Episode 108 / March 14, 2021

Dilipkumar Khandelwal on Angel Investing in B2B SaaS Companies

36 min

Episode 108 / March 14, 2021

Dilipkumar Khandelwal on Angel Investing in B2B SaaS Companies

36 min
Listen on

In this episode, we chat with Dilipkumar Khandelwal, Limited Partner with Stellaris Venture Partners & Fireside Ventures, and an active Angel Investor in 25+ companies.

He’s Ex-President at SAP HANA Enterprise Cloud business and came closer to the startup community in late 2016.

He has a keen interest in D2C, Consumer-Tech, and B2B SaaS. Some of his portfolio companies include Whatfix, Signzy, Moglix, Yellow Messenger, Credgenics, and Pepper Content among others.

During the podcast, he shares how he initially got introduced to investing in startups and began building his portfolio.

For anyone looking to begin investing in startups either by their own-self as an Angel Investor or as an LP with a VC firm, this conversation can be of great value. From building your own thesis to curating an exit strategy, this podcast will really help you through it.

Notes –

00:59 – From a Traditional Rajasthani business family to Investor in Early-stage

04:28 – First interaction to Startups via Alok Goyal – Stellaris Venture Partners

07:12 – Change in perspective; investing in startups

08:51 – Thesis: Solving small but focused & specific problem statements

11:15 – Scaling can only work with the overall fundamental mechanism of the Org

15:09 – Making a product scalable is different vs adding more features

18:11 – Exit strategy as an Angel Investor

27:30 – Importance of deeper understanding with a sectoral perspective

28:14 – Upcoming trends over the next decade

Read the full transcript here:

Siddhartha Ahluwalia 0:07

Hi, this is Siddhartha Ahluwalia. Welcome to the 100x Entrepreneur podcast. Today we have with us Dilip Khandelwal. He is a very active member of the startup ecosystem. He is a Limited Partner to Stellaris Venture Partners and Fireside Ventures. He has a keen interest in D2C, consumer tech, and B2B SaaS. He is an active angel investor across 25 plus companies. Welcome, Dilip to the podcast.


Dilip Khandelwal 0:34

Hi, thank you, Siddhartha.


Siddhartha Ahluwalia 0:37

Dilip, you come from a very traditional background, you know, you were ex-Managing Director for SAP Labs India and ex-President for HANA enterprise cloud. What urged you, you know, to take a step forward in the startup ecosystem?


Dilip Khandelwal 0:52

Yeah. I think Siddhartha, It’s a very good question because just from a background, I come from a traditional Rajasthani business family. And we’ve been there in Bombay, for close to 70-80 years, doing business in seeds and dry fruits. And, and those kinds of stuff, which, you know, I mean, and one of the things, when I was growing up, which was interesting was, we used to grow the business, but you were not able to scale in the hockey stick way, which you always would tell, right, I mean, in a traditional way, you always require, let’s say, an appropriate amount of capital appropriate amount of resources to grow this. So I think scaling was a big issue without having too much of invested capital in. I think that was the reason why I decided to make a jump. And go on to a little bit on the corporate side of learning how does the scale happens in the large firms and large companies, and end up being very luckily ended up being at SAP. And I spent close to 19 years at SAP. And I think the predominant objective, even with SAP was two-fold SSU before I mean, it was all about how do you learn the art of scaling? How do you scale the business from a small venture small idea and try to make it big, that’s why I try to learn and move into different departments and try to learn a lot of stuff. I literally went to every department in the firm. And at last when I was leading the Hana enterprise cloud business as an end to end business overall, I was able to grow this business from from close to $30 million to close a billion dollar with very, very good profitability. So, which is what my purpose was. And I think, and I want to take this learning out even to a startup ecosystem. And, and that was a reason I mean, twofold. One is you of course, have your heart into entrepreneurship, because that’s the background you come from. And the second thing is what you’ve learned and what you can give back. So I started involving in the ecosystem close to five years back. And I think the initial part was very, very interesting. I was very, very lucky to have a friend like Alok Goyal. I knew him from SAP days when he was working with Helion and, and that was my first interaction with startups. And he helped me introduce a few of the entrepreneurs and that was the beginning. And I think, now it’s five years, I still try to make sure that I spend my Saturday and Sunday, which I love. And that talking about companies meeting founders, and so I try to meet between three to five founders a week, on a weekly basis, I mean, of course, we move a few weeks here and there when you’re traveling or not traveling, but I’d generally try to meet them. And I met close to 1400-1500 founders in the last five years. But I’ve been very, very focused on a couple of areas, which I’ve learned and these are predominant, like what you said it is. It’s about B2B SaaS, it’s around recently, I’ve started learning more on consumer tech and because the consumer behavior changes and, and there is a massive opportunity for a lot of companies to create impact there. So I think it’s been learning but I think they just want to pass this learning on and specifically on how do you create the large build out of the B2B SaaS companies in India and even scaling to a large level.


