to construct a portfolio. So all of those things matter. But the problem around thesis is that you will start getting scared by things that haven’t gone well. The way we should definitely try and figure out is what is that one or what are those two things that need to happen to take the company to the level at which it can be a game changer? So disruption just doesn’t happen because of pace and innovation. It happens because of sustained pace, sustained innovation, and the ability to sustain regardless of all everything else happens. So I think you should avoid getting scared. Learning is applied for sure. But getting scared No. The other thing that I do try to remind myself and we do discuss during our leadership meetings and IC’s is Yeah, ours is a job to make exceptions. You first make the rules, and then you make exceptions. You can say that we are a convenient way of breaking the rules, not quite. When you say that, okay, I just had huddled yesterday for the FinTech team. And we were discussing that the next company in the portfolio should be a company which is not doing credit. A company which is little ramped up, I’m investing from the third year, and I have only seven more years to exit. Now, I can’t be investing in what Sajith, one of our partners, calls it as a formation check, which is a company which is so early, the product is in the ready stage of getting ready, it’s Formation check. So you can’t don’t want that you don’t want the credit company. And you want something which has got to do with a non credit kind of a sector. So Infra side of things and all. And in the evening, you met somebody who is violating all of these, okay, Stellar founder, and you are basically scratching your head.


Siddhartha Ahluwalia 1:13:47

Morning I discussed something and by evening I had to change my thoughts.


Ashish Fafadia 1:13:49

So would I? I don’t know whether we will still go ahead and do the check. But what I’m saying is that we’re not ruling out ourselves from that investment. So you aren’t creating those rules where you’re going to draw dotted lines and say that these are the things that I’m looking for. But a thought never escapes the mind that okay, if there is something which is not conventional enough or not, as per my prescriptions, am I still going to just want to ignore it because it doesn’t fit. I don’t think we should get caught up in that trap. We should be willing to make exceptions. And that’s where the nimbleness comes. The nimbleness until the fraud was there in 2021 was defined by how fast you can cut the check and land the money in my bank. I think the nimbleness comes in the way we are able to evolve the thoughts and come to rationalising an exception that you want to make because you have discovered that one or two things that need to go right for this company to do well and not get caught up in the web of one or two things that can go wrong. When a company is too early. There’ll be hundreds of things that will go wrong.


Siddhartha Ahluwalia 1:14:58

And you know, one thought that I have is, in your successes, right? All the four unicorns and other previous companies that you mentioned. There was always an obsessive founder in one of these companies.


Ashish Fafadia 1:15:13

These are teams possessed. Right. So these are, so you talk to Gaurav Munjal, today, the boom of ed tech, the peak of ad tech is coincided with the peak of the froth in the ecosystem. And both have gone. It’s not that people are saying valuations are a problem. People are also wondering whether edtech… he’s never talking about straying from the path that oh, I need to do this to be able to make this a winning business. So there is that obsession and possessiveness about the space and wanting to make it count. He still possibly knowing him, and having heard a lot more, my interactions with him have reduced over a period of time as he has expanded his board. Karthik has been much more relevant and deeper with him. So here’s what I hear. He’s still somebody who I believe will be thinking about an IPO. He might say that, okay, I’ll have to wait for a couple of years until I can defend and flow into a certain valuation to defend an IPO. But he’s not going to stray from that. Talk about Rajan absolutely the same thing. When people were trying to skirt around regulations, one of the rare founders who came and said, hey, I agree, let’s go and do an NBFC. When it the opportunity throws up, and you’re saying that you operate in this kind of a constrained environment, you say, Yeah, let’s cut down all the burn and focus on turning the whole thing towards profitability before the tide change towards that he was making those attempts. So between two fundraise attempts, enough of our companies who have become breakeven so that they’re insulating themselves from a potential challenge, you’re not leaving the fate of the company to an investor who is not yet in the company. Living into a fate of investor means you can can you create a bridge round, which is enough for this cap table to support you, and that is okay. But it is a disaster to leave the fate to investor who’s not on the cap. That’s a bad one. So there are some of those common traits on the fundraising and the strategic thinking side. And then there are a few traits on how they went about building teams. So we constantly saw that purple would go in every possible round that they would make, they would go and hire somebody who is significantly a specialist. And the ability to make those calls earlier on are tough calls. And then having got people on board to get those people to stay for a medium term is even tougher, because as soon as people figure out that a 30 year old is trying to dominate beyond a point, he doesn’t understand it as much as I do. I’m an expert. I’m the domain, the guys leave. And that kind of sport happened in startup talent acquisition as well, where people came out from large organisations and then kind of scooted back when the tide started moving. So these guys have been able to retain their people in a meaningful way. Some have lost as well. But I’m not talking about exceptions that have not worked and I’am talking about the patterns that you can see some of these guys. The other thing, also, which is noteworthy in some of these conversations is that they will never optimise on their own dilutions. So when they had an opportunity to raise capital, they leveraged it fully. They never kind of reached a point and said, I’ll take less capital so they can dilute less. Yeah, in fact, I have a story where Manish was willing to do a secondary and bring capital back because of some compulsion that had emerged at that point. You’re shocked. You see founders wanting to secondary so that they can enhance lifestyle or invest checks in the company. I can tell you a pattern that none of our founders have been those poster children. In most of the founders. There are one or two who have been, but most of them have not be in that zone where they’re going left right and centre writing Angel cheques and all that they will write all of everybody does, but there is a reason they are going after a certain purpose and they are oriented to think in a certain way.

