Episode 121 / June 13, 2021

Investing in outliers with Madhukar Sinha, Founder, India Quotient

01 hr 08 min

Episode 121 / June 13, 2021

Investing in outliers with Madhukar Sinha, Founder, India Quotient

01 hr 08 min
Listen on

“We don’t think of ourselves as fund managers. The fund manager is someone managing 100s of millions of dollars, your job is largely doing money management.

Our job is not to do money management, our job is to look at the new trends, try to meet the smartest of the smartest guys, and somehow try to convince them to take out money, and be a good part of the ecosystem and make other good people within the ecosystem come and talk to us.”

Can you ever imagine someone who has been an NGO worker for a long time, suddenly switch careers and;

# Setting up a VC firm

# Raising $120.9M+

# Investing in 102+ companies

# Getting 11 exits

Well, that’s the story of Madhukar Sinha, Co-founder, India Quotient, and the guest of this week’s episode.

Most of us get comfortable in our jobs post the age of 30, let alone the thought of setting up a VC firm. But that’s exactly what Madhukar, along with his Co-founder Anand Lunia did, back in 2012.

During the podcast, Madhukar talks about his first experience with 3G, how he didn’t let his NGO background limit his career choices, and much more.

Notes –

01:12 – Early life: Growing up in Jamshedpur to working in NGO

06:14 – Understanding what India really is, not only in metros, but in terms of Tier-II & Tier-III cities

06:47 – NGO background stereotyping & limiting his career choices

07:12 – Completing his MBA and joining Aavishkaar

10:55 – Experiencing the potential of smartphones after getting his first 3G phone in 2011

12:32 – Co-founding India Quotient in 2012; at the age of 35

15:51 – Being more of Entrepreneur, less of Fund manager

26:18 – Not continuing what you aren’t comfortable with

32:35 – Making investment decision for early stage companies

43:05 – Talking about portfolio companies – Sharechat, Lokal & BharatAgri

50:28 – Fund return expectation in 5+ year period

57:54 – First Cheque: Investing in unique ideas that don’t directly match India Quotient’s thesis

1:02:34 – Getting personalised deal flow via founders of portfolio companies


Read the full transcript here:



Siddhartha Ahluwalia 00:00

Hi, this is Siddhartha Ahluwalia, welcome to the 100x entrepreneur podcast. Today I have with me, Madhukar Sinha, Founder and Managing Partner of India Quotient. India Quotient is one of the leading venture capital firms in early stages in India. Madhukar, welcome to the podcast,


Madhukar Sinha 00:18

Hi Siddhartha


Siddhartha Ahluwalia 00:20

Madhukar, would love to know your journey before India Quotient, your family background, right your education.