Siddhartha Ahluwalia 5:01

Can you share, you know, in these sectors, which are your various investments?


Dilip Khandelwal 5:09

I mean, I can tell you if you want, and it’s not a surprise that it’s not known to people anyway, I think that the few investments which I have in B2B SAAS of Whatfix, Signzy, I have B2B commerce in Moglix, I’ve invested in the Yellow Messenger. Last year, I did the investments with Credgenics. And, of course, I also like a little bit of content and tried to play a good role with Pepper Content. And a lot of them, which are there, I mean, there’s a lot of traction, which is happening also on the sales funnel with GTM buddy. And those are the few investments that I have. On the consumer side, I think I started a little bit late, I mean, I have my first investments with Fable Street. And the second one with a bit of fly, which is more targeted towards the nutritions. And, the right kind of health thing. So these are the few investments that have


Siddhartha Ahluwalia 6:12

How have you see, you know, from 2015, when you became active in the ecosystem, to now, How has your perspective changed?


Dilip Khandelwal 6:22

I mean, for me, the initial part was all about learning, because, to be honest, in the beginning, I didn’t know how this thing works and operates. So, I think learning and meeting more and more people and founders was critical. Just to understand how this whole thing works? Whether it is raising the fund, whether it is what does it make up for a beginning to happen? What does it take to scale up the stuff? Why there is a huge amount of importance being given to the founding team, how would the camaraderie exist? What are the exposure that is required in a particular sector to make them successful and all those things? So I think for me, the initial part was all about trying to find out what are the common patterns and, and a common learning out of it. And that’s why if you look at the first three years, I kept my investments very, very limited, although I still kept from meeting a lot of people. But in the last couple of years, I mean, I focused, I mean, I feel that I have a little bit of understanding now I understand a few common challenges and the patterns that exist. And that makes it a lot easier for you to decide on the investments as well as helping the companies in the right ways. So I typically tend to now do between eight to 10 investments a year. But as well, I mean, I come from the background of B2B SaaS, and I think that that exposure also helped, because I think one of the things which I feel is always missing in the ecosystem is, is the operational exposure, which was which is critically important, and which is which I bring in on the table. So it’s not just you can,



If I may ask you, what are the what kind of so if I can ask, you know, what are the mental models and frameworks that you have learned over the period which you evaluate the, say, for example, in B2B SaaS.



I think, for me, more important is I’m not a person who, let’s say the framework would fit what is come out of it, is, I mean, rather right to avoid investments, which is trying to solve multiple problems. I rather like the founders who want to go very specific. And there is a problem, which is very small and very specific, that’s very interest. So example that can be very simple is if somebody comes and tells that you’re creating an end-to-end financial software, it doesn’t interest me. If, if you go very specific on the financial sector, what are the areas you’re trying to solve and, and there is a clarity which exists, then it is much easier if that’s the first pattern, which is for me to very, very small, very, very focused. And there is a problem which exists to solve it. Of course, when you become large, you can always try to expand this into other areas, but at the beginning, it is extremely important. The second aspect, which is also important is the quality of the team and the founder that you exist in, what kind of exposure you have, what kind of experience you bring in. How passionate you are about the topic, how much energy you want to bring on the table, and how much hunger you have to solve the problem. That’s the second aspect. I think it’s an important aspect. I think the third aspect is important, which is what is a market which exists. But I don’t look too much into detail because there’ll be a focus on is, I try to think about the investments more from which are more or less, very, very, let’s say category defining or, or the market doesn’t exist and they can define the market. So I think I put less focus on TAM in the beginning because of the face. I mean, it is very difficult if you’re investing in a known category, you always know what is a market which exists. But some of the companies which you tried to invest already tried to take, you don’t know what it is and I think you rather find out whether there is an option, whether the end-user or the demand exists. And those are the things which are critically important. And if you have certain operational background, which you’ve done in the past, and you’ve gone through this cycle, it’s a lot more easier to decide.


