Siddhartha Ahluwalia 2:03

Hi everyone, this is your host Siddhartha Ahluwalia. I’m also Managing Partner of Neon Fund. I have today with me Alok Goyal and Ritesh Banglani, Partners at Stellaris Venture Partners.

Stellaris, I consider among the top five VC funds in India. The partners have combined experience of 55 years in venture capital and Stellaris has done one of the most amazing fundraisers in the recent last one and a half year. It’s a 300 million fund three and Alok is a dear friend.

Alok, thank you so much for being a great friend and helping Neon and me all along the way. Whenever, you know, I have reached out.

Alok Goyal 2:38

No, thank you so much. I mean, we have benefited so much through you as well. You have constantly been a source of deals to us and we have done deals together that I’m very happy about.

Siddhartha Ahluwalia 2:50

Ritesh, you know, why I consider Stellaris one of the best VC funds in India, not even just from the perspective of having the best portfolio, but even it’s very rare to find fund globally who in the seventh year on a scale of 1x DPI has provided 1x DPI to their LPs on a scale of 80 million. How does it make you feel?

Ritesh Banglani 3:15

Well, to be honest, DPI is an output variable, Siddhartha. We don’t really measure ourselves on the output. That’s for our LPs to do, that’s for the market to do.

We measure ourselves on our ability to attract the best entrepreneurs to ourselves. So and we try to measure that through metrics like deal coverage, how many deals that are getting done in the market that we got to see on measures like our nim ratio of all the investments that we want to make, how many are we able to make. So those are the ones that I think are input metrics that lead to long term success.

DPI will happen if we make good investments.

Siddhartha Ahluwalia 3:59

But there are a lot of nuance to making an investment. Are you getting at right stage, the right entrepreneur, the right market opportunity and right ownership? A lot of factors combined together.

Ritesh Banglani 4:14

No, absolutely. But in the end, if you look at the essence of venture capital, I think it is being able to invest in the best entrepreneurs. And unlike many other asset areas, the one important thing in venture is that not everyone has equal access.

I might be smart enough to recognize the next Zomato, but if the founder of the next Zomato is not coming to pitch to me, I’ll make exactly zero dollars from that trade. So it all starts from getting the best entrepreneurs to come to you to raise money. And all of the other analysis, what is the right level of ownership? What is the right amount? What is the right stage? All of it is downstream of that first decision.

And that decision is not ours. That decision is the entrepreneurs, which is why our effort is in attracting the best entrepreneurs to us and then trying to make a good decision on the investment.

Siddhartha Ahluwalia 5:16

So for example, you would have done across the two funds, more than 40 companies, right? And a part is inbound attracting the best entrepreneurs and the part is outbound. So how much you would say the effort goes in both the sides, creating the inbound versus reaching out outbound to the entrepreneurs?

Alok Goyal 5:35

Again, just to add on to what Ritesh said, in our business, just getting access to the right set of entrepreneurs at the right time does matter a lot. And in our own internal culture, we do emphasize on that hustle a lot. Like Ritesh is saying, we measure coverage, we measure coverage at a firm level.

But every quarter, and by the way, this is happening now on 11th next week, we will look at all the deals that happened in the market. Was there any deals that we did not get to see at the right time? Not just because we got to see, but at the right time.

And while numbers tell a certain story, I think in general, we are the harshest on ourselves more than anybody else. The moment we’ll see even one or two deals, which were in our sectors, we did not get to see, we’re always asking ourselves, how did it happen that we did not get to see the deal or not? And that just emphasizing that culturally is just very, very critical.

It is also baked into the way we judge people. So yeah, it’s a very inherent part, getting to the deal at the right time is a very critical part of what we do. To your point on inbound versus outbound, I would say that has evolved, Siddhartha.

I think when we started, there were some networks that the three of us, when we started did have those networks. But we just had to fight harder. People were not necessarily just reaching out to us in their first consideration set.

As time has progressed, multiple things happen. One is that, you know, brands do while they take time to build, but they do begin to get built as well. Number two, you just end up having a much, today we have 45 companies in our portfolio.

Those founders, many people that you evaluated in the past, even though you might have passed on those deals, but many of those also become ambassadors for you. So there is a, the inbound deal flow engine just continues to expand with time.

Siddhartha Ahluwalia 7:40

And you mentioned coverage ratio. So typically what is the coverage ratio that you are looking for?

Ritesh Banglani 7:48

100%.

Siddhartha Ahluwalia 7:48

But has it been ever 100% in the last seven years?

Ritesh Banglani 7:52

So I’ll tell you how it has evolved. When we started, our coverage ratio was about 55%.

So we were seeing roughly half of the deals that were happening in the market at the right time. And I’m quite proud of the fact that for the last three years, that coverage ratio for us has been more than 90%. We are able to see 90% of the deals happening in the market at the right time.

While I jokingly said 100%, nobody wants 100% because that means there are no proprietary deals in the market, not for us, not for others. Just like we want to access certain entrepreneurs before they even start their fundraise, so do our peers and competitors. So 100% is not desirable.

100% means there is no proprietary deal flow in the market at all. So we think we’re in a good place with our 90% coverage. The other important thing that Alok touched upon was actually at what point do you get to see that deal?

And I think whether we like it or not, for entrepreneurs, it’s a funnel. In the first reach out, you will not go to all the 30 odd funds that exist in India. You will go to a list of five funds.

If those five do not invest in you, then you go to the next list of 10 funds. And then you’ll go to the next list of the remaining 15. So if we are not in that first list, we are seeing the rejects of the first list.

If we are not even in the second list, we are seeing the rejects of the first and the second list. So there’s massive adverse selection in venture, which is why it is not only important to have seen all the deals, it is important to have seen all the deals in the first list.

Siddhartha Ahluwalia 9:39

But what I respect Stellaris for the biggest thing has been and what I’ve learned from you is having high conviction and taking contrarian bets. For example, you know, Mamaearth and Whatfix, the biggest winners from Stellaris portfolio, they were not the most quoted companies at their time by VCs.

Alok Goyal 9:58

Yes, see that’s in general the nature of what we do. I wish we were more right on our convictions Siddhartha, which we are not. We take conviction on so many things, hardly anything works, as you know. Right?

But we do believe that it is important to form an independent conviction. You cannot borrow that conviction from anyone else. And we as a team, again, there are a bunch of different things we have tried to do structurally within Stellaris.

So for example, we took a call right at the beginning that we will be organized by sectors. And these are fairly hard gated boundaries of sectors. If I do SaaS, then I do SaaS.

When I find a FinTech deal, I’m actually going to send it to him. I’m not going to do that because quote unquote, I sourced it or whatever. Because we believe that it takes a while to build expertise in a certain space.

And it takes many investments also to learn the nuances of a space as well. So we have stuck to being very sector oriented. We have followed the approach that it’s always two in a box when we are evaluating a deal, which at least we have felt just helps him in making more sound decisions.

We lead all our investments. So we are not trying to tag along somebody else’s judgment or conviction in those situations. And as Ritesh mentioned earlier, we are very sensitive to ownership as well.

So we want to be the lead investors in the companies that we are coming in. We know that we’ll be wrong in many of our convictions, but we still want to back our conviction.

Siddhartha Ahluwalia 11:34

But you mentioned, you know, Ritesh, that you don’t want to see the third, be the third adverse selection. Then why is it important? Because the conviction of other doesn’t matter eventually.

Ritesh Banglani 11:47

Yeah, no, I agree, doesn’t we will not reject a deal just because other people have rejected it. But by definition, the best deals will get snapped up by the first list and the second list of investors. So the overall funnel that comes to us, if we are part of the third list, will be poorer in quality than if we are part of the first list.