Madhukar Sinha 00:29

Yeah, great. So, I come from a small town called Jamshedpur earlier and I did my schooling from Jamshedpur. Jamshedpur is a little still city famous for the TATAs, almost all industries are heavily dependent on TATAs and a very good system going over, So, to have a good road good power. Nice. I grew up there and Jamshedpur is quite an incident, everyone wants to become engineer and I also wanted to become and engineer and wants to go to IIT, prepared for IIT but not able to get into IIT and then I went to study in Delhi, graduation and by serendipity somehow ended up in agriculture degree. This was through a central entrance examination which was being conducted and I just happened to get exam that and proceed in Ludhiana. So, joined over there. my family background My father was engineer at TATA Motors, two sisters and a me we like most of the families, we live in TATA systems I studied in private schools but most people used to study in their schools also. So, we were in apartments or hospital system of TATA. Whatever you need, everything is there from TATAs. So, after doing my engineering in Ludhiana in 2000, I decided to go for a job and in it was just serendipity that I got a job in an NGO. It was nonprofit It was called Pradan. Pradan used to do is used to work in rural Indian right to help them create livelihood opportunities. So, I joined Madhya Pradesh in a block called Sironj which is approximately 110 kilometers from Bhopal, spent four years over there. We were largely implementing a poverty initiative, poverty elevation initiative, which was funded by World Bank and the state government of Madhya Pradesh. So did a lot of stuff over there which are related to agriculture, construction, so, build a few dams, a bit a lot of tube wells and dug wells did a lot of land development work and so on so forth worked there for four years it was, it was a great experience, like all the while I used to move on a bike with a with a bag of bag and, and probably a bag of cigarette and a bottle of liquor. Right. That was that was what used to do like I tell sometimes to my, to my colleagues that I started on the Absolutely left, right. So, like I was a social worker, and then as a venture capitalist it is, which is the other extreme right. So, it was fun. So first, first four years. Actually, it gave me a lot of perspective on what works, what doesn’t work about government systems about, about entrepreneurship about how people make their life work, right. So, it was a very, very enriching experience and gave me a good understanding of what India is not only in, in the cities like Bombay, Delhi, and towns like Jamshedpur, but also in rural pockets like Sironj and other places. So, I think that experience has largely helped me in my career, in trying to understand what are the next trends and how technology will go on to affect those people, right. So that has been a good learning for me. So worked there for four years in 2005. And was kind of I want to do something more, more interesting, I wanted to also do something more urban. So, I was kind of getting bored in the rural setup. So came to Delhi was looking for some jobs in in the nonprofit sector only, but more towards advocacy and fun fundraising side, didn’t get any jobs. So, most of the people wanted, I got jobs, I was offered a lot of jobs later, in fact, every NGO or nonprofit not for profit I went, everyone offered me a job. But all of them wanted me to go and work in a project site, which was some rural parts, somebody wanted to send me to Gujarat rural or somebody to Orissa rural, somebody wants to send me back to Jharkhand rural and so on, so forth. So, I said I will have to do something, so that I am able to come out of this stereotype which is there, which has stuck on me. So, like everyone else, I gave an entrance examination again, so I got this thing. It was, again, I didn’t, I didn’t have much time to prepare, etc. but I ended up getting selected. So, I joined IIM Lucknow for their agribusiness program. So, I studied there for a couple of for two years. And then add got a placement offer from reliance in the retail division was about to join when I was, I was told it was just by chance that I was talking to an earlier colleague who used to work with me in Pradan. And he was telling that microfinance was becoming a big rage in India around 2007, And he said you are from IIM, you understand the rural landscape, you would be a great asset to the microfinance ecosystem. So why don’t you think something around those eyes, you should probably join a microfinance institution or maybe look at a fund which invests in microfinance institutions. So, I somehow stumbled upon the microfinance side, and I approached the partner at avishkar. And after a couple of conversations, I joined their investment team in 2008. And join them and their fund was very small, I think they were 15 or $20 million a year, work with them for four years, did little bit a little bit of microfinance actually ended up doing spending more time on the non-microfinance part of their business. So invested in healthcare, delivery, as in, I invested in education, I invested in rural BPO. So, this kind of stuff, largely, these were largely innovative stuff, but largely catering to the poorer states poor people. And the kind of returns which were seeking were not always financial returns, but largely, were more focused on the socio-economic impact. And so other stuff. So, we raised this large fund in 2011, at avishkar. And now we were like a mainstream fund. And we’re now started to write a larger check, right? So, I was kind of getting slightly restless, because while what I was doing over there was interesting, enjoyable, I was seeing that the world was moving very fast on the technology side, and especially my interest in companies like Facebook, Twitter, and Google, in the Silicon Valley, I was reading and, and I was getting very interested. And then around 2011, I, I believe in 2011, I had got my first Android phone, which one of my portfolio founders bought it from me from US, bought from me from US because I have Google phone. And I took a 3g package and I could see the video playing very far. It was very good experience it way back at 2011. And that said, okay, now this is something which is very interesting. And if, if on the phone video can play this fast, a lot of stuff can happen on phones, right? So, so that was a kind of a moment for me when I decided now I have to come out of this social rural kind of land ecosystem and move into the technology and internet ecosystem, right. So started looking for ways to get into the main tech ecosystem. And in that process, I, I called up Anand, my partner now. So, Anand was an was part of seed fund and, and Praveen Gandhi was a partner at Seed Fund, he was on the Investment Committee of avishkar, so used to once in a while used to compare notes with the seed fund, and, and we had some common investments as well. So, I knew and, but we’re not work together, we’re not friends, and nothing like that. So, I call upon and I was asking for him if he had any opportunities, or he knew anybody in the, in the fund system who wanted to hire a investment manager, Principal level opening. And that’s where he said that he was himself thinking of leaving seed fund and starting a fund and, and would be happy if we can explore it together. So, when we met once, this is again, very unreal, we met, I think we met for a couple of hours on a Sunday. And I think the next day, the website of India quotient was up. So, we said, okay, we’ll do a small fund, we’ll do an internet strategy. So, we’ll invest in companies, which will leverage the Internet we will we will try to invest our strategy will be deciding the deal. So, we will not do a syndicate kind of strategy. So, we will, we will invest. And if the company raise more money, that’s okay. But we will our investment will not be subject to somebody else investment. Right. So that was one thing which we wanted to be very clear about when we set up India quotient. So, I think 2012 February, we decided this and this website went up. We both served notice periods, of course, six months each. June, July, we were ready. We got our license; I think in August 2012. And we started investing, there was a couple of investments while we were doing this Anand was doing from his own pocket, which we warehouse and then we transferred to the fund. But the fund was set up by the end of 2012. And we started investing. So that’s how we got started, right? So, I think this is the journey which is which started from Jamshedpur. I come from small city and now we are full-fledged tech investors, as you can say, with me having zero experience of tech, by the way, I don’t code. I don’t understand code also. It’s so cool. I am an engineer. So, I understand the logic of technology, but nothing hands on. Similarly, my partner, he’s also not very hands on technology. I said, no, of course our third partner Gagan, he comes from IIT Bombay is more recent. And he is more a little bit more hands on than us. But we are mostly non technology. Guys who want to dabble our hands in the most a tech company companies in the country.


Siddhartha Ahluwalia 13:39

So, you were 38? Right. I think when you started, India quotient and Anand would have been 40-41?


Madhukar Sinha 13:47

No, yeah, I would have been 35 I would have been 35. I was 35.


Siddhartha Ahluwalia 13:53

Yeah. And you want to clear the next half of your life, you want to be a fund manager,