Siddhartha Ahluwalia 10:51

You have seen a scale, you know, where you mentioned that you took the SAP the division, you were leading from $20 million of revenue to $1 billion of revenue, how are you able to help your portfolio companies, the same B2B SaaS to go from zero to 1 million ARR. And then from one to 10 million ARR?


Dilip Khandelwal 11:09

I think I think it is, Siddhartha it is all about scaling, people need to understand it is not just a guru market issue. When you talk about scaling, it has to work in tandem across all the different areas that are existing inside the firm. When I say this, what I mean is whether your software is able to scale. Because it’s software, it’s very different when you want to give it for a few people, a few companies, and then you want to give it to the masses. And what I mean by readiness, it is also got to do with what kind of quality standards do you have? What kind of flexibility, agility and scalability can it bring on the table. So one is on the pure software and the development side, whether the product itself will be able to scale and mature and, and you don’t run into an issue of once a product is ready, and then you run into large wins. That’s because you can keep on selling. But if your product is not right, even if you have a large number, I tell you, you will, you will lose it very, very fast. The second aspect is extremely important. The key is the old customer success. org, or once you get the customers, I think you should be brutally honest, in terms of not losing them. Because it’s so difficult to get the customer in the beginning. And you need to put all the right mechanisms to put in place. And that is of course on the bull market side that how do you try to scale this you try to scale with your own people? How do you channelize it how you partner with people, depending on the industry, and depending on the solution you bring in. So I think it’s always about multiple things that need to happen across the org, and not just focusing on a specific area. And I just like to make sure that the founders understand this piece. In the end, I always feel that founders are the right people to jump in to decide you just give them the options and help them navigate to the stuff in the right way to form the experience with your work. But that’s how broadly you try to judge it. I mean, if there are certain areas where we require partnership or certain areas where we require good partners who we can go to market with them. You can use them or, or at the same time, how do you scale the product point of view, the right kind of investment that goes into scaling up the product itself is extremely critically important.


Siddhartha Ahluwalia 13:43

So you mentioned a couple of points, right? The scale has to be across the organization. It is just not about the go-to-market. So first-time entrepreneurs usually just what I’ve observed typically end up focusing more on the product, over-indexing on the product and then the other aspects. So is that a limitation that you see?


Dilip Khandelwal 14:01

I mean, focusing on the product, that’s where I always feel the problem always comes in, is making a product scalable is different than adding features on the box. And that’s why I’m always careful. It’s that’s why I made the sentence very clear that the initial section, the initial part of the product needs to be very, very focused. In order to grow yourself up, you will always come across a requirement from different customers to add more features and you can easily divert it to becoming a much more complex thing, rather than solving the problem that you’re trying to solve. So you need to also start saying no in certain aspects, and rather focus on what you’re trying to believe and building this stuff. So I think that that focus is extremely key and important that what is your scope, in the beginning, to make your success and really get the product-market fit in the right way, then before being successful, and rather making it much larger, so I think that topic is extremely key. And in that topic, once you start getting success on your product-market fit, how do you make sure that this product is rightly scalable? It means the security requirements it meets can. It can be scalable to 10s and 1000s of users? Will it be an issue if it can be applied in multiple countries together, all those things need to be fixed as part of the product. And once this becomes successful, then you can easily keep on adding new functions and new features. But go step by step at the same time. If you’re not fixed that problem, when you try to go into individual areas, it becomes a lot more complex. And, and, and everyone has a limited capacity. Everyone has limited resources. So your focus gets diverted and you’re not able to fix any problems, you’d rather focus on small specific problems, solve the stuff, solve for scale, and then you can start always trying to get one.


Siddhartha Ahluwalia 16:10

And in this approach, you know, have you seen the same observations while you were scaling the SAP Business? Which you were leading?


