[Siddhartha Ahluwalia] (0:00 – 0:06)

Everybody is saying that India is shining, India’s startup ecosystem is shining. How is public investors viewing the startup ecosystem in India?

 

[Kashyap] (0:06 – 1:00)

Zomato in many ways is the bellwether of our startup ecosystem. Quick commerce today is seen as a segment which will probably take away a lot of share from both your mom and pop kirana stores as well as the horizontal e-commerce platforms.

 

Who wants deliveries in 15 minutes, right? Who cares? This won’t work.

 

Look at it now. Everybody wants to do the delivery in 15-20 minutes, right? People are willing to pay for that convenience, right?

 

The kind of questions that some of these public market participants would ask you was absolutely insane. This founder has got a golden visa. What if this guy leaves the Indian store?

 

He has a 15-20% stake in the company. These founders have done 50-100 crores of secondary. They’ve got 5% in the company, what if they leave the company?

 

These are the kind of questions that as private market investors, we never thought about. Then why is the public market punishing Paytm? Okay, So…

[Siddhartha Ahluwalia] (1:05 – 1:31)

 

Hi, this is Siddhartha Ahluwalia. Welcome to The Neon Show. I’m your host today and I’m going to uncover the story of Indian public markets with Kashyap Tanchani who is the founder of Rainmaker Group.

 

Rainmaker Group is a venture capital investment bank in India operating for the last 8 years in the venture ecosystem in India and they have consistently been among the top 3 in this venture ecosystem. So Kashyap, welcome to the podcast, so excited to have you here.

 

[Kashyap] (1:31 – 1:36)

Hi Siddhartha, you know, thank you so much for inviting me.

I’m very very excited about our conversation today.

 

[Siddhartha Ahluwalia] (1:36 – 2:03)

So everybody is saying that India is shining, India’s startup ecosystem is shining. Today in this episode, we are going to uncover it with data, right? And the ultimate exit for a startup is with public investors, not the private investors that are exiting it, right?

 

So how are public investors viewing the startup ecosystem in India? How are they viewing the exits in India? I think that’s the true lens that we want to uncover in today’s episode.

 

[Siddhartha Ahluwalia] [02:00]

So let me start by, like how many startups are listed in India today?

[Kashyap] (2:05 – 2:39)

So Siddharth, in total, I think about 2 dozen of our venture-backed startups are listed in the country today. So these would include startups like or rather, you know, companies that started with a startup but today, you know, they are as large or influential as conglomerates, like, you know, an InfoEdge. And, you know, the next generation of startups like a MakeMyTrip or an IndiaMart to, you know, the recent slew of, you know, startups that we’ve had, you know, the entire Zomato, Policy Bazaar, Nykaa kind of a cohort.

[Siddhartha Ahluwalia] (2:39 – 2:45)

And how many public companies are there in India today, both on SME and the main exchange, if you can give rough numbers?

[Kashyap] (2:45 – 3:07)

Yeah, I think, see, the material or meaningful number of companies in India, which are listed would probably be anywhere between 200 to 500 is what I’d say. You know, the ones that are tracked, you know, in any sense or semblance by the analysts who matter in the country today and are typically on the radar of important institutional investors.

[Siddhartha Ahluwalia] (3:07 – 3:12)

And out of these 24 startups that have gone public, how many of these would come under those 500?

[Kashyap] (3:12 – 4:32)

I think most of them, I’d say more than 20 of them would be covered by analysts very, very seriously. See, probably 15 odd of these startups would be traded reasonably frequently and the rest would be followed more from the curiosity lens because, I mean, we know that the venture-backed cohort, just as it is in, you know, US and China, would become like a material and meaningful part of our total market cap. So people want to really track, you know, in terms of what’s happening in these markets.

I think the other very, very important lens is that, see, Mamaearth, for instance, right? I mean, it’s today a fairly large and important company. I think the market cap would be anywhere between, say, you know, 12,000 to 14,000 crores at this point in time, right?

Even if it were a 2,000 crore market cap company and it wasn’t very material, you know, from a trading perspective, it will be a very, very important company for analysts to track. Why? Because it decides the trade that you want to play on a Unilever or ITC tomorrow, right?

So from that perspective, you know, from Channel Check’s perspective, I think some of our public as well as private cohort, which interestingly is tracked very, very closely by, you know, the street and the analysts becomes very, very important.

[Siddhartha Ahluwalia] (4:32 – 4:55)

And you mentioned the US and China, right? So 24 of our startups have gone IPO. And overall, I think that in the public market, there will be between 4,000 to 10,000 companies covering mid caps, small caps, right?

 

Combined market cap of India is $4 trillion, right? What was the percentage of startups that would occupy public markets in the US and China? Any rough percentages that you would have?

 

[Kashyap] (4:56 – 6:09)

Sorry, so I won’t have, so to say, the numbers off my head, but, you know, would probably be, you know, a material double digit number. And I think, you know, Siddhartha, going back to your previous question, I think one of the reasons why this entire listed cohort of startups in India has become very, very important is because of the sheer growth rates that they have, right? So a typical Indian startup today would probably grow at, you know, 1.7 times what a mid cap company in India would grow at, right?