Madhukar Sinha 13:59

say for us, fund managers are a very fun manager, we still don’t think ourselves as fund manager, right. So, we are I don’t think your fund managers today also, I think fund manager thing only works when you are like managing hundreds of millions of dollars. You’re that kind of pedigree where your job is largely doing money management, right? So, we are not money management, but our job is not money management. Our job is still to look at the new trends look at try to meet the smartest of the smartest guys and somehow convince them to take our money right and be in the ecosystem that people talk good things about us and therefore good people come and speak to us and make them make as part of their journey, right. So, see that I don’t think that even in 2012 or today also We consider ourselves as fund managers. we think of ourselves as people who want to meet smart people. Right? And so, as I told earlier, I was like, we are ourselves as dreamers, right? And we want to dream along with some of the smartest people in the country. So that’s how we think ourselves. So, 2012 was not like that, it was not like, we are going to become a big fund manager or so, right. So, the day job was that what we thought was that we will probably do the same thing, which we were doing. Of course, we had a lot of complaints with the, with the way we were doing things at our earlier organizations, like we wanted more independence, we wanted to do less structure deals with a little bit more empathetic to the founders be fast in decision making and so on so forth, right. But I guess today my associates might actually have the same issue with us also, but, but those are some of the things that you wanted to change right. And I think we did that to a large extent right. So, for example, when we started investing in 2012 13, we had a rule that we would give a term sheet and along with a term sheet, we would give a check of 10 lakhs 20 lakhs to get started, so will not say that Okay, now, we are going timesheet. Now, after two months, we will keep on doing diligence and paperwork and then we will give you money right. So, so, we used to give 10 lakh 20 lakh rupees immediately that stopped when the Ministry of Corporate affairs basically made it very straightforward. So, they said that, you have to issue the shares to the subscriber before you could use the capital right. So, that basically stopped that whole practice of giving money very fast right. Similarly, we stopped doing tranche investing. So, I think before starting India quotient 60-70% of the deals I would have done would have been a tranche investment. So, each investor will be broken into 2-3-4 steps and then valuation will be based on certain parameters, so on so forth, I think in the last nine years at India, quotient, may be two or three deals could have been tranche based. And they would also be because of your co investing or maybe the founder insisting that he wants to raise more capital than what we believe in. So, on a very, very exceptional basis, we do a tranche-based investments or the valuation is not fixed, and we do a convertible stuff, right? So, we don’t do all of that. So, we try to simplify the stuff. Right. So, our timesheets are very standard see that. So, our term sheet is actually our, in our website, we have put out a term sheet and, and we don’t make a lot of changes in the website, when on the on the on the term sheet, we don’t make a lot of changes in the term sheet when we are investing in a new company, we tell the founder to go and read it on the website and when he is ready to sign, then only we give the term sheet. So, we are trying to simplify all those things, which we wanted to do. And that’s how we think ourselves as more as entrepreneurs then then fund managers right.


Siddhartha Ahluwalia 18:07

And you and Anand both have different personalities, right. Anand is more extrovert storyteller. You are more introverted, as you said in earlier interaction, you like to deal less with people?


Madhukar Sinha 18:19

Yeah, yeah. So actually, that is that has been a very good combination for us. So, so Anand is very energetic. He wants to do everything very fast, right? So, he loves his speed and everything, right? So very spontaneous. quick in everything. On the other hand, I also like speed, but I also want, I’m not that spontaneous, right. So, I will I will take a little bit of time, right. So, so that way I am, you can say that there are two tires, one tire basically gives us the speed, which is Anand and other one kind of gives the stability so that we don’t we don’t go this or that, or we don’t we don’t slip right. So. So that is our combination is has been working well. For the last. Now it’s almost a decade. So, we kind of enjoy working together. So. So that’s why we, we when we started, we also kind of split our responsibilities in the very early days. So, we said OKAY, and Anand then we’ll go and do the fundraising. Of course, nobody can do fundraising, fundraising fully So, so Anand will be the front facing on the fundraise and wherever required, I will I will chip in right. And then the other part of the business which is fund, fund management business so that I will basically take care of the fund is a management business. Of course, there will be certain things where it has to be discussed and decided over their Anand will chip in but most of the responsibility the fund management We’ll be on my side and then the investment and portfolio management that we will do together right. So, they will both of us will invest and both of us will do portfolio management. So, actually, till very late 2017 most of the deals we used to manage together right. So, even if I have invested, if I have invested right, or I had scouted or I spotted the investment, but both of us were equally involved. So, we like both of us would attend a board meeting, both of us, both of us would talk with the founders on a regular basis, almost all meetings we will do together and so on so forth, of course, into 2016 17 We are number of companies have increased and, and it is no longer possible for both of us to be co working with all the companies together. So, we have kind of now decided and to manage portfolio separately, but we still have a rule of two partners getting involved with one company, right. So, while one partner is the lead, the second partner is also involved and keeps our tab so that if there is any, any requirement or if there is any need of continuity, the other partner can just take it over from there. So that is, uh, I think we are definitely very different kinds of people. But we have figured out a way, and we have worked it very well. In fact, it was it happened by itself where we didn’t have to do a lot of planning etc. to make this work. But it has worked very well for us. So, it works very well. For us.


Siddhartha Ahluwalia 21:40

You don’t come from a family of wealth, right? And you mentioned first four years of your career right or job, you weren’t in an NGO which doesn’t pay well and then you did MBA, and then you were a part of like fund pay well, but starting a fund requires your own money, right, India, as a rule, like the government, SEBI at a fund manager needs to put 2.5% of the fund themselves. So how did you build up the first fund? Right? Like, all of your savings?