Dilip Khandelwal 16:18

It’s always I mean, it’s a lot easier because I think large companies have a little bit more manpower and capability and all those things. But I think the right question, there is always what is the focus? And then you can keep that focus? It’s you see this also in the large firms, right? I mean, you try to do too many things. And, you don’t just tend to defer. Let’s not do anything right in the right way. So I think that’s a learning you can even extract this out of your past exposure, you it is very, very common. And that you can apply this in the startup world as well. So


Siddhartha Ahluwalia 17:02

and then what is your framework around exiting these businesses? Right, you come in as an angel investor? How long?


Dilip Khandelwal 17:11

It’s a very, very good question. I think when I don’t know whether I’m right or wrong in this stuff because there is nothing right or wrong in this stuff. But I tend to believe that if you come as an angel, or in the seed round, it is a little bit different than you come at A and B, even as an angel or whatever you call it, if you’re coming at a thought whatever, Angel round or seed round, I think the right size for you to exit, I generally feel it is between whatever 150 to 200 to 250 million. So I think rather than waiting for long period of time, I’d rather believe in that. If you come to the size and the scale, maybe you have an opportunity to exit as well rather than waiting for a longer period of time. And of course, if you firmly believe in some of the things you can always keep it but just generally as a proposal, I mean, let’s say you try to keep and try to exit, if you have made an early investment, you can try to exit when the company size is between 150 to 250 million or something.


Siddhartha Ahluwalia 18:30

And you mentioned that size, have you taken any exits because many of your companies today are that size.


Dilip Khandelwal 18:38

I mean, I did a couple of them. So, I mean a few of them, I have always kept it for longer. But I think in general, that would be my approach as I even go forward on this stuff. Because I want to keep on exiting. Because I think generally what I’ve learned and also seen as a part of my analysis, which I did for five years in meeting founders, and it touches founders, you meet your meeting, also a lot of people who are angel investors, and a lot of people even in the VC world who have done a lot of their past investments. And I think one of the biggest things, it is all about exit at the right place at the right time and in the sense of, so you need to also see your success. It’s not about investing alone, but also having the right exits and an equal amount of exit. So that’s why I learned out of it and I tried to follow. I followed it in my couple of investments. But that’s the general approach I will follow. Of course, I will try to keep you where I feel it is. It can give you a large upside but also help the company grow. It is for me more important is that I do this angel investing is also because that’s what I love. Money and the monitoring part becomes secondary in a certain way because in a certain way you’re privileged to lead some life and you can invest but generally well off in terms of what you do and now So I think it is all about engaging with the right kinds of founders whom we can help and all those things. So that’s how you, you build it in the right way. But to answer your question very specifically, I think I will generally tend to follow that approach. But I will, of course, keep you the companies, which I believe in the founders acquire if you keep.


Siddhartha Ahluwalia 20:21

But tell me, you know, as an angel investor, you have seen the company grow from zero to 250 million dollars in valuation, typically, without 30 to $50 million check, I believe that for when they enter that stage, don’t you become too attached to the company that now I want to see this company go hit a $1 billion valuation or even larger ambitions? How do you balance that?


Dilip Khandelwal 20:43

Yes, it is completely right. I think that the companies which you work with, you always try to build a very, very strong relationship, because you always tend to believe in the journey, what you’ve gone through from whatever, one to 10, and you would like to see it going from 10 to 100. But also to be a little bit cognizant that going from one to 10 is a different journey, and going from 10 to 100 is a very, very different journey of scale. And you require different kinds of investments, different kinds of management, different kinds of skills to make it happen. So that’s why you still keep in touch with the founders and the people and all those things. But you should be also careful that you are not a blocker in their growth as well. So I think just helping them and guiding them in the first part is very, very different from what is required for large-scale companies and all those things. Although you must, I must admit that I’m more fitted towards the second part, from my past exposure, and all those things. But I also feel that a lot of companies at an early phase can get a lot of benefit from what I’ve learned in the past. So I think it’s a mix. That’s why I say I always say, if you are just purely talking from a monetary point of view, I think, as an angel, you should exit at that point in time. But if you want to keep the relations and they want to use and leverage and help from you, I think you should be able to keep.