 

And mid cap companies, by definition, are supposed to be faster growing companies. They probably grow at, you know, 40 to 50% higher pace than your nifty companies. And our startups are growing at, you know, almost 50 to 60% higher rate, you know, than some of these companies, which is the reason why, you know, their multiples typically would be like, you know, 1.7 times your mid cap multiples, right?

 

And the markets, when it comes to the tech-driven world, if there’s one thing that they reward more than anything else, it is growth, right? And which is the reason why these are very, very important companies for the markets at large.

[Siddhartha Ahluwalia] (6:11 – 6:17)

And India startups combined market cap of these 24 companies would be what? 50 billion dollars?

 

[Kashyap] (6:17 – 6:28)

Would be close to about 70 odd billion dollars in terms of evaluation, Siddhartha, from about a 4 trillion dollar valuation that the Indian markets have at large.

 

[Siddhartha Ahluwalia] (6:28 – 6:30)

 

Almost just 2%, right?

 

[Kashyap] (6:30 – 6:32)

 

Just about 2%, just about 2%.

 

[Siddhartha Ahluwalia] (6:32 – 6:34)

 

And the US and China are more than 10%.

 

[Kashyap] (6:34 – 6:35)

 

Certainly, certainly.

 

[Siddhartha Ahluwalia] (6:35 – 6:45)

 

So we can assume safely that in the long scheme of things, Indian startups would also track towards like 10% of Indian public market cap.

 

[Kashyap] (6:45 – 7:15)

In the long term, yes. In the medium term, Siddhartha, I would say the jury is still out. So, you know, with our 4 trillion market cap, our capacity to absorb companies every year is probably about, you know, say 2 to 2.5% of the market cap, which is anywhere between 80 to 100 odd billion dollars. Now, half of this would probably be absorbed by, you know, the QIPs that are happening with companies that people have tracked over the years.

 

[Siddhartha Ahluwalia] (7:15 – 7:15)

 

20 years, for example.

 

[Kashyap] (7:15 – 8:11)

 

Yeah, yeah, yeah.

 

For 20 years, for example, right? So today, for instance, you know, if Bajaj Finance wants to do a QIP, I’ve been tracking Bajaj Finance forever. I know it’s a very, very high quality company.

 

I’d want to reserve, you know, some of my dry powder, okay, as a fund to invest into these companies. There’ll be PSU divestitures, right? So I think more than half would go into the existing listed companies, whereas the rest, 50%, right, would probably be more tuned towards newer issues.

 

And within these newer issues, we’d probably end up taking, you know, anywhere between, you know, a third to maximum half of some of these newer issues, right? So say companies like a Hyundai, companies like a Jio Financial, right? Companies like Jio, they would end up doing an IPO in India, right?

 

Now, these IPOs are very, very highly anticipated IPOs, which end up pulling out a lot of liquidity from the markets, right? Does it make our job as a startup ecosystem easier? Hell no.

 

[Siddhartha Ahluwalia] (8:11 – 8:21)

Yeah.

 

And so you are saying roughly, Indian public markets can allow on an average day or average year, $10 billion of startups to go public in India.

 

[Kashyap] (8:22 – 8:27)

That’s the very maximum. See, I mean, if you look at the last few years data.

 

[Siddhartha Ahluwalia] (8:27 – 8:28)

 

Combined.

 

$10 billion combined.

 

[Kashyap] (8:28 – 8:49)

 

Yeah. So anywhere between.

 

So what is said is that for FY25, this particular financial year, we’ll end up having IPOs around 1 lakh crore, which is what? About 12 odd billion dollars.

 

Yeah.

 

Just 12 billion dollars, right? So what does that leave for us? Maybe about, you know, 3 to 4 odd billion dollars in terms of total IPO sales.

[Siddhartha Ahluwalia] (8:49 – 9:24)

But let’s say what happened in 2021, 2022? I think they were, though people discount them, that startup didn’t do well. They were amazing years for startup IPOs.

 

Further, the reason is Zomato today is a $20 billion company, right? It went public somewhere at between $8 to $10 billion. Paytm went public at $20-25 billion.

 

So it came back, right? But in that particular year, if you just, Nykaa went, Policy Bazaar went, right? Some other companies.

 

Even Azara was like one year behind. So the combined market cap of these companies, which went public in India was roughly $40 billion traded on the public market.

 

[Kashyap] (9:24 – 10:48)

Probably, probably. Yeah. Their market cap was probably $40 billion.

 

And Siddhartha it’s a very, very good question that you ask. So see, I mean, and it has very, very important and strong ramifications for us, you know, as participants in India’s, you know, private market ecosystem. So till about three years back, for instance, right?

 

When we are trying to evaluate the fate of a company, when it’s meeting with God happens. Okay. When they finally sort of say, you know, start facing the rough and tumble of the public markets.

 

It would have been my word against yours. Okay. I will show you that in the US these comps are running.

 

In China, you know, these are the comps that are playing out. Right. Okay.

 

I discount or multiply it by, you know, our growth rates. But there was no definite empirical evidence around, you know, what the fate of our companies would be. Right.

 

So whenever a completely new price discovery has to happen, there has to be a period of turbulence in between. Right. So in our startup ecosystem, this entire, you know, new cohort started coming in anywhere between 2020 to 2021.

 

Why did they list at that point in time? Because the markets were great. Interest rates were at the lowest.

 

You know, there was worldwide reception around tech companies going public.