Siddhartha Ahluwalia 1:19:45

Ashish for the last part of the podcast I want to dedicate towards where you see the India opportunity, right? You just talked about the middle of the pyramid part over top of the world. What do you mean by that? I would like you to start with that. And the second is the career in venture capital for our audience.


Ashish Fafadia 1:20:03

So I think when we talk about opportunity sets, we have quite a few things moving, you put the last 12 to 24 months into perspective, and look at what’s happening on the networks and infrastructure side, we have 5g rolling out at high speed. I do believe that the form factor of any of the gadgets that we use today or any of the screens that we use today is changing. There has been a significant shift and movement happening around the AI side of things. And these are things which are imminent. On the back of these, I think, it’s very logical to imagine that everything which is impacted by these, which is media, entertainment, sports, financial services, healthcare, all of these things will have a significant surge. And the opportunity sets are actually not to be looked upon as 130 crore 140 crore population that we have 1.31 point 4 billion people will have to look at it and break it up into micro buckets. So, if you look at the Indus Valley report, the first time we did it, we had broken down into India, one India one A, two, three, that is basically the top of the funnel, the mid market and the bottom of the pyramid, when you have to look at and dissect it the right way, not the whole bottom of the pyramid is very, very attractive, but there are parts of which which are very, very enticing. So, that is broadly how I would look at it, when I now say that okay, so thematically what I would see emerging, I do believe that there will be a lot more developments on the financial services side. So we have already put out a report on CBDC. So a big believer—


Siddhartha Ahluwalia 1:21:56

What is CBDC?


Ashish Fafadia 1:21:57

That is basically the Central banking, digital currency. Globally evolved countries are moving towards that. So in a few years from now, I do imagine that cash will be out of circulation. Next year, I’m anticipating some degree of retail penetration to also happen. This has an implication of how things shape up. So it is possible. Now, for a lot of personalization to happen. currencies, digital tracking is possible. Security and privacy feature sets are getting enhanced, and there is AI. So the biggest thing that does emerge for me is personalization. When I say personalization across various fields, whether it is healthcare, pharmaceutical, which is medicine side of things, all of those things, but my partly biassed but partly actually favourite is the financial services side of personalization, we were trying to create a banking product so that it can be applicable to at least 1.4 crore 1.4 billion Indians, you can now actually create a product which is applicable for even half a percentage of that audience. Because the audience was never more than 10%. Anyway, it was a misconcluded market size, and somebody’s pitching market size. on real estate, you talk about trillion dollar market size, that’s a BS once you look at the profit pool, so you will now can actually really get down to personalising financial products. And that will be a big enabler game changer. When you couple that with the digital infrastructure architecture that we have, you will realise what I’m trying to say. So the opportunity lies that across various matrices here we spoke about a top of the funnel, middle layer and the bottom of the funnel across any of the other sides of the 2/2, when it comes to the second part of the question, so that on the careers.