We will still evaluate them with the same rigor that we would evaluate companies that come to us first. But we want to be part of that first consideration set.

Alok Goyal 12:18

And also just to give, I mean, while I’ll not name specific companies here, Siddhartha, there are multiple companies in our portfolio, which had existing investors in the company. They decided not to put more money behind those companies. And despite their signaling, we have actually come and led the rounds in those companies also.

So we do take that independent conviction. And to Ritesh’s point, we know that there is an adverse selection risk here. Even when we are evaluating them, it’s not that we are not aware of that.

But sometimes we will probably build a point of view if you’re still in favor of those companies. But that adverse selection is very much there at the moment.

Ritesh Banglani 12:57

Actually, I have another point to add here, which is that very often the consensus candidates are not always the best performing companies. If everybody knows or everybody thinks this is a great company, there is no alpha left. If that company or that sector is on the front page of the economic times, then very often there is a little bit of FOMO going on in the market about that sector, about that particular team.

And historically, at least I have found that that is not the best place to invest. Sometimes, when there is a difference of view between various VCs and even within our firm, within the members of the investment team, some of those have turned out to be better investments. Because there is an element of doubt as to whether it will work or not work.

That means that shows up in valuation, that shows up in ownership, that shows up in when the rest of the market realizes that it’s a great opportunity.

Siddhartha Ahluwalia 14:03

And was it same case with Mamaearth and Whatfix?

Ritesh Banglani 14:07

Oh, yeah, absolutely with Mamaearth.

With Mamaearth, I’m quite relieved that Rahul did the deal, even though Alok and I were quite opposed to it at that point.

Siddhartha Ahluwalia 14:19

But your IC is structured in a way that there are two no’s, then you don’t do the deal, right?

Alok Goyal 14:25

That is true. See, we also have a provision in which we might say that, look, here are all the reasons why we think you should not do the deal. But we’ll still sort of tell the investment partner or the deal team that look, we will go with your judgment still.

And we still argue pretty vehemently as to why it should not be done. It was one of those situations, Siddhartha, where Rahul had done brands and e-commerce for a long time in the past as well. And it goes back to the point at least why we think sector orientation matters.

He had a strong view on how a brand needs to be built as an internet company in a very different way. Neither Ritesh nor I understood that we were viewing that from a lens of a classical, physical brand that we had known in the past. In our minds, that deal made no sense whatsoever.

Rahul basically felt that look, you guys just don’t get it. And I’m going to use a Hindi word here. Like they say, almost lying on the bed . I mean, that’s pretty much what Rahul did that day.

And like Ritesh said, we are very glad that he did not listen to us and did what he had conviction on.

Siddhartha Ahluwalia 15:38

What about Whatfix?

Alok Goyal 15:40

Whatfix was, at least I would say, when we came in was a slightly easier call.

And I think the reason behind that is that it was a known entity. If you remember, we had backed it back at Helion.

Siddhartha Ahluwalia 15:50

Helion led the first round.

Alok Goyal 15:52

As a seed investment. So we knew I was on the board of that company. So there was an association and we had seen some journey with them by that time.

So it was certainly an easier call at that point in time for us.

Ritesh Banglani 16:06

Actually, I’d like to use this example of Mamaearth to highlight another important aspect, which people outside venture firms don’t really, don’t always appreciate, which is the importance of trust in a partnership. You know, in this specific case, if Alok and I had not trusted Rahul’s judgment, we would never have made that investment. And that trust comes from, of course, having observed somebody’s decision making over a period of time.

And so while we did not have conviction at that point in that specific business model, we had conviction in Rahul’s judgment. And that comes from, I’m actually very sure if that was the first year of us working together, we might not have had that conviction on his judgment. We had that conviction because by that time, we had already been working together for a decade.

And that is what helped us make a good decision as a team, even though individually, I would say our judgment of the opportunity was pretty poor.

Siddhartha Ahluwalia 17:12

So everyone sees in media highlights, you know, the closing of third fund 300 mil, right? Nobody knows the war stories of Stellaris, right? For fund one, you know, it took the first six months to raise 10-15 million and then it took another 18 months or 24 months to raise the remaining 70 million, right?

Tell us, you know, more details about those.

Alok Goyal 17:41

So Siddhartha, first funds are first of all, always very hard to raise, right? You, even if you have individual track records, you don’t have a fund level track record at that point in time. And most large LPs, they will talk to you, but I think most of them will usually not commit to your first funds.

For us, it was complicated by the fact that India’s macro for venture at that point was very poor as well. 2016, 17 people were questioning whether venture in India is going to be real or not at that point in time. So when we started initially, a lot of the friends in the ecosystem, mostly ex-founders, founders of companies that we had backed between the three of us, those commitments actually came very quickly.

But once we exhausted that first degree connects, we realized that moving forward had become really, really hard. And since you’re asking for war stories, one that I’ll tell is that I remember this was June of 2016. We were debating at that point in time whether we will be able to raise a real fund or not.

Maybe we’ll go to 15, $20 million. And then we’re saying, is it worth our time to do something if it’s that small a fund? I suggested at that point in time, let’s still do a first one.

If we’re not able to do it, maybe we’ll sort of pack up our bags. And Ritesh made the point in that call saying that, look, guys, we are taking somebody’s money. Money we are taking is for 10 plus two years.

Either we quit today before we take the money, or if we take the money, we are in it for the long haul. We basically then ask each other that, are we committing at least 15 years, no matter what happens as we start this journey or not. And this is such a long cycle profession.

Of course, I was new to the profession at that point in time, which is why I made the statement that I made. But you realize that we are taking responsibility for somebody else’s money, and we have to be in it for the long haul. And at that point, then we said, let’s make a real shot.

We said, if we can get to maybe 35 also, we’ll be in business. And luckily, we were able to at least cross that boundary at that point.

Siddhartha Ahluwalia 20:10

And then even you were mentioning during the raise of second fund, COVID happened. What are the stories from that fundraise?

Ritesh Banglani 20:22

So we are always, we have the gift of perfect timing, Siddhartha. Our first fund we tried to raise when nobody was investing in India. Our second fund we plan to launch in April of 2020.

March, we were all sitting at home. We had finished building the portfolio. And I remember having the call with one of our largest LPs.

That was a call in which I was supposed to ask them, hey, we are starting a new fundraise. Are you guys in? I have the call and the LP on the other side started talking about how they want to delay even the drawdowns of the current fund.

I didn’t even have the courage to ask him the question about the next fund because they wanted to slow down and look at where else their capital needed to go. So we had to delay the fundraise by a few months. At that point, it was not clear how long we would have to delay it for.

We also were not sure how much capital our existing portfolio would require, how much support the portfolio will need to tide over this COVID period. Because there were companies particularly in the consumer space, where demand had gone from doing really well to absolute zero. And so they needed capital to tide over that period.

So we took a decision at that point to do small secondaries in two of our companies, so that we have the capital to help our portfolio if needed. Now it turned out that by the fall of that year around September or so, the economy was looking better. The consumer impact that had happened in the first few months of COVID that had reduced and in fact, a lot of new business models had started to grow.

So we did not in the end need that additional capital that we raised by selling our stake in some of our portfolio companies. But if I’m back in that situation with the knowledge that we had at that point, we would absolutely take the same call again. Because more than raising a new fund, more than making new investments, our first duty is towards our existing portfolio companies.

We cannot let good companies die just because there’s an external macro shock. And that is what we optimized for at that point. And then of course, around November or December of that year, we launched the fundraiser eventually that was supposed to happen in April.