Madhukar Sinha 22:14

So, the first one was, first one was really tricky, right? So therefore, I didn’t have much money to put in the fund. Right? So, because as you as I told you, first four or five years, I worked in nonprofit, very little savings. And then I worked for three, four years in the in the fund side but so in the first one, most of the capital was contributed by Anand so on and put the capital, and I kind of my contribution was that both of us didn’t take any salary raise or we were we are earning pretty decent salaries when we started 2012, so both of both of us took a huge pay cut and on top of that Anand basically invested right. So, the first fund was Anand himself put the commitment which is required from the fund manager side, from the second point onwards, we started putting all the money which we used to get us fees back into the fund right so that’s what we did. So, I think for the first six years me and Anand hardly took out any capital any money from the business for our expenses right. So, most of the first five six years it was it was we used our savings to run our families right and on top of that in the first fund actually put more money from his from his own savings also right. So, whatever he has he had earned earlier so he from his personal wealth he had to put money and I put whatever we earned so till 2016-17 I think 2018 when we raise our fourth fund from there on the fund was a decent size so it was 400 crores. So, the fees were sufficient to start putting in the fund as well as you have some surplus and then from 2018 touchwood, we also started having exits in the companies right so we started getting so I would say that I didn’t come from a family of either businessman or wealth right so I didn’t have that. But one thing I was very clear about and that was right from I think during my college days also I one thing is very clear that I only do what I like right so I can’t do anything it I don’t like it so one story I’ve heard anecdotally I will tell you, I will not name but when I come left my NGO job and come to Delhi for a very short period of time I was working in a In a nonprofit in Delhi for a very short period of time, and I was not enjoying my work over there. So, one fine day I take on my bike from. So, when so. So, I was working for a short while at this NGO. And one day I was going to office, I, I took my bike and I was going towards the office, and then I realized why am I going to this office is I don’t like the job. So why should I basically do this? So, I turned back and came to came to my room, a call that the, the, the CEO or my boss at that company, and I said was I will not be able to come and not interested. So, I will just I just want to quit, I sent my resignation on mail. So, I think it was 10th or 11th of the month. So, he said, why don’t you come and at least do your settlement. So, I’ll give you your 10-day salary, and so on so forth. I said, I actually don’t want to come now. Why don’t you do one thing that that 10-day salary, if you can give it to a charity or something, right. So, if you want to, or otherwise Fine, I’ll just send you, my resignation. So, one thing is very clear that I don’t I if I don’t like anything, or if I start thinking that I don’t want to do this, I will not do this, I will not do that thing for whatever it’s whether how much risk it carries, or how much money I’m making all of that doesn’t matter. So in in 2012, when I decided to start India quotient long with Anand I was at a pretty comfortable place in my life. My career wise, right? So, in fact, my parents, they were like, absolutely. They were absolutely furious at me that why am I leaving a good job, right? After, so for them, when I didn’t get into IIT in 96, from the time till 2006. When I got in IIIM am I was like, I was not doing well in my life, right. And then I went to IIM got a good job for 4 years doing very well. earning good money, and now you again leave the job, right? And you start something new, you don’t know how much you will on whether this will succeed or not. So, it was very tough for them. Right? And, and right at that time, I also decided to marry so when I got married, I think I resigned. And after my resignation. Two months later, we I got engaged, and I told my to be wife that I am leaving my well-paying job to start a fund. And I asked her to give me three years. And in three years, I would be in a situation where I’ll actually come back to where I am. career wise in terms of money wise, I thought it will take three years it didn’t right. It took six years. So, there were some very difficult moments. Family wise, right, so because we had a kid and you know, my peers, they were like, doing very well in their life and you know, social media. So, Facebook, you would see that a friend of mine will go to Dubai and they will post photographs from there or somebody will put a post of photographs from USA or Bali or somewhere, right? And then my wife will say that why are we not going? I was I don’t have money. And plus, I don’t have time. So, both things. But I think that that that period was there. So, I think there were two or three period to two- or three-years period where there was there was there were doubts in the mind, not mine, but in my family including my wife, my parents, even my friends, right? A lot of my friends who were saying that, okay, you are doing well, right? You start this company, and most of the companies and most of my peers, right, they’re in regular. So, they went to IITs, IIMs ready they work in regular companies, somebody works in a in a consulting company, somebody works in McKinsey, somebody walks in somewhere, right? So, when they hear when the news you hear the news that most of the tech companies are loss making and most investors don’t make money and so on so forth. They say okay, you spent four or five years right now you have this company called sharechat even in 2016 right a lot of friends of mine would say okay, sharechat is there it’s valued this much but revenue toh kch hai nhi, profit kch hai nhi, how will you make money right? So, it will eventually not work? Right. So, there were there were a lot of problems and a lot of people used to create doubts right in the minds of people who were near me, so my parents, my family, my wife, my friends, but I think in the last couple of years, all of that has gone under the bridge. Now, nobody actually has those kinds of doubts. So, everyone realizes that yes, it was a risk worth taking it has paid off. So, it’s just like entrepreneurship I think the same thing is also applicable for most of my founders who start the companies right. For example, if you even if you take the example of sharechat guys, in 2015, when they started all of them had recently graduated from IIT Kanpur they could have easily got a job of 10-20 lakh rupees in good companies, right. But they decided not to do that and take a 50-lakh rupee check and, and run a company or start a company that that was a big decision for them, I am sure their parents would have been equally furious or even more furious than me, right. And, and, and then when they raise capital, they’re raising one and a half million dollars $5 million, but is still getting salaries, which is lower than what their peers are getting, the parents must be saying that you are raising so much money, but you don’t get any money or what is this right. So, I think I think that is it is it as it has been the experience has been more like more entrepreneurial, which, which also has made us be more near to the ground and, and understand that what we are doing is, is being I think it’s also a reflection of what we do and similarly what our founders are doing. So, that’s why the Connect is very, very high right? So, the empathy level for entrepreneurs is very high, because we went through that journey right. So, we went through that four- or five-year journey and that has been very helpful.


Siddhartha Ahluwalia 31:56

And that India Quotient you work very differently than the fonts you and Anand both have worked on and like most of the large fund and there is no consensus right for making the first cheque, first cheque a partner can take a call themselves as you have mentioned, and then the second check requires consensus. Can you share more of that?