 

[Siddhartha Ahluwalia] (10:48 – 10:49)

 

Liquidity was huge in the market.

 

[Kashyap] (10:49 – 14:58)

 

Liquidity was huge.

 

Liquidity was absolutely huge. Now, what were my valuations when I listed at that point in time? We were anywhere between, you know, 15 to 25 times, you know, forward revenue multiples.

 

Now, in hindsight, you know, that looks absolutely crazy. But, you know, back then there was a belief that, you know, I mean, the liquidity, the high liquidity regime, right, would stay forever. And the growth rates at certain points in time would compensate for these valuations.

 

The last three years have been an absolute trial by fire for all of our listed cohort. And there have been so many, so many learnings, right, which are important for this entire listed cohort and which can be taken to the private markets as well. So, for instance, today, anywhere between, say, you know, 2023 to right now, and maybe for the foreseeable future as well.

 

Any company, any startup that is being valued at more than 100 million dollars. I mean, forget about, you know, our unicorns. They are all being valued from the public market barometer.

 

Okay.

 

In the sense that, A, will this company be able to go public? Right.

 

Number two, when these companies go public, what are the kind of multiples that it will trade at? And if as a growth investor, I’ve got complete clarity around these two aspects of a company only when I’m parting with my money. So I think this wisdom of hindsight is a very, very important gift that we have as an ecosystem.

 

Finally, right. So, I mean, one may argue that the entire venture funding in a country has, so to say, you know, fallen from, say, you know, 45 odd billion dollars in 2021 to about, you know, 25 odd billion dollars in 22 to about, you know, nine to 10 billion dollars in 23. And I mean, the jury is still out for this particular year.

 

But I think having this history of listed startups in the country, unfortunately, many of them have started doing much better now. And the valuations look a lot better and attractive is a very, very important, you know, lesson that we have in our armoury. I think the other very important aspect is important market participants, whether it be mutual funds, whether it be HNIs, whether it be retail, okay.

 

They have experienced two dozens of our startups now. They’ve seen the good, bad and ugly, right. For the first time, there are trysts with, you know, founders of our ecosystem have happened.

 

In the public market, they are called promoters, right? So this entire journey of our startup ecosystem founders becoming promoters has happened. And our mutual funds today, our equity research analysts today, our HNIs today, finally know how to value platform companies, how to value startups, right.

 

How to look at our ecosystem. So, I mean, in 2022, for instance, right after our startups listed and there was euphoria, and then, you know, there was a crash in the share prices of some of these companies, right. Paytm share price, you know, fell down to say, you know, anywhere between one third to one fourth of, you know, what the listing price was.

 

Zomato came down to about, you know, say 40 to 45 odd rupees. The kind of questions that some of these public market participants would ask you was absolutely insane. This founder has got a golden visa.

 

What if, you know, this guy leaves the Indian shore? His 15-20% is in the company. Oh, these founders have done, say, you know, 50 to 100 crores of secondary.

 

What if they see two or three bad quarters? They’ve got 5% in the company, what if they leave the company? Right.

 

So, I mean, these are the kind of questions that as private market investors, we never thought about.

[Siddhartha Ahluwalia] (14:58 – 15:42)

Agree, agree.

 

And nobody thought about, let’s say, for example, there’s a case study in itself, right? Zomato went public with between 8 to 10 billion dollars of market cap. The day they bought Blinkit, and that’s when their share price tumbled below rupees 50, which was like 4-5 billion dollars of market cap.

 

The public market just reduced there. Zomato has made the biggest mistake in its life. And today when Zomato is, you know, performing well, Blinkit is performing well, Goldman Sachs has rated that Blinkit today is valued at 8 billion dollars.

 

40% of Zomato’s market cap and Zomato’s market cap is today 20 billion dollars. Then public market analysts, investors are all praising Zomato. So, how has the sudden sentiment changed in the last one year regarding the same company?

 

[Kashyap] (15:43 – 20:28)

No, that’s a very, very good question, Siddhartha. And I’ll tell you why it’s a very, very important question. Zomato in many ways is the bellwether of our startup ecosystem, right?

 

So, in a very, very similar way that Infosys for a very, very long time was the bellwether of the Indian stock markets. I’ll tell you why. A, Zomato in many ways became a public company before it actually became one, right?

 

A material part of InfoEdge’s market cap was attributed to their shareholding in Zomato, right? So, much before they went public, you know, their financials would be made public in InfoEdge conference calls, right? Dipinder would come and, you know, he would talk about his company.

 

So, they saw a quasi-public life much before they became public, right? And now, obviously, it’s the highest market cap company when it comes to the Indian startup ecosystem at, you know, $20 billion. B, it’s seen the trials and tribulations of the voting machine that the public market is very, very up and close, right?

 

So, what was the consensus view around Zomato, right? A, obviously, people were very, very impressed, you know, when they listed because they could relate to it as a brand. They could relate to it as a service.

 

So, beyond hard-nosed money managers, you know, the H&I pool or the retail pool, right? I mean, they could relate to Zomato as a stock more than, say, they would relate to MapMyIndia, right? Or a rate gain, right?

 

In that regard, because, I mean, that’s an enterprise product, right? Now, after that, you know, tryst with destiny, right, came the tougher phase, right? They acquired BlinkIt, right?