And by that time, the macro environment had improved. Some of our companies had started to do really well. So we were able to close the fund by April.

But during COVID, it was difficult.

Siddhartha Ahluwalia 23:05

And the second fund was suppose you started with a 125 million mandate and it got oversubscribed to 220.

Alok Goyal 23:12

Yeah, actually, Siddhartha, I think we are all a product of our experiences when we were raising first fund, we didn’t even know what we were doing to be honest. Right. We started with a certain size, then we felt that look, looks a bit large, as we hit some headwinds.

We reduced that size as well. Eventually, we did not end up, we couldn’t raise even the reduced size that we had set out to raise. As I said, it was a tough market was a tough fundraise for us.

Second time when we went to the market, we said that look, let’s figure out a base size that we think actually works for us. Right. And that’s what we went to market with.

As Ritesh mentioned, I mean, and as you know, the towards the end of 2020, suddenly the orientation towards tech and venture just completely changed. And we saw a lot more demand. So we initially went to went to our hard cap in that thing.

But in the end, there were some very high quality LPs that were keen on coming in the fund. We talked to our existing LPs as well. And collectively, we all felt that the fund will be a lot stronger by having them as part of the platform than not having them.

So we ended up expanding the size in our fund to eventually.

Siddhartha Ahluwalia 24:30

And how easy or hard it had been to raise the fund three? I know, it was a few months, three months or four months for fund three.

Ritesh Banglani 24:46

See, fundraising is never easy, Siddhartha. And that is where just like companies need our conviction, we need the conviction of our LPs. What helped us in the fund three fundraise was that some of our existing LPs showed early conviction.

Some of our largest anchor LPs in a way almost preempted the fundraise. Before we launched the fund formally, they had made their commitments, they made large commitments. That sent a signal to the rest of the market to new LPs.

And it’s not even the size of the commitment, but the quality of LP that matters. So we were very lucky to have high quality LPs that we had onboarded in our funds one and two, that came back with a very large commitment. That was a show of support.

And that conviction helps newer investors make up their minds as well. So that’s what happened in our fund three fundraise. Because our existing LPs committed early, that brought on some new LPs to the table.

And that’s how the momentum was gained.

Siddhartha Ahluwalia 25:55

And just speak, you know, the kind of fund that you have built that the market for global fundraising has been very tough in 2024.

Alok Goyal 26:05

Yeah, I think if Siddhartha, if you think about some lessons learned in the fundraise journey, because now that we have been at it for nine years, I keep forgetting how many years. Number one is that the macro matters a lot. Yes, our own individual performance track records matter a lot, but the macro matters a lot.

Like Ritesh said, we were still the same set of people when we were raising in 2016. We were the same set of people in 2020 as well. But the macro went against us in both of those situations.

In 2024, Siddhartha you are right that fundraising is still hard. And the overall allocation to venture dollars have gone down as interest rates have gone up. So to that extent, there was a headwind.

But there is a lot more positivity towards India than there was in the past as well. So I think there was a bit of a tailwind as well. And I think that that macro matters.

Number two, I want to come back to your DPI point. I think LPs as well as GPs, we have all realized that all numbers are good. But there’s only one number that eventually matters.

And that is DPI. It was probably not questioned as much in the past. But in the recent times, that’s the number that everybody’s looking at.

And since you’re asking, how did you feel with that number? More than anything else, it was just a relief, honestly. Having that number just gives you the credibility to go and talk to investors.

So that actually also mattered a lot. The third thing is that this is a business where relationships and the trust with LPs actually forms over a long period of time. There are so many people that we went and pitched to for first fund.

They may not have come in the first fund. But then they eventually took a chance on us in fund three, some of them in fund two as well. But it takes a long cycle for them to get to know you build the trust.

And I think the biggest part of what they’re looking for is, do these people do what they say they will do? I think they’re okay taking sometimes even lack of performance in a particular fund. But they’re backing a certain strategy.

What they don’t like is sort of macho behavior where you said I will do X, but you end up doing Y because then that’s not consistent with the exposure that they’re taking for their capital. So that I think also paid off by the time we were raising a third fund.

Siddhartha Ahluwalia 28:31

And what has been, in your opinion, a Stellaris strategy which attracted the best of global LPs in 2024?

Ritesh Banglani 28:42

I think there are certain, there are three or four key pillars to our strategy, Siddhartha. I think the first one is focus. We have seen probably because the India opportunity in the past was not large enough, funds often defocus from their core strategy.

So India-only funds will start investing in other parts of the world. Early stage funds will start doing mid-stage and late stage. Tech-only funds will start doing retail and hospitality and manufacturing.

We took that call relatively early on that we will be tech-only, India-only, and early stage only. And for the past eight plus years, we have followed that strategy. And there have been temptations.

There have been fantastic opportunities. Back in 2018, we were offered a series C opportunity that looked phenomenal. But our thinking was that either we do it as a new strategy, either we build a portfolio of such late-stage companies.

We can’t have a one-off late-stage investment in our portfolio because it increases the risk, it makes fundraising harder. And of course, that is not our area of expertise either. So we have said no to those kinds of opportunities.

I think focus counts for a lot. The other aspect for us is discipline of portfolio construction. As I mentioned, we do proactive portfolio construction.

At a portfolio level, we will allocate reserves every quarter. Every quarter we go through a list of our companies and we estimate that not company by company, but as a portfolio, these are all the series A companies in our portfolio. How many of them are likely to raise series B?

And then how much capital should we reserve for them in this fund? This means that we are not in a situation where five years into your fund life, you realize that I don’t have enough capital to invest in this fantastic company, which is going to be a fund returner, but I can no longer participate in series B because I have blown money on all the not so good companies. So doing that proactive portfolio construction and sticking with it, having the discipline to say no in certain situations so that you can say yes in the right situations.

That I think is the second pillar. A third pillar I would say is sector orientation. We believe that in order for us to be good investors, we need to go really deep into our sectors.

We need to understand the next level detail in the business models that we are backing. And that comes from pattern matching, that comes from having years, sometimes decades of experience in looking at a particular sector. Alok, for example, has been doing enterprise software first as an operator, then as a VC now for 25 years.

And that counts for something. So our approach is depth first. And that again has been, I think both entrepreneurs and VCs like that depth orientation that we bring to the table. So, these are some of the key elements of our strategy.

Siddhartha Ahluwalia 32:08

But let’s say, Alok, would you have backed founders in the past or will back founders in the future, where, you know, the sector is still, the market of the sector is still unclear to you, but you have conviction in the founder based on the past history or your relationship?

Alok Goyal 32:28

So, the answer is yes. In general, we can, at least I find, Siddhartha, that we ended up doing two kinds of deals. I mean, while we know at a simplistic level, you look for two things in every deal.

You need to believe in the market, you need to believe in the team, right? And that’s simplistic to say. I always believe that in every deal you do, if you were to put both of these on a scale, one is slightly heavier than the other.

Right? There are bets you take, which are more market first bets. There are bets you take, which are more founder first bets as well.

And it’s a mixture of the two. So, there are many bets that we have taken, which I would argue were founder first, were not necessarily market first. And as much as founders surprise you, I think markets surprise you even more so.

And there are plenty of those examples in our portfolio where we backed X, it turned out to be Y, a much better Y than we imagined it to be.

Siddhartha Ahluwalia 33:28

So, in your experience, which one, if you have to summarize, you would go for on a pattern matching level, either the founder bet or the market bet?

