Siddhartha Ahluwalia 01:16

Hi, this is Siddhartha Ahluwalia. Welcome to The Neon Show.

I’m your host and also co-founder of Neon Fund, the fund that invests in the most amazing, iconic B2B SaaS companies coming out of India, building for the world. Some of the companies are Atomic Work, SpotDraft, Astra Security, and 52 more companies. I have today two dear friends.

And you can call me, you know, the liaison in between technically. Pallav, who has been a great friend for me for four years. He’s almost an investor in all the Neon Funds.

I respect him. And more importantly, have fun with him whenever I talk to him. Shashank, who is almost like a brother to me.

He’s the co-founder of SpotDraft. SpotDraft is one of the first companies from Neon Fund. And I cherish the relationship that we share, Shashank.

So Pallav could remember it, how excited I was almost three years ago that when I told him that, hey, Pallav, we are investing in SpotDraft.

Shashank Bijapur 02:15

Thank you. Thank you for inviting. And thank you for being such a good friend and an amazing investor. So really, pleasure is ours.

Siddhartha Ahluwalia 2:23

Today, I want to make it a fun conversation. And the goal of today’s conversation is, right, you both are today icons in India B2B SaaS, right? Founders look up to you.

So in 2024, a lot of things change for SaaS founders. One is the entire world got AI behind it. And the second is, now, I have never seen so many founders jumping into SaaS, which is now called AI SaaS, right?

So helping these founders navigate 2024 market in the next couple of years on, basics of revenue, building a company, fundraising, either build a company in India or build a company in US, where to register a company, how to get your revenue, right? We’ll discuss all of this. Most importantly, have fun while discussing this.

Pallav Nadhani 3:13

Absolutely. I’m glad to be back here, Sid.

Siddhartha Ahluwalia 3:15

No, I think the last conversation with you and Paras was amazing. Today, unfortunately, there are no beers.

Pallav Nadhani 3:22

That’s okay. We’ll bring our good sides on.

Siddhartha Ahluwalia 3:26

So before we start, right, Pallav, you have built Fusion Charts. Now you’re co-founder at Presentations.ai, right? In today’s market, sitting in middle of 2024, what are the top two things on your mind or bothering you regarding your business?

Pallav Nadhani 3:43

So not say bothering. I think there are a bunch of things which are keeping me excited. But the crux of it is whether it’s cloud first or AI first or SaaS first or a hyper trend first.

Ultimately, a business has to deliver value for customers. And at some point, you have to make money. All these valuation game aside, like where we look at markets and multiple stuff crushed.

Very simple thing. At some point, will you have a cash profit or not? Unfortunately, half the companies which are listed also, they don’t have profits, which is why multiples are shrinking and everything.

So at the crux, every founder needs to first think, am I delivering value or am I just riding a hype? If you’re delivering value, whether it’s SaaS, cloud, AI, see two years down the line, we’ll not even say AI first. Like nobody says cloud first.

It’s the default. So AI will be the default first in most of these SaaS and B2B workflows at all. So what’s keeping us most excited right now is how do we get this or how do we sustain this crazy momentum of growth that we are on?

How do we keep our customers happy and keep them wanting coming back for more? Like in the SaaS world, we call it NRR or churn. But how do we, how does a single customer get us more customers within his team?

How do we ensure there are higher conversion rates of the product? How do we ensure our CSAT scores are better? And how do we sort of keep ourselves to the ground to be able to not get pulled into this hype curve of saying, hey, just because we are AI first, we are very different.

I mean, AI does deliver a lot of value to our customers. We, instead of thinking tool first, we are thinking outcome first. But I think all of this will be normalized over a couple of years.

So what will make us a real business is what basically would have made a real business 10 years ago also. Like being true to yourself, having clear sense of unit economics, delivering value to the customers and being frugal in a way where you don’t choose vanity metrics and care about the cash flows.