 

The consensus view was that, listen, my food delivery business, which is turning profitable, is slowing in terms of growth. Whereas BlinkIt, which is actually the growth driver, you know, of the company, I don’t have visibility of that becoming profitable anytime soon. Now, what is the broad consensus view today?

 

And, you know, I have to give credit to the management that they stuck to their guns. They made decisions that seemed very, very unpopular at that point in time. And see, what one needs to realize, especially as, you know, participants in the startup ecosystem who, you know, predominantly deal with companies, which are private, where, you know, all the discussions, all the strategic decisions are taken, you know, in four walls, right?

 

Taking along, you know, four or five board members, right? Taking along 15 investors or 10 investors to make a tough decision is still easy. But when, you know, your stock gets hammered, right?

 

When you are judged by, you know, somebody who’s put in like, you know, who’s bought one share for 40 rupees or 50 rupees in your stock. You know, when you have to be responsible, you know, for that little guy, some of these decisions are very, very difficult and they are taken in all public glare, right? What is the consensus view today?

 

That A, the company is showing classic platform characteristics. What does it mean in terms of food delivery, right? My market is expanding, my TAM is expanding.

 

More than that, more than that, quick commerce today is seen as a segment, which will probably take away a lot of share from both your, you know, mom and pop kirana stores. As well as the horizontal e-commerce platforms. Now, nobody looked at quick commerce from that lens, right?

 

I mean, you look at reams and reams of, so to say, newspaper articles or reports or opinions, right? I mean, who wants deliveries in 15 minutes, right? Who cares, right?

 

This won’t work. Look at it now. Everybody wants delivery in, you know, 15-20 minutes, right?

 

And B, people are willing to pay for that convenience, right? I mean, look at the P&Ls of these companies. They are looking very, very healthy and, you know, the future looks bright.

 

So, A, the fact that quick commerce would take away market share from horizontals and kirana stores. And B, the line of sight to steady state profitability has led to the $8 billion valuation.

[Siddhartha Ahluwalia] (20:28 – 20:46)

And so thereby you are saying that tomorrow Swiggy is almost prepared to list. And Zepto is also preparing itself to list by flipping itself back to India. You say the quick commerce combined market cap just of India could be like 40-50 billion dollars.

 

[Kashyap] (20:47 – 21:45)

Yes. I mean, today, if a DMart is being valued at what it is, right? I mean, I don’t think it’s outrageous to believe that, you know, the quick commerce market cap in India can go all the way up to, say, even $100 billion.

 

Or even a DMart because, I mean, you look at the customer profile of a DMart as against, you know, the customer profile of, so to say, our quick commerce companies. I mean, DMart would be the Costco equivalent of India, right? I mean, everyday cheap products, right?

 

So if I have to make that trek of, you know, 15 minutes in an auto as an Indian housewife, right? Just because I can save those, you know, 500 or 1000 rupees in a month, which really matters to me, I’ll go there. But the real consuming class of India, the top 2 or 3% of India, right?

 

Who are not supposedly as price sensitive and, you know, who got all the money to pay, you know, they are there on a quick commerce platform.

 

[Siddhartha Ahluwalia] (21:46 – 22:07)

And I think that is what is driving e-commerce in India. Though e-commerce of India hasn’t faced the public eye yet, because Flipkart is being owned by Walmart. And Amazon is obviously owned by Amazon in the US.

 

So nobody knows the internal numbers right now of at least 60% of Indian e-commerce, right?

 

[Kashyap] (22:08 – 25:22)

No, you’re so right. I mean, in this regard, India has been a relatively tough hunting ground for horizontal platforms, right? I mean, as a horizontal platform, given, you know, the price sensitive market or, you know, the AOVs or ticket sizes in India tend to be very, very different, right?

 

I mean, as a horizontal e-commerce platform, A, at one end, I’ll be challenged by, say, the Meeshos of the world, right? I want to buy a saree for 300 rupees, where should I buy it from? I’ll get it in Meesho.

 

If I have guests at home, I need onions and tomatoes in an hour, right? You need gouda cheese, where will I get it from? I’ll get it on a quick commerce platform, right?

 

So building an Amazon in India is much, much, much tougher than building an Amazon in the US. But what is the good news? I think it has been conclusively proven that A, not only that these platforms can grow, but, you know, they can also make money, right?

 

Because, Siddhartha, if you look at, you know, some of these fast-growing companies in India, I think you will see echoes of their success in the US market and what, you know, the US market has rewarded these companies for, say, for instance, a Netflix or an Amazon. They always traded at four to five times the S&P multiple. So S&P multiple would anyway be, say, it would probably be around, you know, 17 odd times, you know, your forward earnings.

 

Whereas these companies, if you look at a 10-year history, they would have traded at anywhere between, you know, 65, 70 to 90, 95 times their P. And yet they delivered four to five times the return. There were two reasons for that.

 

One is premium growth. These companies over a 10-year period consistently grew at, you know, more than 20% year on year. And in the S & P index, the percentage of companies that grow over a five-year period by more than 20% is 2%.

 

Only 2% of the S&P companies grew at more than 20% for an extended period of time. Now, these companies, you know, grew at that pace for a period of, you know, 10 years, 15 years. I mean, in the case of Google, it grew at that pace for a period of, say, you know, 15 years, despite the fact that I’ve got a hundred odd billion dollar revenue base.