Ritesh Banglani 33:41

It’s not one or the other, Siddhartha. Each individual within our team also has a certain style. And that is why team decisions are better than individual decisions when it comes to investments, because there is no one formula to doing venture.

Some people might have a better judgment on the team. And so, they are better suited to make team first investments. Some other people might have better judgments on the market.

They are able to see markets evolve a little better than or a little earlier than others, in which case they are better suited to make market first investments. So, we don’t have a formula. And each individual and each situation demands something different.

Alok Goyal 35:29

But maybe if you want, I mean, we can even give examples of examples of companies. Actually, there’ll be quite a few companies that we have done where we didn’t know the market as well. I’ll give probably a more recent example, which is a company called Orbit Shift.

As you know, I mean, you know Orbit Shift very well. These guys are building a copilot. When I met the founder, founder was very senior in the McKinsey hierarchy.

I believe that it’s not going to work. I believe that for people selling more than a million dollar deal, technology coming and telling you that this is what you should do within Procter and Gamble or Chevron Texaco or something ain’t going to happen. Because these large entities, they have got people stationed in these companies.

How will that was a classical founder bet for us. We believe that the founder is so good that even if the initial path may not work, he will find his way. But this profession is very humbling, Siddhartha, that exactly what he thought has worked.

I mean, so much for our own thinking, but he actually made it work in the idea that he actually wanted to pursue as well. There are lots of bets we take which are very market centric. For me, one example was Slintel in the past.

Slintel, I’d been looking at that market from 2013, evaluated a lot of people. I believe that just the amount of data in the world is growing so rapidly that you should be able to intelligently utilize that data to be able to optimize your outbound motion. And even with Deepak Anchala, we were talking for a year and a half before we did that deal with him.

But that was a very market first kind of a deal that we did. And I’m sure Ritesh will have a lot of his examples.

Ritesh Banglani 36:28

Happy to share both kinds. For me, a good example of a market first investment is Kiwi. They’re a credit card on UPI business.

We’ve had a thesis on that sector since 2019. And the thesis was really simple. If you look at the largest payment systems globally, whether it is Visa or MasterCard or American Express in the US, or whether it is Alipay in China, they have a substantial, if not majority credit component.

In India, UPI is massive, but it’s debit only. So it is natural to believe that credit will be a substantial part of UPI. And the moment the RBI allowed credit on UPI, we wanted to take a bet in that sector.

We scouted for teams that were doing anything on the credit in UPI space, found a team of experienced FinTech operators, and they have been building what we consider is the finest credit experience on UPI over the past two years or so. So that was an example of a market first bet. A team first bet, I would say, would be a company like Dashtoon. That’s a team with an audacious vision. They are trying to build the Netflix of comics globally. Now, that is not something that you come up with by imagining where the market is headed.

It’s a combination of a team’s vision and the enabling technologies to take that vision to fruition. So with generative AI, they are able to crash the cost of creating a comic by 90%. And once that happens, you are allowed to, in a way, invest in distribution to create this Netflix of comics vision that they’ve had.

So that’s a classic founder first bet for us.

Siddhartha Ahluwalia 38:32

And what, according to both of you, are the strengths of all the four partners in the team?

Ritesh Banglani 38:41

Alok has only strengths.

Alok Goyal 38:44

It’s a hard question. That’s a hard question. Maybe we can still take an attempt.

Rahul, I think in our team has, remember, we talked about the culture of hustle. And sourcing. I think it’s just remarkable to see how much effort Rahul puts in.

I mean, I can certainly say that Rahul works harder than any analyst in the ecosystem. He is on deals all the time. And he makes sure that he questions each one of us.

Why did we not see this deal? Right. And doesn’t matter what your title is, whatever, in the firm, he will question everything.

Siddhartha Ahluwalia 39:32

Even from other sectors?

Alok Goyal 39:34

Yeah, it doesn’t matter which sector it is. Because as a firm, we are losing those deals.

Right. So but he has created that sense of urgency around sourcing, which he does very well. If I may speak for him, Ritesh was describing just the importance of portfolio construction.

I’ll admit that I didn’t even know the word, even when we started Stellaris. I’d been through one fund at Helion, but I’d spent just three years there. But just the importance of portfolio construction, and not just having it on a spreadsheet, following it.

Ritesh is the one who just is anal on that front. It can be the number of deals that you have done, how many seed versus series A, follow on capital that you’re going to put, ownership that you need to have, exit sizes that we are modeling. So many decisions that come in building a portfolio.

And some of those variables, he has pushed the partnership very hard on at different points in time. Naman, by the way, who we are very excited about. Naman actually brought a lot of fresh thinking and blood to the team, even in his first year.

And I remember that many areas that we were initially dismissive about, Naman actually, in some ways has pushed us to look at areas that we were not looking at. And I think Naman brings a very unique judgment, both of people and of markets. So comes with a very strong investment judgment to the team, besides being the game master of our team.

So he knows that when there are a group of people, how to engage 20 people, Naman is the master there.

Siddhartha Ahluwalia 41:40

And Ritesh, what would you say Alok’s strengths are? I mean, apart from his good looks.

Alok Goyal 41:46

I’m the tall, dark and handsome me.

Ritesh Banglani 41:49

So I think Alok’s biggest strength is the ability and the willingness to go beyond the rule book in pursuit of high quality investments. It is something that is, we have spoken about discipline, we have spoken about portfolio construction, we have spoken about a bunch of rules that we follow. The problem with being rules oriented is that you can miss the wood for the trees, that you can sometimes get so obsessed with your own rules, that you don’t recognize alpha when it hits you.

And I think Alok, more than anyone else in our team, is able to take exception calls as and when required. If a founder is phenomenal, he will not hesitate to come in with a little lower ownership. If a company is slightly beyond our stage, he will go and try and convince the founder to still raise capital, which is commensurate with our stage, as opposed to and sometimes the rest of us will say no to the deal because of that reason, but Alok doesn’t take no for an answer.

And that I think is one of his biggest strengths.

Alok Goyal 43:07

He’s basically giving me feedback that I don’t listen to anybody.

Siddhartha Ahluwalia 43:13

So one thing that I can share about Alok is like, when I started and I still feel like I’m nobody in the venture ecosystem, Alok went out of his way to help me.

Ritesh Banglani 43:26

You’re unique in that regard.

Siddhartha Ahluwalia 43:32

What I feel is because I come from an entrepreneurial experience, where entrepreneurs are more open in sharing their connects.

What I found out about venture the hard way was it’s a very closed world. So, you know, thank you, Alok, for being who you are.

Alok Goyal 43:50

No, not at all. Actually, Siddhartha, you’ll be surprised when we started the number of GPs that made connect for us was frankly unbelievable.

We didn’t expect that. And I always believe that no matter who you are, you will reach the people you want to reach to with my help or without my help. So I’m better off helping than not helping in these situations.

Ritesh Banglani 44:19

No, also in that regard, I do think that I love the culture of our venture ecosystem. I’ve also heard these stories about the VC culture globally, dog-eat-dog, vulture capital. We’ve heard all of these.

At least our experience is not that. Our experience has been that it’s a very collaborative, very paid forward kind of culture. If someone does you a favor, they do not expect a favor back.

What they do expect and how the system perpetuates is by you doing a favor to somebody else and then it eventually helps everyone in the ecosystem. And I really hope as our VC ecosystem grows, we are able to continue that culture of, you know, we compete with the same people. But the level of collaboration and frankly, just empathy and love that we get from the ecosystem, I’m immensely grateful for that.

Siddhartha Ahluwalia 45:19

You mentioned on a couple of occasions, you know, how Shekhar Kirani helped you in every way possible.