Madhukar Sinha 32:17

Yeah. So, when you’re investing at very early-stage rate, so, in early stage, there is not a lot of data based on which we can take a decision right. So, so, the decision is largely on knowing something which is very subjective right. So, which is very intangible right. So, so, for example, you meet a team of two guys right. And you know, that this guy is exceptional, because of a certain thing that you can’t even explain right. So, you will know that this guy is exceptional, and he will, he has a very high capability with relate with relation to the business is proposing right. Now, to be able to explain that to two more people or three more people and get them to agree that that is the case and then invest that sometimes becomes stuff, right. And if you don’t do that investment, then you will lose a very orthogonal kind of opportunity right. So, therefore, as a rule, what we do at India quotient is that when you are investing for the first time, right, we largely go by the gut of the champion partner over there. So, if I am basically leading a deal, and I am very sure about doing the deal, right, then my partners will identify and point me the risks, which are which are visible at that point of time, right. And I will look at those risks. And even after looking at those is, I might take a call that okay, I still I understand that these are the risks, but I will still want to go and invest because I believe that this this founder is exceptional, and he will figure out right and all the market is great and, and these things will not matter in the future. Right. So those calls I will take, and I am allowed to do that. And then my partners will respect my decision on that and believe and allow me to make that investment. Right. So that’s how we go when you’re investing in the company for the first time. You have to understand that you know, in our fund, especially now, the first fund we didn’t have much luxury, so there was hardly any reserve capital, but from the second fund onwards, we have 30 to 50% of the capital which is reserve capital which we invest in the second time third time in the same company right over there. We have a very, very, I would say involved conversation before we put money because there it is about allocation. So one, if you’re putting more money in a company after our first check it deserve it right. So, it has to be in the top five seven in the portfolio at that point of time right. So, that is one, the second thing is that we should be able to get a good sense that they are actually making progress in the business also right. So, so, that is also very important for us. So, so that we understand that where this business is going. And finally, the third thing is that what is the kind of investor set or people are coming and associating with the business. So, we use all these three parameters and then do a very involved discussion to decide how much money we go and put in the company right. So, so, we are very disciplined at the, at for the allocation of the reserve capital in the company, the first check, we want to be slightly more risk taking, because that is where we have seen that most of the value lies, right. So, because see, of you can’t imagine a company like sharechat by getting into a consensus, right? So, it’s impossible, because there was hardly anything there, right. So, the, to say that you will basically create a social media company, when you have Facebook, when you have a Twitter in the current country, which has millions of users is not good, you can’t defend it, right? So, you have to just go and say that, please trust me, and let me let me make this investment. Similarly, sometimes the founders come and say, okay, you don’t trust me, you are not getting a market, give me a small amount of money. And let me try this and then then we will see, right. And in those scenarios, we have given money, right. So even if you don’t understand the market, or we are not able to understand the business model, but because we see that the founder is very highly motivated and very highly capable. We go by his trust, and we give him a small amount of money. And we say, okay, we’ll give you a crore, right? And let’s see, in six months, what happens, right? So, we do those, those kinds of investments once in a while, where there is not much there’s not a lot of logic for doing that investment. Right. But that is just coming from the gut. And it’s saying that, okay, this guy meant to do something great. And we about to put money behind that, that guy


Siddhartha Ahluwalia 37:10

you also have a personal bias for very large outcomes, right. So, when you enter you know, that many of the stuff will not work, where that start thinking come from,


Madhukar Sinha 37:27

I think that thinking comes from probably what is your goal in your life? What is your objective in your life? Right? So, so the reason especially for me, I’m interested in something which is very, very scalable right. So, which is very large scale, right? So, see that you understand that from the background where I come from, right, so I was Agri engineer, right? Most of my peer group colleagues are in sales, right? So, they are either selling seats or tractors, or some of them moved and became professors, right. And then when I went to IIM after I am also most of my colleagues are in, in banking, finance, marketing, sales kind of stuff, right? So, most of them are in the mainstream kind of business. I’ve taken all these risks because and I was working at avishkar also that was also great. A good salary. The fund was killing it was not like it was a it was not growing I’d and for me also career wise was a great thing, right? The reason for leaving Avishkar was very similar to the reason leaving Pradhan on in 2005. I, I want things to basically make a change, right? So, it should do something remarkably big, right? So, the outcome has to be very high, very, very big rate, the chances of that success if it is low, I am fine with that right. So, I can live with a failure. I don’t have a problem that I want the entrepreneur to think as big as possible. Right. So therefore, that is also one of the reasons I don’t do a lot of software, right. So, I don’t do SAAS, I don’t do enterprise SAAS or I don’t do B2B SaaS. It’s not like I don’t like those businesses or they’re not they can’t make money. They can make money. But for me, those are more software businesses are more enabling businesses, right, they don’t change the market dramatically. Right. So they are, I would say that they are support businesses, right. They’re not mainstream business. And so, on consumer side, when you are investing in a commerce company, or when you’re investing in an advisory company or when you’re investing in a social media content company, you are basically interacting with millions and millions of users and you are impacting their life on a very daily basis. Right. So, and then You also create outcomes in terms of revenue, profitability, etc. which is huge right? So that’s where my interest lies and so therefore, I’m more biased towards investing in consumer companies, I’m also interested in investing in companies, which, which can become massive in terms of other new tech emerging technologies, unfortunately, in India, it is tough to invest in certain spaces, because the capital which will be needed to support those investments is not available right. So, so, for example, you will want to invest in a lot of companies in in the, in the deep tech space right, or you want to invest in on the medicine side or medical devices side or even on the pure play r&d side. So, the capital support in the past has been pretty low right. So, so, one has to be cognizant of the possibilities, which are there in the Indian market, and looking at those possibilities, I think we are still very early in the, in the consumer cycle in India. So, we will have a lot of companies where we can invest, so I have a personal bias towards investing in outcomes, which are, which look very stupid to begin with it, but if they succeed, they can really become very good


Siddhartha Ahluwalia 41:27

well, what are the companies that the four- five companies Madhukar that have considerable valuation, at least, you know, if we want to measure today that you have bet or let’s talk about impact?