 

And these companies really rewarded their shareholders despite, you know, their premium valuations. Why? Because they kept growing.

 

B, their margins expanded. So in the case of Netflix, it would have gone from, you know, say, 5 or 7% to about, you know, 19% in this period. In the case of Amazon, it would have grown from, say, 8% to 13%, right?

 

The belief is that our companies in India, whether it be a policy bazaar, whether it be a Zomato, would show that same premium growth. And B, it is fair to value them at their earning power multiple rather than, you know, what the present earnings are.

[Siddhartha Ahluwalia] (25:23 – 25:41)

So, you are effectively saying that Zomato in India, which is $20 billion in the future, can be more valuable than, though there are no comparables, than Unilever, which is $70 billion or DMart, which is somewhere in that range, right? You are saying that that’s the case?

 

[Kashyap] (25:42 – 25:52)

Of course, of course. That’s what the market tends to believe, which is the reason why, you know, all these companies are trading at anywhere between, you know, 40 to 50 times their FY26 EBITDA multiples.

 

[Siddhartha Ahluwalia] (25:53 – 25:59)

Which is quite surprising. I don’t know whether Indian markets would be okay with that.

 

[Kashyap] (26:00 – 26:33)

Yeah. So, see, I mean, it’s a very, very fair question, right? And I mean, even though we’re in the business of optimism, right, as a startup ecosystem, it’s important to be, it’s important to wear, you know, the hat of a realist as well, you know, every once in a while.

 

See, I mean, this 45 to 50 multiple may come down to 30. But as long as I’m showing premium growth, as long as I’m showing, you know, 20% to 25% plus growth for the next five years, as long as I’m an equity investor, I’m willing to underwrite that.

 

[Siddhartha Ahluwalia] (26:35 – 27:17)

The comparison between Indian tech companies and US tech companies might not be fair from a public market investor’s eyes, primarily because the US companies went international really well. Right. Today, you see Amazon in so many countries.

 

Uber, you see, right, is present across so many countries and is either number one or number two. They’re never number three. Right.

 

Similarly, Google is number one in whichever country they are present in because of the same for Netflix. Right. So Zomato, on the other hand, folded its international operations in many countries.

 

There’s no case study of an Indian company till now, which has made its mark yet on international markets being a top three player in any other market.

 

[Kashyap] (27:17 – 28:16)

No, no. That is a very, very true observation. That is a very, very true observation.

 

But despite that, why is it that a Zomato trades at a premium multiples as compared to say a Doordash? Right. The reason for that is that I think all of it, all of it, you know, eventually when it comes to tech stocks, it comes down to growth.

 

Now, how does growth come from? Growth can come from selling more units of the same. Growth can come from international expansion.

 

Growth can come from, you know, product innovation. It’s just that we have taken the dimension of, you know, selling more of the same rather than, you know, selling to international markets is the reason why Zomato is not being punished for not being in the overseas market in the aggressive way as say an Uber, you know, which is chasing a TAM. Right.

 

I mean, it’s chasing a trillion dollar time.

[Siddhartha Ahluwalia] (28:17 – 28:42)

And so we discussed a lot on Zomato. Let’s discuss a couple of other companies, right, before we dive into some other topics. So then why is the public market punishing Paytm?

 

It’s such a fantastic company. It has so many business lines, right? Though it’s always in tussle with RBI over something or the other, one business gets blocked.

 

But it has, I think, almost 15 to 20 businesses.

 

[Kashyap] (28:43 – 31:53)

Okay. So let me answer this question from a very, very, so to say, fundamental lens. What is it?

 

What is it that the public markets have rewarded? If I look at a 20 or 30 year period, these are companies like till very, very recently an HDFC bank, a Unilever, an Asian paints, a Marico, a Pidilite, right? What do these companies do? I mean if you look at it, these are very very simple and basic companies which are selling staples.

 

What keeps them at elevated valuations? Two things, one is that I have proven my corporate governance chops over a period of 20 years, right? Now corporate governance is something that only your track record justifies to you, right?

 

And here past performance is the best so to say signal of your future performance, right? I mean, unlike what so to say, you know so many of these mutual funds ads say that your past performance is no guarantee of future performance, when it comes to things like corporate governance, when it comes to things like product innovation, right? I mean your past performance is a marker of what your future performance would be.

 

Number two, the consistency and predictability in their performance, right? Public markets like predictability, right? I don’t want trouble, I don’t want to switch my portfolio very very often, right?

 

And the third reason is market leadership, right? When you are a market leader in a country like India, right? You would be rewarded.

 

So if I look at it from a demand supply lens, if let’s say you know I’m a fund manager sitting in Stockholm, if I’m a fund manager sitting in Paris, my boss told me that India is shining, put some money in something. What will you do? You’ll pick up one of these five companies, Bajaj finance, no brainer, let me put my money in that.

 

Oh Asian paints, 20-year track record, let me put my money in that, right? This is what gives them a very very high valuation. In Paytm’s case, I think why the markets have not rewarded them as much is because of the entire regulatory uncertainty which makes it very very difficult for me to judge what my revenue growth would be.

 

So you know one year down the line, two years down the line, three years down the line. I mean if there is predictability, even if the growth rate is low, even if the profits are not as high, it becomes easier, right? In the FinTech world, it is very very difficult to ascertain regulatory certainty, especially in this particular case, which is the reason why the markets have not rewarded them as much as they would have rewarded some of our other startups till now.