Alok Goyal 45:28

Yeah.

And, you know, he’s not the only one. There are so, so many people. I mean, that list actually can’t even be put down.

I mean, Shekhar, first of all, is a phenomenal investor and we all look up to him. But I remember in 2016, he made an introduction for us, which it was a very large LP. They did not come in our fund one.

They did not come in fund two, but they eventually came in fund three. Right. And, but like that, there are many examples, Siddhartha, where people have actually gone out of their way to help us.

Siddhartha Ahluwalia 46:11

You know, global macro affecting India right now. So India has proven that India can give exits. Right.

Mamaearth was the first D2C company that came out of portfolio from India to have, you know, listed on the markets. We are seeing several companies across gaming like Nazara and food delivery has, you know, for the longest period of time, people thought that this will be unprofitable sector. Now the story of Zomato and Swiggy is known to all.

But there’s also the narrative that Indian founders are still not ambitious enough. That’s what I’ve heard from some of the global investors. And Indian founders still think of $1 billion company.

Rarely four or five will think about building a $10 billion company. And it’s almost impossible to find a founder who will build a $100 billion company or a 1 billion revenue company.

Ritesh Banglani 47:10

I think valuation or even financial metrics are not a good measure of ambition. Ambition, I would measure ambition based on the impact that the founder wants to make. Sometimes these numbers are so large that it is really hard to even comprehend them.

In fact, I would even say that I harshly judge founders who are focused on achieving a number. Whether it is 1 billion, 10 billion, 100 billion, doesn’t matter. Because purely numbers focused founders have rarely changed the world in my view.

So I would much rather back someone who is trying to create something totally new in the entire world than back someone who says, I want to build a $10 billion company. Because you have zero revenue right now. Your valuation is $10 million.

After a certain point, after a certain order of magnitude, all numbers look the same. So I don’t believe in this narrative that ambition is measured by valuation or by revenue. Ambition is measured to me by what you are trying to build, how many people does it impact, and does it make a little dent in the universe or not.

And there I think we have plenty of examples both in our portfolio as well as in the venture ecosystem overall, where people are trying to build world changing startups.

Alok Goyal 48:44

Also Siddhartha, I think that the notion of how large your vision is, is also based on what has happened in that ecosystem in the past. I’ll first give you a very different analogy. When I came into selling software in India, in our company, we had not sold a single deal more than a million dollars in its history.

In the first two years, we did probably 10 deals above $5 million. But all the salespeople who didn’t even believe that it was possible to do a deal worth a million dollars, the entire team of whatever, a couple of hundred people started believing that they could do $10 million deals, $20 million deals. It’s not that they were not capable of imagining, it’s just that those data points did not exist.

Until the point when Gavaskar was the only one with 29 centuries, maybe scoring 30 centuries was the biggest benchmark that you had, and that’s what you dream for. But today people think about 100 centuries. Why?

Because that benchmark has been achieved. Now when Swiggy goes public at a more than $10 billion valuation, you will find people thinking much, much bigger than what they used to in the past. So I think just the bar of the ecosystem gradually changes.

But I think we are progressing very, very rapidly. And I don’t buy the argument that Indian entrepreneurs don’t think big therefore.

Siddhartha Ahluwalia 50:08

What about B2B SaaS software? Why is there only one Freshworks-like outcome from India?

Alok Goyal 50:16

I think that has to do with the age or the tenure within which these companies have started. I think in all earnest, I would argue that B2B software from India has started in 2010-11 time frame, broadly. You can count on your fingers, even companies that started during that era, all put together, we are talking 13-14 years since we have started.

To build a real company, Siddhartha, takes at least 10 years. What also tends to happen is, like if you might remember in manufacturing, we use the word experience curve, which is what says that every year, you can reduce your COGS by X percent. Why?

Because now you have an experience of manufacturing the same thing again and again. We are actually going up that experience curve in building these companies. I mean, let’s take an example, which is very near and dear to our heart.

When Whatfix started, the conventional wisdom was that you cannot sell a deal more than $5,000 in phone. Today, there is no number which you can’t sell from India. We just closed more than a half a million dollar deal in one of our fund two companies, which is actually a very young company, all remotely.

So, just these barriers of experience are getting broken gradually as well. The quality of talent is going up as well. The capital availability is also going up. Right?

My hypothesis or my projection, Siddhartha, is that in the next three to four years, you will see at least $10 billion plus exits or IPOs in SaaS.

Siddhartha Ahluwalia 52:08

All built from India.

Alok Goyal 52:09

All built from India.

Siddhartha Ahluwalia 52:12

Any names that you want to put up?

Alok Goyal 52:14

Given that this is a public forum, I’ll hesitate on names, but we have talked about many of those names in the past. So, there are quite a few which are knocking on the door.

Siddhartha Ahluwalia 52:28

And why do you think so? Is it just the experience curve that you are seeing?

Alok Goyal 52:30

No, because these companies have been in the market for 10 years. These exits could not have happened earlier by design.

And there wasn’t enough mass that started in those eras either. Remember how hard it was to actually fund a SaaS company. There were literally three or four of us in the entire ecosystem.

And we were trying to find our own place, frankly. So, things have changed so substantially since then.

Siddhartha Ahluwalia 52:54

And I can also add to your point that till 2018, there was not enough capital also for SaaS companies. Like Whatfix’s first round was 1 million.

Alok Goyal 53:05

Well, nobody wanted to do Whatfix in multiple rounds, as you know. I mean, we have nobody believed in the category. It was very hard to get SaaS companies to be funded.

Ritesh Banglani 53:14

I’d like to add another factor, which is where the entrepreneurs are coming from. In my mind, there have been almost three waves of entrepreneurship in India. The first wave of entrepreneurs actually came from services companies.

These are people who owned large P&Ls, but often had no experience of actually building a startup or building a product in the first place. So, because the specifications would come from the customer, and they would build according to that. Now, suddenly they’re thrown into a pond where you have to come up with what to build as well.

And that cohort, by and large, found it hard to conceptualize products in the first place. Then came the sort of next cohort of entrepreneurs. These were people who were coming from product teams of MNC companies.

So, they were able to both conceptualize what to build and build a product with polish. I was so happy last week, I was with some friends from abroad who had looked at some Indian consumer products. They were talking about Swiggy, they were talking about Zomato.

And they were pleasantly surprised at some of the simple product innovations in the apps. And it felt like a moment of validation for me. Both of these companies came from that cohort of entrepreneurs.

And I think they were able to build the polish in the product and build the right products. What they took time with was time to get used to the chaos of operations in India. They had to invent operational processes.

The third cohort, which I would say has been around with us for five or six years now, is entrepreneurs who already have experience with large startups. They have already seen growth journeys. We were looking at it the other day, just the Flipkart and Myntra ecosystem.

And just with one fund ours, we have funded at least eight or nine companies just from that one ecosystem. And these are people who have, of course, experience of building products, experience of go to market within India, and if they’re SaaS companies, go to market outside of India. These are people who have experienced the chaos of building a startup.

What are all the 250 things that go wrong when you try to solve for logistics in India? It’s not the first time for them. But also very importantly, they have seen and felt what product market fit looks like.

When your servers are unable to cope up with the demand, when your delivery force is totally broken because there’s too much demand, that is a sort of magnetic pull that they have experienced and they want to do it again. So, I think as the kind of entrepreneur evolves over time, the size of what they want to build and the scale of ambition also evolves with time. Someone who had only seen a business unit in TCS at that time could not have dreamt of building a $10 billion company.