Madhukar Sinha 41:45

So, let’s, let’s look at it. So, you know, sharechat, sharechat is pretty, pretty big. Right? So, it had, it has a few 100 million, few 100 million users, right, on a monthly basis. Right? So, they’re pretty big valuation also the as Why is there a unicorn. And then in the portfolio, you have companies like a company called local, which is trying to digitize the regional newspaper, right? So, the regional newspaper is a big, big thing for people who live in smaller cities and towns, right. So, they don’t read your Times of India or economic times, there is a read their local newspaper in their local language, which carries very hyper local and local news. Right? So that’s a very, that’s a massive opportunity right. So, so, I think I myself am not able to imagine that what you can’t do right. So, if once you have a certain level of penetration, and once people are trusting you and using your content on those platforms, you can actually there is nothing that you can’t do right. So, you can do a lot of stuff over there. So, most of the content related advertising related transaction related ecommerce related stuff can be enabled on that platform and why today that time for that market looks like the regional newspaper market, but I believe that the time of that market will explode exponentially, I just give an example right. So, so, on the newspapers in the in the regional newspapers or the local newspapers, jobs and matrimony are two segments, which are which generate a reasonable amount of revenue for those newspapers right. But if you think of it, jobs and matrimony in a newspaper, the quality of quality of information which is possible in a classified newspaper is very, very poor, right? So, if it gets digitized the quality of matrimony classified increases significantly, right? Because not only you can give a lot more information in terms of photographs, and other content, but you can also enable interactive Ness in the system, right? So therefore, those markets, when you start adding up, you suddenly realize that the time has expanded multiple times from what you realize in the beginning. Another example of a company which I’ve invested in I’m very, very super bullish about his company called Bharat Agri right. So, three years back I invested in that company, the company starts with a with a concept that they will go and advise the farmers to grow the crop in a particular way. So, having spent my time in Pradhan in India, in rural India, I have seen that how farmers do farming right? So farming is not done in a very professional way. So, some so there are farmers who don’t even go to their crops for weeks, right. And then weeks later they go and they realize that their crop has been destroyed because of certain reasons. So just bringing the rigor of a profession inside the farming activity itself increases the productivity by a few tenths of 30% 40% 50% of the increase in productivity just happens because you go to your field every day right. And then if you start doing following some of the package of practices, which have changed it over the last 30 years, which is not even conveyed to the farmers in the rural India, right. So, a lot of research technology, which has happened on the agriculture side has not been conveyed, and not as not as not been transferred. So, so the premise was that the, the company will go and charge some money and advise the farmers to do the farming in a professional way, thereby increasing the productivity by 70 80% and reducing the cost of production by 20 30%. You will be surprised that three years back, everyone actually laughed at me, right? And they said, oh, farmers will pay you for advice, right? They don’t pay for tangible goods, which you give them. And you’re saying that they will pay for advice is not possible, right? Today, the company in two and a half years, it has proven that not only farmers pay, but they pay again and again. So we have like 70 to 80% ,60 to 80% renewal rates, we have like, you know, in the pandemic, a lot of things have got disrupted, but thankfully, it has only been better for us, we are now adding like 10s of 1000s of farmers who are joining our platform every month by paying anything between seven to $50 depending on what amount of land they are bringing in under the advisory and the company’s killing like anything, right, the problem is the point is that you start with such a horizontal thing. Now the other time of this if you look at today, you can see okay, there are 140 million farmers in India, out of that 140 million probably 70 80 million are the ones who need this advice or who do farm professionally. So, you will basically advise them and if you’re charging say $10 or an average for $20 dollars in a year, because every year you do two seasons $20 is not a very large market right. But what they that they don’t realize that if the platform is able to win the trust of the farmer that he listens to the advice which we give with respect to his farming, right, we can influence the purchasing behavior of the farmer on the input side, and we can also influence the selling behavior of the farmer on his output side right. So, so, once we have a few 100,000 farmers on our platform, who whom we know on a regular basis and who and the platform is known by those farmers, we will very soon become a very significant player in the both input ecommerce space as well as Farm to Market space. Right. And, and that will happen without spending a lot of money, which is done for cost of acquisition, right. So, these kinds of horizontal prices. Now if somebody asked me the probability of this happening, probably very near to zero, right. So, I don’t think these kinds of companies, the probability of success of these companies is anything more than zero, very, very unlikely that this will succeed, but I’m excited at the at the thought of them getting successful right. So, if they get successful, then we are not looking at a small company, but we are looking at a company which will be life changing and a massive, massive outcome for India Quotient. So those kinds of companies are the ones which we are very, very bullish about and that’s where we are where I particularly spend my time and try to invest in them. valuation wise. I have sharechat, we have sugar cosmetics. We have local we have Bharat Agri we have pagar book, we have a lot of companies, which are doing pretty well in terms of valuation. And we’ll see right we’ll see that where we end up


Siddhartha Ahluwalia 49:21

So, the first fund was a 25 Cr right. and second fund?


Madhukar Sinha 49:26

approximately 30 crores, second fund was 110 Cr 110 crores third fund was 400 crores and we are raising a fourth fund which will be 600 to 750 crores we’ll see where we end up.