 

[Siddhartha Ahluwalia] (31:53 – 32:10)

And let’s talk about some of the other companies, right? Now it’s very well understood that public market investors don’t like inconsistency. So even if it’s not the fault of the company, it’s a tussle between the regulator and the company, they’ll stay away from it.

 

[Kashyap] (32:10 – 33:50)

Of course, of course. I mean, see there are easier things to do. And it’s an important time to kind of, you know, take a step back and look at the nuance of our venture world, you know, our private markets as against the public markets.

 

Siddhartha, you’ve been an investor or you are an investor and a very successful one at that. When do you get an entry on the cap tables of companies?

 

Very early.

 

Very, very selectively, only when they’re looking to raise money is when you can get in, right? If the founder is over capitalized, he’ll say, Siddhartha, not right now. You know, whenever I’m raising money, I’ll let you know.

 

But if you want an entry into a public market company, you can get that entry or an exit at any time you want, right? So I think this is again, you know, an important nuance to appreciate with regards to some of these companies that I’ve got so many choices. I’ve got so many choices.

 

50 companies are in Nifty, right? There is a pool of 200 companies that I have to invest in. So why?

 

Why get into something where I may get a high return, but when I adjust it for risk, I may not get as high a return. Whereas all of us as participants in the private markets, right? While we get to see higher IRRs, our hunting ground in terms of, you know, the time window that we have to get into some of these companies is very, very limited.

 

Which is the reason why I would say, you know, public markets are as much a voting machine as, you know, they are a weighing scale.

 

[Siddhartha Ahluwalia] (33:50 – 34:16)

And then there are two categories of other companies, right? Which are consumer brands, for example, Mamaearth, Nykaa, GoColor, Sula, right? And even some like cartrade, kind of, right?

 

So how does the public market view each of these companies, right? All these consumer brands, are they comparing them to the likes of Unilever at any point of time when investment is happening?

 

[Kashyap] (34:17 – 36:24)

No, absolutely, Siddharth. So, see, if I’m a Mamaeath, right? The cohort with which I would be compared would be Godrej Consumer Care, you know, would be Unilever.

 

Now, look at these companies, the volume growth over the last few years has been very, very, very, very slow, right? B, you know, if I want to play on the new consuming class that’s coming up in India, which is as comfortable buying online as it is buying offline, number one. Number two, they are open to experimentation, right?

 

My father used to use Lifebuoy, doesn’t mean that I have to use Lifebuoy, right? My mother used to use Sunsilk, it doesn’t mean that I have to use Sunsilk, right? I mean, what would be considered, you know, fuddy-duddy brands for this generation.

 

Now, if the consuming class is increasing, you know, which is, which is the cohort of companies that would benefit from this growing cohort, right? And does it reflect in the kind of growth rates that I’m delivering, right? I mean, Mamaearth at, say, an expected revenue of about, you know, 2000 odd crores in this particular financial year, which is not immaterial, it’s very large, right?

 

It is still growing at anywhere between, you know, 27 to 30 odd percent, right? And can I bake in for the fact that their offline penetration, right? Their shelf space would go over a period of time.

 

Can I expect the product innovation factory, right? To continue churning out, you know, new products, getting into new segments. Can I expect the economies of scale to play out, right?

 

When it comes to the margins, which have been expanding slowly, slowly, right? To reach at least, you know, say, half the margins of what Unilever is playing out today. If I can underwrite that, then as an investor, I’m willing to pay the premium prices at which some of these companies would be trading at right now.

 

[Siddhartha Ahluwalia] (36:24 – 36:47)

Got it. And doesn’t the market reward for, for example, let’s say, the founders of Mamaearth are in their very early 40s, right? Have been running the company for just over like a decade.

 

But there is still a 30-year-old window, whereas the chairman of HUL just retired one year ago. This predictability in management in these startups that are going public.

 

[Kashyap] (36:47 – 37:55)

No, no, absolutely. So, which are the, what are the, and it’s a great question that you asked. What are the two aspects that the market looks for when it comes to founders of startups or, you know, companies out of the venture grown ecosystem?

 

The first is that the management, do they think like owners? Do they think like, you know, custodians of investors’ wealth? And the second part is, do they understand what is driving value?

 

I mean, I can be a founder, but what if I don’t know, you know, what is driving value for my company? If there is a checkmark in terms of both, then, you know, the market would certainly reward that, right? I mean, look at the case of say, you know, an Amazon as against an eBay or a Yahoo, right?

 

They consistently had, you know, one CEO for more than 20 years, right? Who was the founder? Founders are able to take tougher calls, right?

 

They’re not playing for a two-year or three-year tenure as a CEO.

 

[Siddhartha Ahluwalia] (37:55 – 37:55)

 

They’re not taking popular calls.

 

[Kashyap] (37:55 – 39:42)

 

Yeah, they can take unpopular calls.

 

They’ve got more skin in the game, right? So, in this case, in particular, right? I mean, the founders would have, so to say, a shareholding of more than 20% in the company, right?

 

I mean, my net worth lives and dies with this company, right? So, if I have to take unpopular decisions in the short term, as a founder of a company, A, I’m better equipped to do that. Number two, given that, you know, I’ve seen the journey with this company over a 5, 7, 10-year period, right?