Whereas someone who has seen that journey at Flipkart or seen that journey at Zomato, for them now, the scale of ambition is at least what they have seen in the past, if not more. So, I think that evolution has been very positive for our country.

Alok Goyal 56:55

We’ll give you an example, Siddhartha. Last year, we bagged a team where one of the founders was the chief business officer of Xiaomi. He was the one who had grown their TV to be the largest market share in the online channel.

As he has started his consumer electronics company, the scale at which he’s thinking, the velocity with which he’s moving, the access to talent that he has, is just dramatically different. Those kinds of entrepreneurs didn’t exist 10-15 years back, which I think is a massive positive for the whole ecosystem.

Siddhartha Ahluwalia 57:37

No, I agree with you.

Even within our portfolio, and I’d like to disagree with some of the global VCs who still think that, the kind of ambitions, for example, an atomic work has, is phenomenal.

Alok Goyal 57:56

See, he has built a company, he has sold that company to a global major in the past, been through that rigor in the past.

Siddhartha Ahluwalia 58:02

So, completely agree. We are not very behind. We’ll see a glean-like outcome, like 100 mil ARR in five years from India.

And we are good at repeating also.

Alok Goyal 58:17

I’m pretty sure we will see. I’m pretty sure we’ll see. I mean, while not a software company, if you look at Mamaearth journey, we came in that company in the second half of 2018, when they were just about 10 crore run rate.

In five years, they crossed 2000 and listed. Those things we could not imagine in the past. But I’m an optimist.

I’m a diehard optimist, actually. I’m pretty sure many of those examples will happen.

Ritesh Banglani 58:48

I’ll give you real data. I started in venture in 2007. In that 2007 through 11 period, when we used to build projections for our portfolio companies, we would project them to get to, we would project that they would get to a million dollars in annualized revenue in three to four years, if everything went well.

Today, we have six companies in our portfolio currently that have crossed that mark in less than one year. This is, I think, it’s partly the ecosystem that all the enabling factors are in place, but partly also the quality of entrepreneurs and a much larger market.

Siddhartha Ahluwalia 59:31

And the dollar rate has also doubled.

Ritesh Banglani 59:32

That’s also true.

Alok Goyal 59:34

Yeah.

Siddhartha Ahluwalia 57:35

This is actually twice the revenue, but let’s say one third the time.

Ritesh Banglani 59:38

Absolutely.

So, you know, it’s been for you almost 18 years in venture today, right?

Ritesh Banglani 59:44

Yeah.

Siddhartha Ahluwalia 59:46

So, how would you describe that? How is decision making in Stellaris different from the processes or decision making that you have observed at other VC funds? And, you know, maybe at also at Helion, where you previously worked at?

Ritesh Banglani 60:04

So, I think our decision making is superior because we use a dartboard in our conference room. We all throw darts. If the majority of darts hit, then we invest.

If they don’t, we don’t. But no, very seriously, I think we are very cognizant of the fact that a lot can go wrong. And the main way in which we have tried to structure our decision making process is to enable individuals to back their conviction with what can go right.

So, even when we are debating an investment, we try to focus not so much on what can go wrong, because there are always a million things in every startup that can go wrong. But what can happen if things do go right? So, we try to encourage that discussion when we are discussing a deal.

When we are taking decisions, our entire investment team actually votes on every deal. And the purpose of that voting is to try and put a stake in the ground. And only putting a stake in the ground actually helps you calibrate your decision making in the long run.

If let us say, there is an outcome that did or did not work out, I want to be able to go back to see, how did I think about this company three years ago? And why did I vote the way I did? So, we encourage people, everybody in the team, not only to vote, but also to write down a set of detailed reasons why they are voting in a certain way and the risks.

Siddhartha Ahluwalia 61:54

Even if the deal is outside the sector.

Ritesh Banglani 61:56

Yeah, everybody. Everybody not only votes, but gives reasons for their votes. And those reasons are documented and the goal is to be able to learn from the decisions that we took, even individually. The other factor is that we have the concept of a no-objection vote, which is different from just a yes or no. That’s what Alok was referring to, where you are allowed to say, I don’t know enough about the opportunity to be able to fully support it or fully decline it, but I believe in your conviction.

Your, as in the deal team’s conviction. What that does is it creates a high pass filter. It allows us the opportunity to back the conviction of the sponsoring team.

And that is, in fact, the route through which Mamaearth got funded. So, we do open that opportunity where the rest of the team actually plays a pretty important role is in ensuring that the company actually fits in our overall portfolio and giving additional data points to the deal team when it comes to evaluating the founders, when it comes to first principles, evaluation of the business and so on. So, we want to operate at a point where for the first check, we have a high pass rate in our investment committee.

Alok Goyal 1:03:34

Yes, Siddhartha, just to add, see, I think there are two parts to decision-making process. One is the set of rules which you govern that decision-making by, which is what Ritesh is referring to. And that includes the fact that we do not believe consensus is a great way to make decisions for venture deals.

We also believe that nobody should have a veto. No single individual is so smart across sectors that they know what the world will look like in eight to 10 years. Data suggests that we hardly know anything.

So, we want to make sure and which is why we try to back the conviction of the deal team. But we also believe that we do all tend to behave like kids in a candy shop on certain deals. We feel, this is so good that we should break all rules and we should still do it.

The IC in our case actually does weigh in heavily in those situations where we are trying to go beyond the portfolio construction norms, which is a discipline plot that Ritesh was referring to earlier. Those are the set of rules, which I think collectively at least we believe makes the decision-making process effective. Even more than what the set of the rules that govern the decision-making is the conduct.

And at least we would like to believe that that’s the single important thing. So, for example, I can have the same set of rules. I’m voting in an IC today, Ritesh brought the deal.

I’m probably thinking of bringing another deal one week down the line and I vote a yes, even though I think it should be no objection or a no, but because I’m going to bring a deal and then I don’t want Ritesh to vote a no on that deal. So, the rules are still the same, but the conduct has gone wrong here. That culture of intellectual honesty and the culture that the moment the IC ends, we actually don’t even care or remember who voted what.

It doesn’t impact our behavior literally in the next meeting. That trust that Ritesh was referring to earlier, trust not only on your judgment, but trust on your intent is also so critical for the functioning of any decision-making system. And at least that’s the one we pride ourselves a lot with.

Ritesh Banglani 1:05:54

Actually, I’ll give a couple of examples of that culture. I think in venture firms, in deal discussions and portfolio discussions, it is very, very important to be able to disagree openly, disagree in the whole team. And that only happens if the partners feel free to disagree with each other.

In our case, not only do we feel free, we just do it all the time, but that encourages everyone in the team to disagree, to voice their disagreements if they have it. I think that’s something that I’m quite proud of, that because we have fostered that culture of open disagreement, everyone in the investment team feels free to disagree with anyone else without any consequences for that disagreement later on. Second, we try to encourage a conversation, a culture of no side conversations.

We don’t want to come into an investment committee meeting having already forged a consensus. So, I would be very, very disappointed if the deal team members come to me separately and try to get my consent before the actual IC meeting. Because that means, you know, that leads to politics, that leads to, that defeats the culture of open disagreement and so on.

So, we try to air our views in that investment committee meeting and not before the meeting in a inside conversations. And there are a million other ways in which we try to forge that culture of intellectual honesty. But in the end, having that culture of intellectual honesty is crucial to good decision making.

At any given point in time, you should be, you should feel free to speak your mind, whether or not you agree with the deal team’s decision, whether or not you agree with the majority decision. It has happened so often that as we are going around the table, a deal already has the requisite votes for a yes. For the last person who’s voting, it would be so easy to just agree with what everyone else has said.