Siddhartha Ahluwalia 49:43

Right. So, I believe the second fund specially right because of sharechat, would be sitting at a very, very large multiple today, right?


Madhukar Sinha 49:52

Yeah. So, our internal target is to multiply each of the funds at least five times So, a 5x, a gross multiple, if I am able to do in each of my funds, I will feel satisfied. But I would only feel happy if I am able to do double digit multiples. I believe that we will do that in fund 2, I think we would have done in fund one also, but fund one was, unfortunately, we were very investing very, very early. So, we will not be able to capture the full value. So, if the fund we would have been able to extend for probably three more years, then we would have been able to get the fund to double digit multiple. So, I think 5x is the basic, which we look for as a gross return. And, and happiness comes at double digit funded. And so that I’m not joking, but if you look at markets like China, right? Every good fund manager has done more than double digit, right. So, if you are entering the golden phase of Indian tech, I think having ambition of doing anything, like less than double digit is not fair. I think I would I would really be feeling very happy if I’m able to do at least one font in that triple digit. So that’s, that’s the ambition. So hopefully, hopefully, we’ll get there may be one of the funds which we have, which we are right now there or maybe one of the future funds, we’ll definitely want to see if we can do a triple digit multiple, because that that that that will basically be the real happiness for us.


Siddhartha Ahluwalia 51:37

But yeah, you kept on investing in shares at some fund 2, Right. So today, India quotient would have been a significant part of your job. And being the earliest investor


Madhukar Sinha 51:55

So that that’s not the case. Although we have invested in all the rounds. Our fund size is limited, right? So, we have not invested a lot of capital. So, I think till now we would have invested, I think $8 million or so, right? $8 million. And we would be sitting on I think $150 million or so


Siddhartha Ahluwalia 52:22

And after taking a small partial exit,


Madhukar Sinha 52:26

after taking some exit. So, 150 will be what we would be. I don’t remember the numbers; it will be anything under 150.


Siddhartha Ahluwalia 52:35

But definitely like if you can create similar outcomes, like sharechat one outcome in each fund, then you are in double digit and possibly 2 outcomes like that, then move towards triple digits.


Madhukar Sinha 52:49

That’s the that’s the objective. Right? So that’s, that’s the thought process. Actually, I would have sharechat was our, our fund size was too small. So therefore, ownership in sharechat is too if you are able to repeat our sharechat at then we will probably own much more than what we own in sharechat today. But yeah, so I think I think it’s not about ownership. It’s more about the satisfaction of being able to multiply capital and build something which is very meaningful. That’s what we are gunning for. I think we will, we will definitely do much better than what we are doing right now, in terms of the fund 2. sharechat is definitely poised to do achieve greater things. Companies, which are in the similar space, like sharechat and market leaders in other geographies are not 2-3-5-billion-dollar companies, they are 50 100 $500 billion dollar companies. I’m hoping that my ambition, my desire of having a triple digit fund will be fulfilled by fund 2 only, but want to get my fingers crossed. Right. And yeah, and that’s what we what we are gunning for So, we are investing very early, our number of winners will not be very high, because you understand that that once I miss a deal at seed level, right, I don’t have the luxury of going on investing at series A B so therefore, the total number of logos in my funds will be lower. But whenever I will win, I will win big. So, in sharechat at our first check which you had invested that is already multiplied more than 500 times right so and if and if sharechat goes at least three to five times from here, which I believe it will because most of the investors were invested in this round. really believe that. So that means we will do a 2,000x on the first check which we invested in sharechat and in those days my first days were 50 lakhs today My first checks are million dollars or half a million dollars. So, if I’m going to do a 2,000x on a half a million-dollar check in any of my company in future funds, I am sure that if you don’t breach the three-digit mark, we will definitely go into a very decent two digit multiple. So, very, very, very, very confident that will do very well from here.


Siddhartha Ahluwalia 55:22

Are you keen on, you know, returns from the fund to now because of completing our 10-year cycle next year, fund one?


Madhukar Sinha 55:31

Yeah, so, we will, we will, we will figure out how to exit right. So, we are trying to, I told you, right, so, we are unfortunately, because our fund was very early stage or so most of the companies, we invested in fund one was like, very, very early, right. And then, in the last six, seven years, they were two rough patches. So, 13-14 was a slightly Slow, slow period and 16 was 16-17 was slightly slow period. So, there were two levels, because of that the company formation as the speed of value creation had slowed down. So therefore, we are we are not, some of our companies are, will do very well in the next couple of years, or two, three years, but our fund life is ending. So, we are figuring out a way how we can solve for the value capture as well as, as well as comply and give exit to our investors. Right. So, we will figure out a way so we will do something about that. So, we’ll but our one way or the other, we will exit our fund in the next 18 to 24 months. For the first one.