Ashish Fafadia 1:23:47

On the VC side, I think people will look at careers and VC, whether you are joining as an analyst or an AVP, or whether you are looking to start up a fund. If you’re looking at anything which is less than 15-20 years, it’s a wrong foot forward. And the reason I’m saying this is only because as a fund manager do realise that you will start a fund. And then the second and the third, it’s true typically it’s a three and a half to four and a half year cycle. The next one comes within three and a half years or the previous close. And in a decade. By the time the first one has matured you might have done two or three funds. By the time the fourth fund is ready, you LPs are going to say that you know you have one carry. So now you upped the game in terms of your skin. As a sponsor of that fund. So earlier, we allowed you to put in a pittance and say we’ll give you money because you have sweat in the game. Yeah. Now if they say you have money in the game, there has to be better capitalization by you as well. And then what you really make from the carry of the second fund is what determines your wealth. So a fund manager should be the last person who wants to create a fund for wealth creation and instant gratification. So if I’m selling that second fund is when you really can hope for some wealth and lifestyle changes which are meaningful. What you are talking about is a 13 year journey by default. So that’s why I said, if you’re going to look at it less than that, it’s futile. And that doesn’t happen unless you’re mentally committed and another seven to 10 years, because each time you sign a fund, we’re implicitly committing 12 years actually committing not even implicitly committing. So any thought process starting up a fund, which is less than 15-20 years, is, I would say, wrong forward. Why does the same logic apply to an employee as well, if you’re an employee on the front, you want to make do with just being employed and not wanting to have the aspiration of being a partner, or an investor who’s driving the car to the strategy, by all means, that takes the same amount of time, that whole fast pace things about trying to say, look, I discovered a company and I heard a great track record, so your first record into a partner role. But after that, so again, even as an employee with the lens of wealth creation, it is foolhardy to enter the space, like we have set it for founders that you don’t come in and write jokes and memes around it, the founder comes for the pain and gets rewarded with the gains. It’s true for VCs as well, you will need a lot more hedged. So count your blessings. That yeah, you have the right orientation, and it aligns with not so much pain and a binary outcome that the founder has to go through. People often compare careers between a company and VC, people say that, okay, if I’m joining you, I’m going to get only 20 Odd lakhs as a salary as an analyst, These are some other fund where I can actually get 2x of that or I join a startup, which is Series A, and he will happily offer me a partner’s office role. Okay, fine, please go. If monetary consideration is a driver, we are never in the reckoning, if you are basically trying to say that, okay, I have these opportunities, which are non monetary in nature. Now, let’s compare and please educate me, then we can have a conversation. So, and this is not something that I’m saying, to steer away from the battle, and basically announcing that there are different terms on which the battle is being fought. And the financial reward is not the turf on which you want to fight that battle. And even for a budding fund manager, as you’re trying to build out a team and talent. Please look at the other tools that you have, you have carry as a part, we have been given this feedback that you are over generous on the carry distribution to the team in general. And I think it’s better to have that feedback, then organisations doing a DD at your back and saying, does he share rewards at all or no he or she? So I think that using that, well, how a person reacts to carry as a form of reward gives you a lead indicator on the orientation of the person. But if you’re just going to play it on instant gratification, this is not the field to be in a startup, whether in a VC, or in the capacity of a GP. So that’s broadly how I would think about the younger self.

Siddhartha Ahluwalia 1:28:25

And what about a lot of folks who have three to four operator experience who now want to join a fund right, the right skill set to develop for a fund, what would not be?


Ashish Fafadia 1:28:38

So I think, a fund should have a healthy mix of entrepreneurs, operators, people who have come in from consulting stroke advisory mindsets, and let’s not get cliche about it, I don’t think they have not built it that way. So for example, today, when you look at a typical preferred resume or a JD or stipulation as to who you are seeking, we might be consciously might select somebody who does not fit the bill on some of those criteria, because the person has to check more fundamental boxes rather than just about the ranking at the IITs than the exact experience that you want, or the pedigree of college that he went to. Of course, we’re not saying that all those don’t matter. They are a starting point, but they are not the end in itself is what I’m trying to highlight. So if somebody is not in the top 20, top 50 Or is not a ranked person at all, maybe not going to an IIT at all or IIM at all. It doesn’t matter. Blume is a living example, where a team leadership has been built with people which are unconventional from that standpoint, and These are unconventional, but they can give a run for the money to the best of the incumbents and competitors. So, when it comes to building the ecosystem in the industry, whether it is working in forums along with the government authorities and IBC and all that, you will see what the Blume contribution and leadership in general is contributing. So, there is an ability to go down that level and go for not those perfect choices, but the relevant and the right choices.

Siddhartha Ahluwalia 1:30:36

And once one has done away with instant gratification when they want to enter the fund—


Ashish Fafadia 1:30:41

Instant Gratification and sense of entitlement both you have to do away with if you are to succeed in the ecosystem. The sense of entitlement is something which really puts you into a very—


Siddhartha Ahluwalia 1:30:52

What is the sense of entitlement?


Ashish Fafadia 1:30:54

I am IIIT, plus IIM. I have worked in two of the unicorns. Third unicorn is willing to give me a job. So, you have to give me a crore. Great. If he is giving and you’re willing, why don’t you join it? (Chuckles) Instant gratification is that I don’t care about carrying. I don’t care about ESOPs. And I want everything in the salary today, that has to go away. Essence of entitlement is that it works out but it doesn’t work out. (Speaks in Hindi) Then why not?