Siddhartha Ahluwalia 5:14

And do you feel like you being an AI first company, right from 2019, when you started, you have the highest amount of tailwinds today? Are you feeling those winds?

Shashank Bijapur 5:25

Yeah, totally. I mean, it started from the architecture and how we built the platform. I think it has helped us there.

But I think one of the most important things that has happened is that the market has gotten a little more educated on what AI can do. Earlier, the thought was AI would come in and just completely do all of your work and it’s supposed to be a full on replacement for any human’s job that is there. Now they understand the concept of it being a co-pilot and not a pilot.

You don’t need to go and explain what AI does. And what we were trying to push earlier now has become a pull for us. So when we go in the market, people start with, hey, show me the AI stuff that you have.

How can we adopt it? And it’s almost a mandate in a lot of companies to make sure that things are AI first. And that’s really helped us there.

Siddhartha Ahluwalia 6:17

And just for the audience, can you describe whatever numbers you are comfortable sharing? What is the scale of SpotDraft today?

Shashank Bijapur 6:23

So SpotDraft is growing, has doubled its revenue in the last three years, year on year. We are growing at almost 120% NRR is what we’ve maintained. And we’ve got close to 400 logos across the globe.

It’s safe to put we are in our, let’s say, the $10 to $50 million journey.

Siddhartha Ahluwalia 6:43

I think if I have to be a true desi, I would say you are one of the very few companies from India, built from India, that have pure SaaS revenue above 100 crores.

Shashank Bijapur 6:53

Yeah, you can say that. Yeah. So I think that journey has been a little bit of a up and down. We’ve gone through multiple motions. But when we hit that motion, that worked really well.

Siddhartha Ahluwalia 7:04

And Pallav, there has never been more gloom in the global SaaS markets, right? Why do you think it’s a temporary phenomenon? Is it a permanent phenomenon?

Many folks are saying that US has so much oversupply of SaaS that a company has to be at $500 mil ARR to go public. And still the numbers are not great, like Rubrik at 700 mil, 800 mil ARR gone public at $7B valuation. And still the valuations in public markets are a bit shaky.

Pallav Nadhani 7:35

So there are multiple things around that. So if you look at the first thing, people thought that SaaS would be a cash flow business. If that was the reason, why are half of the public companies unprofitable today?

So if you look at what we said, gross margins of 85-90%, I think at some point, fundamentally, if you look from a purely financial lens, that probably is not true. Because if you stop your R&D, or if you stop your S&M, you will not be able to retain that. So when we talk about those gross margins, while we only add the server cost and support cost, we have not fundamentally rethought that what would a cash flow business look like.

So there was a hypothesis that at certain scale, SaaS will generate a lot of cash flow. And we’re seeing even companies at, let’s say, billion or $2 billion in revenue. That is not the truth.

There are margins for certain companies, but that’s not holistically applicable to all. B, the oversupply is because building SaaS became very easy. I mean, right from your boilerplate codes, to tooling, to DevOps infrastructure, to your hyperscale infrastructures, anybody with a laptop could build a SaaS.

Then distribution became an important thing. And if you look at the market map of any particular subcategory also, like there’ll be 5,000 companies. So how do you differentiate?

How do you differentiate across your distribution channels, which becomes expensive? More and more companies come. And each new dollar that you add has a lesser marginal utility.

How do you differentiate against the 1,000 other companies out there? And then what happened post-COVID is a lot of companies, especially the buyers, they started saying, why do I have 250-1,000 vendors, one for each point solution? So on the contrary, let’s say in a vertical SaaS, which is hyper-specialized, you want the best of the breed.

But if you have like 50 different isolated sales or marketing tech tools, the CFO will say, can I not have it in Salesforce or like one of the system of records? And which is why system of records also started acquiring a bunch of these system of engagement tools or system of decision tools. So now the CFO wants to have 1 billing.

The big guys have the bundling advantage on the pricing. So small guys have the distribution disadvantage. More and more SaaS kept coming.