And yet, it happens all the time that the last person who’s voting will vote a no and give a 15 minute speech on why we should not do the deal. That is the culture we want to foster.

Siddhartha Ahluwalia 1:08:38

And let’s say, how many of the investment committees, ICs out of 10 became number of investments?

Alok Goyal 1:08:49

Usually about 80% or so. Maybe three out of four or four out of five actually do sell through in our case, which is which goes back to the principle that by and large, we want to back the conviction of the deal team. And unless there is something glaring, can be about the market can be about the founders can be about the deal construct, all of those can be issues.

So because we are very sector oriented, right? If Ritesh is doing a deal in FinTech, I have never done anything in FinTech in my life. The chances that I will be able to come up with a much more nuanced view on the market that he has already not done, that chance is very remote.

Ritesh Banglani 1:09:36

It doesn’t stop him from trying though.

Alok Goyal 1:09:38

Yeah, I do try. He doesn’t listen though.

Siddhartha Ahluwalia 1:09:43

Alok, how is the global macro on AI, let’s say OpenAI, DeepSea, affecting your AI thesis and investments?

Alok Goyal 1:09:56

So at least we are very excited about the developments, Siddharth. We can, you know, we’ll answer the consumer versus the enterprise part separately. And even with an enterprise, you can actually break it up into the infrastructure side, the AI infrastructure, or the application side broadly.

We are a bit more cautious today on the infrastructure side. I think that train is moving so rapidly that even if let’s say you want to solve a problem, it is not clear whether that problem will stay a problem in another six months or a year itself. So the stability of the problem being solved itself is not clear at this point in time.

Also, in many of these cases, the capital requirement is so high that we question whether we are the right kind of fund to be able to be funding those kinds of businesses. So while we meet all the companies, but we are being cautious on that front. But the beauty of the current AI wave is that the same API is available to a developer in San Francisco, as the one in Bangalore, or in Chandigarh, or in Pune, or in Chennai, all at the same time, right?

In that sense, it has gotten democratized, which if you might remember, was not the case with cloud. Cloud started happening in late 90s. AWS came in 2006, which means that there was almost a 10 year period where cloud if you wanted to do something on the cloud, you build your own cloud, right, which was a very hard bar to pass.

So today that being democratized, at least on the application development side, that’s available to everyone. Our companies in India can actually benefit from these developments at the same time as anyone else. And I think the interoperability has gone up.

The number of companies in our portfolio who actually came back and said at the beginning of this week, that they have already tested their products with DeepSeek also is mind boggling. I mean, it’s actually in some ways, I worry about all the LLM companies as to how low the switching barriers are. But that’s great news for application companies.

And we are very bullish on most applications in the world being rethought in the coming years. That’s one big area. The other thing which is exciting, Siddhartha, is that AI by virtue, particularly in the enterprise world, being good enough is actually not good enough.

Why? Because imagine that you’re asking a machine to do a banking transaction, and you say that I’m right 90% of the time, that’s very high accuracy, I mean, you’re doomed, right? You have to be 100% correct, right?

As we all know, and while a lot of these chain of thoughts and multi-agent systems are all coming into place, but the reality is that every step has a certain finite percentage of errors. You aggregate that error percentage when it goes through, let’s say 20 steps or 30 steps, actually realize how low the accuracy is of many of these tasks. What that means is that you need humans as a backup.

And we are very bullish in this era of companies that are combining AI as well as humans to be able to deliver the outcomes, which I think India is in a very unique position to be able to deliver. The last part, Siddharth, is that, I mean, as we are seeing today, the new version of GitHub, GitHub Copilot got released, right? India has the second largest number of developers in the world.

And we believe that we will see a lot of developer-centric tools also come out of India. We have some in our portfolio as well. But that’s the other area that we are actually very bullish on.

Siddhartha Ahluwalia 1:13:31

But in this AI wave, does India have any distribution or monetization advantage?

Alok Goyal 1:13:37

India has no disadvantage for sure. I think if you look at the application, Siddhartha, there is no difference between taking an AI application to market versus taking the applications to market that used to exist in the past as well. That has actually not changed a bit.

And we have gained that experience. I would argue that at the time of Whatfix started selling, I mean, today they have whatever 90 Fortune 500 customers, but selling to the first one took a lot from them. But there, the experience curve that I was talking of, comes in pretty handy for us today.

But I don’t see any disadvantage that we have in that front. Or at least there’s nothing different about taking an AI application to market compared to a regular SaaS application to market.

Siddhartha Ahluwalia 1:14:23

What has been the experience across consumer AI?

Ritesh Banglani 1:14:26

I think on the consumer side, the deal flow is not as much as on the enterprise side. We have backed Dashtoon that I spoke about. We have seen a number of applications in FinTech that I look at.

Particularly, I’m quite curious about the application of AI on wealth management. Can AI do a better job than your human advisor can? Can AI help you avoid the emotional traps that come with investing? Those are some very interesting areas. I think as Indian entrepreneurs realize that they can sell globally and that AI reduces the cost to that extent that it becomes viable to sell globally, we should see a lot more consumer AI startups come out of India.

Siddhartha Ahluwalia 1:15:24

And why do you think there are so many enterprise AI applications coming out of India at this moment?

Alok Goyal 1:15:32

I think it’s not just an India phenomenon. I think that’s true globally, Siddhartha. We are seeing in general, the value propositions are very strong right in the beginning in the enterprise world.

But at least our belief is that even on the consumer side, when you look at education, you look at healthcare, financial services, and frankly, we have evaluated companies even in the manufacturing space, which are using AI in very creative ways. They are just bound to happen. I would give it literally the next couple of years.

I think we are going to see a large wave of companies coming on the consumer side as well. Ritesh actually had done one company, which is taking your credit report using GenAI to build a customized video for you that first of all explains to you why your credit scores is what it is because most normal human beings can’t interpret that report and then tells you how you should go about actually improving your credit score. That’s a classical consumer application, which was not possible literally a couple of years back.

Ritesh Banglani 1:16:40

Actually, I’d like to talk about the cost advantages of AI using that example. See, we have been looking at this credit improvement space for seven or eight years. I remember back when we had just started the fund, we had evaluated a company in the credit improvement space.

And one of the challenges was actually the cost of serving them because it is by definition, a customized service. You need an advisor who looks at your credit report, who looks at your history and gives you specific advice on which loans to repay now, which loans to go and renegotiate, which loans to continue defaulting on for a period of time till you have enough financial resources. It’s highly customized advice.

Now, even if a machine can actually figure out what to do, that advice still has to be delivered to the customer, which means having a large call center. Now, as we know in India, hardly anyone pays for advice. Right.

So, it was unviable to deliver that using a call center. The exact same value proposition, our company GoodScore is delivering using AI and is able to do so profitably because there is no human call center agent required to deliver that advice. It is a bot using a customized video that is actually giving you that advice.

So, it enables business models that did not exist before or that were unviable before because that delivery cost is crunched massively.

Siddhartha Ahluwalia 1:18:17

And let’s say at an overall level, is Stellaris at an institution after eight years at the level where it would have like it to be?

Alok Goyal 1:18:28

So, we often make the statement, Siddhartha, that if you had asked us this question eight years back, that this is, will we be here? I don’t think we imagined being here. Lots of things, lots of rolls of dice, I think, have worked out in our favor through this process.

And we are happy, relieved, many other objectives we can use. But yes, at least I don’t think I imagined that we will be here in an eight year period. What’s the most exciting part is that the ecosystem itself has evolved so rapidly in this time, whether it’s the quality of entrepreneurs, the availability of capital across stages, just the growth of the underlying markets. So, all of those things have come together just to make it a very exciting ecosystem.