Siddhartha Ahluwalia 1:31:28

It has worked all the way till now(Speaks in Hindi).


Ashish Fafadia 1:31:34

Fund which is a $50 million fund. And this is not so long ago, we ran with AUM of $83 million 2018. When we did the first was in September, at $83.33 million dollars of AUM, 2018, September, and now it’s barely five years. It’s in five years that we have raised the other two pots of capital, right? So we’ve not, it’s not so long ago that we were in the same boat? How can I afford talent and pay that kind of salary? Then what do I go and do for the rest of the institution build out? When you’re coming to the VC, if you come into the gloss of writing a cheque, it’s like I said, it’s the wrong foot forward, you are in a job, which is the highest level of intellectual sales.


Siddhartha Ahluwalia 1:32:23

What do you mean by that?


Ashish Fafadia 1:32:25

You start a fund, you’re going and selling your past and get somebody to take a leap of faith on your CV to end state money as an LP. The next time you’re raising a fund, you’re selling your track record of building a portfolio. The third time you’re raising a fund, you’re selling a track record of performance. The fourth time you’re selling, you’re selling a track record of building a team, selling, only selling between each of these two moments worth between selling your CV versus selling your track record of portfolio construction, you’re selling to a team member think that why we can have a good job together, selling to a co founder, you’re selling to an employee to come on board and be an analyst for you. Because that same guy will probably go to somebody who’s raising the second fund between somebody who’s raising a first versus a second fund, people are willing to get in the different sets of talent. So you’re competing. If I look at my $83.33 million example in 2018, and you in your current plan of $50 million. Next Fund, you and I will be competing for roughly the same talent pool. And the guy will prefer me over you, because of his bias that there’s a relatively more AUM, there’s a little more stable fund done. So people look at those kinds of things as well. So that is what I’m referring to you’re selling that why the system is good, then you’re selling to a founder that why you are the best cheque to get all the beds best name on the cap table, then you’re selling to a co-investor to come in at a series and give you a after round. It is a sales process all around. So I would say that it’s the most intellectual sales job, it’s the most if they are looking at the biggest challenge from a sales standpoint, VC is the way to go. It is not by side as people want to be, then perfect by side is a PA job.


Siddhartha Ahluwalia 1:34:18

(chuckles) What I tell people is people who want to have fun. And this is the last part right? And have expectations that they will be cutting checks building. A Fund is a five muscle job. The biggest muscle first muscle is sourcing. The second muscle is judgement. Right? The third muscle is servicing the founder. The fourth muscle is marketing the fund. Right? And the fifth muscle is fundraising for the fund. If you expect only to be sharper in one of these muscles or two of these muscles, then you’re not right fit for the fund, or if you don’t want to develop any of the five muscles holistically in your journey.


Ashish Fafadia 1:35:06

Maybe okay, that you will not do a fundraiser. But marketing on the fund always. And marketing the fund does not mean that you’re praising the fund of the trail. When a founder comes in and says that I have a term sheet from a three extra fund, Are you going to give up and say that I’m conceding to a better institution, you have to acknowledge the fact that you are lazy and you’re conceding to a bigger institution, by that logic Afghanistan should not be having a right of win in and to hopefully, defeat Australia. So you’re basically conceding and willing to be lazy. So it’s perfectly fine. If you are not going down the path, If you’re a GP? Yes, it’s a perfect five muscle job. If you are coming as an employee, and each passing cycle over the next 15 years, 20 years, you’ll have to develop the next promise. So that’s how I would put it that the five points that you mentioned are perfect and relevant. A person joining in can start with maybe two and each passing cycle, add one more, but the person starting out as a fund manager, all of those are super critical. And can’t forget the fact that when you are looking at the founder, we say that yeah, it’s servicing the founder. But how relevant is the service, we take it easy and say that it’s founder friendly, but often we have tried to get the person to appreciate that finding the friendly Blume does not mean that we are exceeding the founders requests all the time. It’s about a partnership. And the founder respects our feedback, even though it might not be what he wants to hear. And the friendliness is about the best interest of the business and the company at all points in time of which counter is the best and the biggest custodian. So that’s the friendliness and the definition that we’re wanting to put on the table. So that sixth muscle of sensitivity, and empathy becomes super crucial. Again, I go back to my point of sense of entitlement. Yeah, I’m a VC. So what we will still have to pitch we’ll have to still get into the hassle of supporting that guy and do the bits that he’s not equipped to do.

Siddhartha Ahluwalia 1:37:21

Thank you so much Ashish. It’s been such a fantastic conversation.


Ashish Fafadia 1:37:25

Thank you very much Siddhartha, all the best!


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