Siddhartha Ahluwalia 22:15

What is your learning from those companies out of your portfolio of 25 Plus, that didn’t work out, because you had some thesis while going in?


Dilip Khandelwal 22:24

I mean, I can still tell the same thing it is there are multiple things which happen, I think, one is, of course, the market dynamics being changed. And maybe the product is not relevant and all those things. I think one of the key learning for me is when you’re building the company, how much closer are you to your in consumer or all your customers in the 10s, I’m really talking about really end-user customer driving, this is one of the biggest blockers you have because the day you lose touch. Now when I say lose touch, which basically means that if their requirements move faster than your company can adapt and move, then you have a challenge, because if the time it takes for you to come with the feature, what they require, and their requirements have changed completely over a period of time, and it is completely different, then you have a higher tendency to fail. And I think that the first lesson is always whether Are you in close touch with the market dynamics and close touch with the requirements from the end users or the consumer, which you’re working with. And are you able software or your product, what you’re building? And it can be in a physical product or the software which you build, or I think it has to be enclosed, let’s say sync with the dynamics and the requirement that you have for the market. That’s point number one, point number two, which is I always This is my first point, I mean, people and the founders tend to slightly divert from what they were initially supposed to do. This basically means that you’re supposed to do X, but you start doing x plus 1x plus 3x plus five and you just keep on increasing the complexity, and then it becomes very, very difficult. Although I understand that maybe X was not the right one and you come to an approach that is not x it is a y that people are dumb, but that’s fine, but they need to still have that focus of being very specific on why them to solve the problem. So I think these are the two things, which I feel it is predominantly that’s what you’ve seen. The third which is a little bit of a factor which is very interesting factor is specifically when you look at how to let’s say in India now I’d call very specific on the enterprise SAAS, or B2B SAAS, how it’s evolved is also extremely important, I think it is very important that the companies need to understand that the market largely from an addressable point of view is united states and to a certain extent Europe and, and in the scale and the size, what you get out of your software that you build out of India for India is limited. And I know that it has changed in the last three, four years, I mean, it just that number keeps on increasing. But if you want to become a large, big powerhouse of a software company out of India, still you need to take, tackle the topic and have this guru market feature for the US and as well in Europe an important part of your game plan, rather than focusing on new that aspect, although I know that the lot of companies which I’ve seen that they’ve predominantly felt that they can build a large company based in India, out of India for India. I think they may be mistaken for a little bit more time. It’s just changed a bit. It got boba but I think still the largest and the broadest market for these companies is the US. And I think that is the focus, which is extremely important when you build specifically the B2B SAAS companies.


Siddhartha Ahluwalia 26:20

And for the sector’s especially, like B2B SAAS and consumer where you are interested in what are the trends that, you know, you think, will happen in the next 10 years, that, you know, you are getting more involved in this ecosystem, day by day.


Dilip Khandelwal 26:33

I think, see, I think I always categorize. I mean, it’s important, then when you have a very, very sectoral focus or, or the area of focus, you try to understand a little bit more deeply. So if you look at even the technology stack point of view, I always categorize this into the companies which are getting built at the IIS level, task level, and SAAS level. And I think what you’re seeing still in India is almost, I mean, very, very few IIS, when I see IIS is the companies which are solving the problem at the storage level, the network level, and the physical things, which are really the core of the infrastructure, what you start to see more and more is a lot of companies trying to solve the past problem, which is the API base they created an API is which can be exposed, and you make learning out of it, you start seeing a lot of things happening in that layer on the DevOps and low code, no code and, and all those features, you start to see a little bit more from India. And where India is largely been successful is at the top level, which is building those applications, the SAAS layers, and all those things. So what has changed in the last three-four years is, even in the past, it was predominantly SAAS, now you start seeing a lot of companies that are building into the past layer. So there is an opportunity there, where if you can build certain capabilities on this thing, you can make it large and big. And so you start seeing that, of course, as well, of course, India will play a larger role. But you start seeing a lot of companies even in the past layer coming out of India, I still feel that pure infrastructure is quite low still because that requires an ecosystem that requires an addressable market and all those things, which is, I think, still predominantly in the western part of the world. But I think you start seeing those key trends, and I think maybe that is an area of focus that starts seeing more and more of these IIS layer companies and you can make it larger there. So I think that’s the theme that you see predominantly for the SAAS companies based out of India. In consumer tech, I think this is a much more open topic. Why? Because I bet the size of the population that we have in India, I think the behaviors are changing every day. COVID got a lot of stuff where people were able to consume which they are consuming in a different way. And if you can, if you can find a problem and a consumer brand and put the right deck on it, I think you can create different business models. And I think you start seeing those things across all areas have been so it just I still feel that they use less tech still. They are still predominantly, of course, they use this make they sell online and they make it available online and all those things but I’m really looking at how do you enable more tech in this consumer brands and consumer-focused companies. I think this is a massive opportunity which you see, of course, there is a huge search on the brands and the consumer. But I think you see less of tech being used. But I think if you can use a tech along with this consumer stuff, I think this will be a big difference.