Siddhartha Ahluwalia 1:19:24

Mamaearth and Whatfix were great outcomes for an 80 million fund. But for a 300 mil fund, are Mamaearth and Whatfix the best possible outcomes? And if not, do you need 10x better outcomes for fund three of 300 mil? And does this keep you sleepless at nights?

Ritesh Banglani 1:19:49

I think you’d answered the question yourself, Siddhartha, when you spoke about the ambition level of entrepreneurs. Mamaearth was a 2017 investment, a 2018 investment. The scale of outcome that is possible for a 2025 investment is materially different from the scale of outc ome that was possible for a 2017 investment.

Now, we can imagine $5 billion outcomes, $10 billion outcomes. And in fact, we want to shoot for those large outcomes. So, I don’t believe that we will only see billion dollar outcomes.

And so, we need eight such outcomes to return the fund. I think we can return the fund with three $5 billion outcomes or four to five, two, two and a half billion dollar outcomes. So, I think the scale of ambition, having changed, makes the scale of returns that much larger.

So, I’m actually more bullish on being able to deliver on a $300 million fund today than I was in being able to deliver a $90 million fund in 2017. That was a bigger gamble in my mind.

Siddhartha Ahluwalia 1:20:56

You were concerned back then, how would you return the fund?

Ritesh Banglani 1:21:00

Exits were not there. Where will the exits come from? Today, we have three, four years of solid IPO track record in India. So, we know that if a company performs, there is a market for it. That was not clear in 2017.

Alok Goyal 1:21:13

I mean, just to put this in numbers also, when we backed Whatfix, and this was an early 2017 investment for us, our spreadsheet math on the exit size was we put $600 million at that point in time, saying that that’s the farthest at least we could imagine. As we have figured out that number is way behind us as well. In 2018, when we did Mamaearth, our exit assumption was a $750 million valuation for the company.

We are way past those numbers as well. I think India has evolved again on what these exit sizes could mean. Of course, we don’t want to go completely haywire also in our assumptions.

But on that $300 million question, what has also happened Siddhartha is that, see, this is a business where you also have to be very selective in the bets you are taking. And one of the things, both the underlying number of companies that are coming up and the quality of those entrepreneurs, in our case, it’s also a deployment capacity that has gone up. In Fund3, we have a fourth partner as well.

And that changes, actually, the amount of capital that we can apply thoughtfully or invest thoughtfully.

Siddhartha Ahluwalia 1:22:33

What has worked for the Stellaris in the last 8 years? And do you think the same thing will work for Stellaris for the next 8 years as well?

Ritesh Banglani 1:22:41

I think you asked a question about what keeps us up at night. I can certainly say that this question keeps me up at night. And if I were to identify one thing that we would like to achieve over the next few years, it is to be able to institutionalize the fund, which means thinking through how the team will evolve over the next decade.

We’ve made a good start with a new partner. I’m hopeful that over the next decade, we are able to bring in several newer partners and create several new partners in the firm. We have to constantly evolve and rethink our strategy.

What worked in the last 8 years might not work in the next few years. Do we need to think beyond the boxes that we have created for ourselves? That would be another, I would say, key challenge of the next decade.

A third challenge, I would even say, is our patterns. And I’m specifically speaking of Rahul, Alok and myself, not even the younger folks in our team. Are our patterns going to hold over the next decade?

We have created certain patterns in our heads on what works, what doesn’t work in certain situations. How should a startup react to a certain situation when it happens, a certain challenge when it happens? And we rely on those patterns to guide our startups.

Will those patterns still be valid 10 years from now? Basically, what I’m saying is, at some point, will we become too old to do venture? And how do we ensure that we are able to collect new patterns and disregard the old patterns as we look at the next decade of Stellaris?

So those are the kind of questions that keep me up at night. Exit sizes I think we are comfortable on.

Siddhartha Ahluwalia 1:24:42

What about you, Alok? Anything that keeps you uncertain?

Alok Goyal 1:24:47

I think for me as well, I worry that the world has actually changed so rapidly. And that, frankly, for me, just keeping up in learning all the new stuff that’s happening is what keeps me up at night all the time. I feel like in software, I’m just always trying to play the catch-up game.

By the time I learned the ABCD of something, the bar has moved so much forward. But that continues to be. I’m still not able to come up with a good answer for the question you have asked in terms of what has worked and may need to be thought differently.

All I can tell you is that every year, we do hold, we do a session dedicated day where we go through what are the top five questions in people’s mind about our strategy. And it is not that three or four people decide those questions. We actually, everybody puts down their questions.

We first vote on the questions. As you can see, we have a process for everything. We vote on the questions to arrive at the top five questions.

There are then teams attached to each of those questions and we come back a month later holding a discussion around those topics. And in many ways, these are the most obvious questions as you can think about. These are about decision-making. This is about our portfolio constructions. This is about our sector coverage model. This is about which are the new teams in the market that we should be backing.

So the idea is that, look, let’s not get married to the ideas we have. And even though we described to you what our decision-making process is, etc. Many of these have actually evolved every few years for us as well.

And I hope that we can continue to make those changes as we evolve.

Siddhartha Ahluwalia 1:26:42

So thank you so much, Alok and Ritesh for this conversation. I have known Alok for such a long period of time, and this is the nth conversation I’m having with him. I’m having the first conversation with you, Ritesh.

And I think this conversation is epic and it’s going to be a landmark for the new fund managers who are coming for the next 10 years on how to build a fund.

Alok Goyal 1:27:07

Yeah, it takes at least 20 years even to get started in venture, I’m realizing now.

Siddhartha Ahluwalia 1:27:12

You never get old in venture.

Alok Goyal 1:27:14

Yeah, I mean, old? I mean, it’s been 12 years. I don’t think anything has happened yet.

It takes a long time. But it’s a wonderful profession. I mean, honestly, every time I’ve thought about it, I just feel that there can’t be a better profession.

Siddhartha Ahluwalia 1:27:32

Would you have traded it for being an entrepreneur?

Alok Goyal 1:27:35

Yeah, I believe that being an entrepreneur is like falling in love. You cannot plan for it.

When it happens, it happens. So I’m okay being where I am at the moment.

Ritesh Banglani 1:27:52

Yeah, you know what they say, that those who can, do. Those who can’t, become VCs.

Siddhartha Ahluwalia 1:28:00

I think, even for myself, being in a venture keep me on as much as toes that what we are, you know, being an entrepreneur kept me.

Alok Goyal 1:28:12

No, you’ve done a phenomenal job. We were, Ritesh and I were talking earlier. I mean, even this podcast that you have built, I think building anything is hard.

It actually doesn’t matter what it is. Building anything of quality takes time, effort, thinking. I mean, you have built a very high visibility for yourself with this, actually.

Siddhartha Ahluwalia 1:28:33

I think fundraising humbles you. So you don’t realize.

Ritesh Banglani 1:28:40

But that’s true for all of us.

Alok Goyal 1:28:42

But that is true for everyone. That is true for everyone. And you look at the journey of established funds also. There may be funds that were easy to raise. A couple of bad news happened. You will realize that their funds are very hard to raise suddenly. There is nothing. I mean, these are global pools of capital. They can be deployed anywhere.

They can decide to do real estate in Brazil or do a fishery in Indonesia. Who knows? I mean, so you always have to be on your toes to impress upon them why you make sense.

Siddhartha Ahluwalia 1:29:12

Thank you so much.