Siddhartha Ahluwalia 56:48

if you can share, why do India quotient create first cheque when you yourself are investing very early


Madhukar Sinha 56:53

see first cheque was that, we are very concentrated strategy investors. So, we invest with hypothesis, right? So, what happens is that when you are when you’re taking large positions, and you are investing in a very with a narrow thesis, right, so there are a lot of spaces, which doesn’t fit in your strategy, right? So. So when you’re not able to build hypotheses, or you don’t want, you don’t have a good understanding of those spaces. So, we were missing all those spaces. And that was we’re not even able to build our learning about those spaces. So, in future, we want to do that, how do you do basically build your skill. So that was one reason why we said that if we have a vehicle, which basically is not so much focused on ownership and the strategy and, and doing a lot of value add but actually just going and trying to help the founders in whatever space they’re investing right. So, so, that was the basic premise. And the second premise was that we also wanted more and more capital to be available at the very early stage. So that more people can take risk, right. So, so we want that anybody who is walks out from the top 20 or 50 College in the country, there should be a 20-30-50 lakh rupees check, we should be available for those guys to try out anything here to eat any random idea which comes in the mind of a guy who’s walking out of IIT campus, or BITS campus or IIM am campus or NIT campus, there should be 50 lakh rupees available for that guy to say, you, okay, here is up like this, while you’re to do what you want to do for the next 12-15 months, and hire a few more people set up a small office and, and who knows what will come out of it, right. So that kind of availability of capital will happen when we have a few more first cheque, I’m seeing that they’re already few of them, you are also one of them, and then the very maker many, many more are coming up. So, I think these are the two basic ideas. One was to increase the flow supply of capital at the very, very early stage, right. And the second was for us to have our eyes on slightly broader set of companies where we can, where we can go and, and, and build our understanding that so for example, first cheque today has invested in space tech, it has invested in SAAS, it has invested in the enterprise SAAS and whatever we do, they do that also and on top of that they do everything else under the sun, right. And that gives us visibility that what is what is happening in the ecosystem, right? And then that allows us to get prepared for that particular space. But if a space is coming up, we get prepared for it and we can capture that opportunity. Or at least be prepared to capture that opportunity. Not in the same company of the first step but in the space, we find our company will be able to use that


Siddhartha Ahluwalia 59:58

How did you build a team for the first cheque identifying the right team requires a different DNA than India quotient


Madhukar Sinha 1:00:06

We have been talking about first cheque for like, I think 2016. Right. So, 2016 say we’re talking about, I think in 2017, when Gagan join, then he sought some more enthusiasm. And, and that led to him talking to a few guys who wanted to do something like this. We were very lucky to find Cosell. And, and that’s how it worked. So, but in our minds, we were like looking for the right kind of people from 2016 onwards. I think we; we were looking for certain skill set, right. So, we wanted somebody who is very, very smooth, right? So, who would be able to work with the founder, the founder expects them right? And who has empathy, empathy towards founders, right. And a similar kind of skill sets, which we have. And who wants to work with very early-stage founders Right. So, when we found Cosell, I think it was a very easy decision for us. And, and Gagan and Anand played much more role over there. So my role was limited. So yeah, but Kushal, has been a great find for us. And it is building a very solid brand for itself. And the first check in the ecosystem.


Siddhartha Ahluwalia 1:01:37

And you also mentioned, right, you have a very proprietary deal flow So it’s not like hundreds of companies reach to you every year, is selected companies, which talk to you.


Madhukar Sinha 1:01:51

I think this is more slightly more about the lifestyle, and the way you conduct yourself. So, if you look my life, right, so I started my career. So, I’m actually 44 years old, but I went to IIM in 2006, right? So, I have a set of friends who are seven, eight years. younger to me, right? Because in IIMs, most of the people go just after college, right? So, most of the people who have gone to IIM am in my batch, had just graduated, or they’re done the engineering in 2006, while I did my engineering in 2002. And that also, after dropping one year, right, so I theoretically, they were five, six years younger to me, right, six, seven years old. So that was so I have, I have been able to keep myself relevant with slightly younger set of people, right. So that allows me to have a slightly more engagement with the founders, right. So therefore, if you look at the founders of share chat, or, or, for example, local, etc., right? All these guys are like 27-28 years old, right? And I’m like, 45 years 44 years old, so like 15 years younger, but when you will see them having conversation with me, you will realize that they consider me as a friend as an elder brother, right? Not really, the age gap is slightly reduced over there. I also have a very informal way of engagement with the founders, so therefore, they, they don’t feel there’s very little hesitancy and very little formality between the relationship which I have with the founders, so that allows me to dip into their deal flow and they end. And, and, and, I don’t know, for some reason, I’ve been very lucky that I have been getting very high-quality deal flow from the founders of my portfolio. And, and those deals don’t go out of the market or go out to the market. So, I get to see them first hand. So that that is a beauty. So, I don’t get a lot of deal flow right. So, like for example, if there is one founder, he will not send me all the deals which comes to him, right. So, because he knows me because I interact with them very regularly. And I they interact on a more personal level; they understand what kind of companies I’m looking for what I do or what I don’t do. So, therefore, they send very select companies, which are very relevant to me and therefore, I am able to invest in them also. So, therefore, then, they realize that if this and I invest also that means they send even better opportunities next time. So that was the this is kind of a flywheel, so it keeps working right so for example, Prateek Shukla of Grab house sent sharechat guys to me. So, I invested in that. Now sharechat guy Ankush shared a deal called Klarity which I invested six, eight months back right. So, it’s like a cycle. So, one deal is coming from either and that companies become big and somebody is. So that is deal flow for me the deal flow is very, very proprietary. And most of the deals which I do, which I which is like three to four deals every year, I do four deals out of that at least two deals I do which come from the from the founders only right? So, in fact, in fact, I also recommend people who come to me directly to come through a founder because that makes my diligence much easy.


Siddhartha Ahluwalia 1:05:53

Thank you so much Madhukar, really fun track interacting with you, right? Going through your journey, bit by bit understanding each element of the journey and to know right, how comfortable you are in your skin and investing in things. You will enjoy believe in.


Madhukar Sinha 1:06:11

Yeah. Thanks. Thanks for that. Thanks for that for the opportunity. And I wish all the best to your podcast, you’re doing a great job. And yeah, happy to help in any other ways. Whenever we like

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