 

I understand the DNA of a company a lot better. So, I am probably in a better position to understand what are the levers of value addition, you know, when it comes to some of these companies. The comparison with Unilever, in particular, may be a tad unfair, because Unilever, for all practical purposes, it’s been the CEO factory, right?

 

For this country, right? And almost every CEO of Unilever has come through the ranks, right? And has been tried and tested on, you know, what it takes to be a great CEO.

 

But when it comes to a trade-off between a founder and a professional CEO, I mean, if you look at the track record of, you know, the hundreds of companies, you know, in the US, in China, in India, I think the choice is very, very clear. When you look at the track record of companies that have shown premium growth as against those that have not, right? I mean, the track record in terms of returns has been very, very clear.

 

So, I think these are the two parameters in which most of our startup ecosystem listed cohort wins over some of the larger legacy players is what I’d say.

 

[Siddhartha Ahluwalia] (39:42 – 40:02)

And let’s say, for example, there is a very active SME exchange, which was not possible earlier. Almost every IPO that goes on the SME exchange in India, says 200-300 times subscribed, right? Then there is the main exchange, right?

 

So, how many startups between the SME exchange and the main exchange, do you expect going public every year consistently for the next five years?

 

[Kashyap] (40:02 – 40:56)

See, I mean, in terms of SME exchange, A, I don’t have a very, very nuanced view. And B, I’ve been personally very, very skeptical about, you know, companies listing with a 25 crore, 50 crore kind of a float. When it comes to the main exchange, I mean, if you look at say, 1 lakh crores worth of IPO happening every year for the next five years or so, right?

 

And an average company and say, you know, startups accounting for a third of that, right? With say, anywhere between 1000 to 2000 odd crores, kind of a total float. I think we’re talking about anywhere between, you know, 15 to 25 odd startups listing potentially every year.

 

[Siddhartha Ahluwalia] (40:56 – 41:06)

And so, do you see companies like Traxon listing more often in India on the main exchange at less than 8 million dollars or 60 crores of revenue?

 

[Kashyap] (41:06- 41:37)

I think some of these companies will list because as an investor, I want an exit, right? As a founder, I may be more comfortable with my life as a listed company, right? There will be demand for those, but will they, will that be a sustainable solution?

 

Or will there be like a huge pipeline of such companies that the market will be able to absorb? I’m not sure.

[Siddhartha Ahluwalia] (41:37 – 42:01)

Let’s talk about the 10 IPOs that are going to go in India this year, Ola Electric, Office, Unicommerce, FirstCry, Mobikwik, Exego, right? Some of them. So, they will definitely unlock like 15 billion dollars of market cap.

 

But do you think there’s enough excitement from public markets to latch on to these companies right now?

 

[Kashyap] (42:01 – 42:22)

See, I think the excitement from the public markets would be a function of pricing. In the past, IPOs or listing events from our ecosystem, I mean, we’ve been accused of not leaving enough value on the table. You guys do a lot of fine pricing in everything.

 

[Siddhartha Ahluwalia] (42:22 – 42:31)

I think Mamaearth should be given due credit for that. For example, their last private round was 1.2 billion dollars in 2021. And even when they listed in 2023,

 

[Kashyap] (42:31 – 42:33)

 

they listed at the same valuation.

 

[Siddhartha Ahluwalia] (42:33 – 42:34)

 

they listed at the same valuation.

 

[Siddhartha Ahluwalia] (42:34 – 42:38)

 

And they got rewarded for it. Now the company’s market cap is roughly 1.8 to 2 billion dollars.

 

[Kashyap] (42:38 – 45:16)

So, I think all of us as the ecosystem have learned, right? What are the public market rules to play by, right? I mean, if I really want to be rewarded over the medium to long term, which is what matters, I need to leave some value on the table for people here and now, right?

 

And I think, I’m sure there’ll be a lot of excitement for a lot of these companies. I mean, you look at a FirstCry, you look at the filing that they’ve made, right? I mean, it’s a company which is still growing at a supernormal rate, you know, despite their scale.

 

It’s a company, which can turn profitable at the flick of the switch. You look at a company like Ixigo, which is filed, right? I mean, I think it’s going to be a classic case study.

 

Here is a company which is operating in a sector which has been discovered for the last 20 years, right? And it has almost, if I remember the number correctly from their filing, they had about 70 crores of profit in the first three quarters of this financial year, right? It’s a question of, you know, how convincingly I’m able to communicate my right to win, right?

 

In a market where there are like, you know, four or five different OTAs to the investors. So, you know, in the case of Ixigo, what is their right to win? And, you know, it’s a very, very fascinating journey.

 

It started as a meta engine. Then it turned into an OTA. What is its right to win today?

 

That there is an entire generation of Indians who are going to fly for the first time. Small cities, right? They have an airport today, right?

 

And which is the app that I’m going to use? I’m going to use the app which I usually use when it comes to my train travel or my bus travel to graduate to flights, right? As an Ixigo, you know, which has had a right to win when it comes to train travel, you know, probably being the market leader there or bus travel, right?