Siddhartha Ahluwalia 26:54

Since you mentioned that the, you know, consumer company, so Indian consumer companies, between this decade 2011 to 2020 spent billions of dollars in customer acquisition, right. And many of the consumer companies were written off because of the losses they incurred. We have seen, you know, how only the top two or three eCommerce companies survive? Do you see the same pattern of building so much, you know, say burning for much money towards customer acquisition, again, in this decade for customer acquisition? Or do you think companies are changing their approach?


Dilip Khandelwal 30:55

I think I think it is, I think it’s a learning phase. It’s an evolution, which has happened, I think, you start to see a lot of companies getting much wiser in terms of even the customer acquisition cost and how you’re building this tool, and all those things are a lot more easier in B2B SAAS. Because that cycle is a little bit different when you sell to an enterprise, it’s a longer period of the cycle. But it’s a very sticky cycle. So once you are able to keep the product and there is a constant flow of money, which comes in, of course, it’s a longer period of the cycle. But once you get in, I think you can make it much longer and sustainable. So it’s a lot easier in B2B SAAS, you generally don’t have that problem of spending too much money and being nonprofitable for a longer period of time. But of course, it’s still valid when you are working with, let’s say if you want to have a brand, and you want to make it visible and the customer acquisition cost is higher, and all those things. But I think I think we have enough time, you have learned that there is so much of right focus on making sure that the individual CAC doesn’t go up, and, and all those things, I think it just goes in the right direction, I think you will start seeing more and more companies which are getting even profitable before, you could imagine. It’s largely not a problem in the B2B SAAS. I mean, if you have few clients to do it, I mean, you can easily manage it. But I think you’ll start seeing that, that cycle. And it is a case of evolution over a period of the last 5-10 years. And you will start seeing more and more companies being more profitable than you can think. But of course, there’ll be always a few business models where everybody believed that it will not be profitable at all. And that’s where you start your you’d see still a few cases where you spend more money than you make. But I think we’re a bit of time this will also go up, it’s a part of the evolution.


Siddhartha Ahluwalia 33:10

And one area which you mentioned in India, which has not yet taken place. Not entrepreneurs on the B2B side haven’t innovated enough on the infrastructure layer. For example, do you see companies in the same space as Data Dog New Relic?


Dilip Khandelwal 33:32

I think they would, I think it’s not about the skills or capabilities, it’s about the ecosystem, which is there or exists that the problem exists or not. And that’s why it is a lot easier when you are based in the US where you have a lot of these companies where you see the challenge and the problem, then you can easily adapt and so I think we start to see the ecosystem growing. But that’s the challenge it has not got to do with the capabilities and the features and all those things even if you build the company or you need to move to the US and then there is no difference you know, so you’re either directly there sitting there so it’s as I said to you I mean it’s got more to do with the market, there the ecosystem it exists the the the knowledge even and then the capabilities to make it more complex and difficult in the hardware space and then in the software space.


Siddhartha Ahluwalia 34:31

Thank you so much Dilip you know, it’s been a wonderful interaction with you, thank you for sharing your experience and your different viewpoints on how the Indian ecosystem has evolved, your investments. It’s been a pleasure to have you on the podcast.


Dilip Khandelwal 34:46

Thank you, Siddhartha. And I just hope that this helps a lot of our startup community and, and It’s been fun for me and it was wonderful interacting with you as well. Thank you very much.


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