 

Where they’re increasingly getting active, right? Can I bring the same user on to flights as against other OTAs that operate in the market? So, I think these are the kind of nuances that the street will probably look for when it comes to assessing the right to win of some of these companies, which on the surface may look among, you know, as so to say, you know, the third horse or a fourth horse in a four horse race, right?

 

So, if you’re able to appreciate these nuances as an investor, if the pricing is fair, of course, you know, you would come into some of these issues.

 

[Siddhartha Ahluwalia] (45:17 – 45:30)

And how does the market understand things like rate gain or map my India, because the normal consumer is not touching and feeling, these are normal investors also not able to touch and feel these kinds of companies.

 

[Kashyap] (45:30 – 46:53)

Yeah, yeah. So, see, I mean, the prime drivers of the share prices on some of these companies would be, say, you know, small institutional investors or HNIs, right? That A, venture backed company, growth is good, profitability is good, founders have good governance, right?

 

I mean, they’re probably, you know, one of the top 10%, 20% companies in terms of governance, right? Which means that when these companies double or triple in size, larger institutions will start taking interest. So, I will evaluate them from the lens of a normal mid cap or small cap stock, I will give them a premium for their growth.

 

Plus, in a country like India, even with their kind of market caps, I will have at least a few analysts who are covering them reasonably regularly, which is the reason why these companies are, say, at anywhere between a 10 to 30% premium when it comes to their revenue multiples as compared to say, a Freshworks, which is again, you know, a fantastic company with a 700 odd million dollar kind of scale, right? Which will find it hard to get that kind of, you know, liquidity in the US markets, right?

 

And India markets are pretty deep, you know, when it comes to, you know, small cap or mid cap stocks, right? And even foreign institutional investors, the ones that matter, you know, they always have access to the India market.

[Siddhartha Ahluwalia] (46:54 – 47:17)

And as for my last question, right?

For normal people who are working in startups or in tech fields in India, and India doesn’t have seen a lot of millionaires come up as compared to US and China and other developed markets, right? What are the tailwinds that are supporting the Indian startup ecosystem that can go public for the next five, six years that can unlock wealth for the masses right now?

 

[Kashyap] (47:17 – 49:33)

No, no, that’s a very, very good question. I think for the startup ecosystem at large, and you know, if I’m say a P&L leader, or if I’m say, you know, senior employee, you know, working in a company, I think it’s become a lot easier than before to evaluate and understand, right? Whether my ESOPs are worth the paper that they are written on or not, right?

 

A, I think a lot of founders have become a lot more conscious, even as private companies to have a liquidity event every six months to one year or two years for the employees that they matter, that okay, I am having a primary round alongside that, you know, let me do a secondary round where my ESOP holders are allowed to liquidate, say, you know, 25% of their vested ESOPs as a part of this particular round, I think they’ve become a lot more conscious.

 

So I think as a P&L leader, you know, if you look at the last discovered valuation of the company, what is the kind of investor interest that some of these companies are seeing today, where we are living in a slow burn kind of market when it comes to the private world, right? I think it’s become a lot easier to underwrite, you know, what I’m buying into in terms of stock than as compared to say, you know, a 2021 where there was a craze of, you know, getting into unicorn. So I mean, this is a conversation that I’ve had with one of my founders. Listen, will I turn a unicorn this year?

 

My question was why? You are one of those guys who don’t care about turning a unicorn. And his grouse was that listen, all the people that I’m interviewing today, they want to know if I’m turning a unicorn, only then I’ll come and work for you.

 

Whereas the argument should have been exactly the opposite. If you’re not a unicorn, I probably got more runway to make more money from my ESOPs than otherwise. So I think I think over the last three years, given the slew of listings that we’ve seen, given the way we’ve seen how some of our private companies are being valued from that same public market lens, I think we are all the more wiser, you know, as participants in our startup ecosystem than we were, you know, probably three years back.

 

[Siddhartha Ahluwalia] (49:33 – 49:38)

The probability is much, much higher for wealth creation to happen at a massive scale.

 

[Kashyap] (49:39 – 50:53)

Oh, absolutely, absolutely, absolutely. So I think that the first wave of wealth creation in India, where wealth was dispersed, you know, dispersed beyond founders and promoters was what our IT services companies did, right? The second wave was what our banks and financial services institutions did.

 

I think that third wave is being brought about by our startups, where you know, we’ll probably end up seeing, you know, lakhs of people actually, you know, becoming rich by simply being employees, rather than, you know, becoming founders in their own right, and everything said and done. This is probably, you know, one area of India where there is actual growth, and there is actual wealth creation, right? I mean, in pockets and not just on paper, that is happening with, you know, some of our companies that has gone public, and, you know, have paved the path for so many others, by, so to say, you know, being Neelkanth, so to say, by, you know, absorbing the pulls and pressures of being, you know, the pioneers of facing the heat and dust and the brunt of the public markets from ecos.

 

[Siddhartha Ahluwalia] (50:53 – 51:03)

Thank you so much, Kashyap. It’s been a very data oriented, very detailed conversation on the Indian public markets of what they hold for startups in India. Thank you so much.

 

It’s been a pleasure.

 

[Kashyap] (51:03 – 51:12)

Thank you so much, Siddharth. You know, pleasure being on your show, and, you know, look forward to a subsequent conversation as well. You know, all the best to you and your viewers.

 

[Siddhartha Ahluwalia] (51:12 – 51:13)

 

Thank you so much.