Venture funds started funding until about last year and a half back. Everybody thought, hey, this is going to still be a good category. But the realization is sort of dawning that, hey, like if you look at the current market multiples of six, I think at six also, is it expensive or not?

That the markets will say. But ultimately, everything has to go to free cash flow. If that is not there and all the high valuations which are associated with this.

So even let’s say if it is 10 at 50, but even million revenue, unless you go to 3, 4, 5, 8 million now, your revenue is not just, your valuations are not justified. So what happens to those companies? Exits, at least in US now, whether it’s 100 million or 500 million baseline, those are far and few.

The number of centaurs out there. M&A, if you looked at one of the stats by Thomas, only 50 to 60 companies in a year get acquired worldwide with 50 million plus exit value. So which means that is also going.

Super large exits are blocked by now, let’s say, the Lina Khans of the world. So what is it that you’re selling? Like how do you get your exit?

Both as an investor and as a founder. So there’s another category which is coming, which is venture-strapped company. Neither bootstrap nor venture-funded.

Basically raise one round to 3 million patient capital, build the company to 4, 5 million, make it profitable, but look at it from a long-term view, and then potentially have a meaningful, but not like your multi 100 million exit or something of that sort. There will always be power law outcomes, but those will not happen in existing sort of commoditized markets. You’ll find a niche that’s a technological shift, behavioral shift, or regulatory shift, like what Shashank is doing, let’s say, Spotdraft, Legal plus AI, old problem, new tech solution.

So those will come, but the commoditized SaaS, I don’t think that will have the same allure going forward, both from a founder side or investor side. But I think it takes another couple of years, or it will take another couple of years for people to realize it.

Siddhartha Ahluwalia 11:06

So essentially, then India never had its SaaS moment, right? When I started in 2012, a SaaS company, or when you started building in early 2005, right? Ecosystem was really early.

And I would say ecosystem has really come together in the last three, four years only for Indian SaaS founders. And when it has come together, the markets have crashed, right? So is it attractive still for founders to build a B2B SaaS company?

Pallav Nadhani 11:38

Yes and no. So yes, it would be if you found a problem which is still unsolved, and you can solve it in a way which is meaningful for customers by all means. But now it’s not just about the building, it’s also about the distribution.

Can you figure out an efficient way to distribute? Don’t go into hyper-commoditized categories, say I’m just going to do a UX UI innovation. So a bunch of you look at like mid-level SaaS companies will build, they said, hey, there’s a large incumbent, but their UX is shit.

Most of the incumbents are now started solving for that. So there, those opportunities are going to be lesser. So either figure out a market niche out there, let’s say between SMB mid-market enterprise, figure out a distribution play which is either geographical or somewhere where you have a distribution leverage, whether it’s through social influencer, which the big guys won’t get.

And figure out unit economics. Don’t just harp on the fact that, hey, once I get to 1 million, I’ll raise 5 million. Once I get to 5 million, I’ll raise 20 million.

At some point, you have to have a very strong sense of unit economics and don’t chase valuations, chase something where even if you don’t, if you’re not able to raise money, you’ll be able to exit because at the end of the day, either you’re profitable, but if you raise VC money, you cannot take profits out. If you’re not profitable, but you’re not even having free cash flow, you’re always between a rock and a hard place. So be real about the opportunity.

So which is where I think the large podcast also had said, like a lot of people say that they want to start companies to change the world. Nobody’s making a dent in the world by B2B SaaS. You’re making a dent in your customers’ world, your employees’ world, your investors’ world probably, and to your world.

So have this clarity that making another system of record is not going to change the world. It’s going to change your world. But then what’s the market size?

What’s the opportunity size? And be realistic about it as opposed to changing this blindsided valuations and then looking at, hey, if there are 10 decacorns in the world, I can also be a decacorn. The moment you raise that crazy valuation, remember that you also have to give that money back.

And now with markets in this state, Liq prefs are coming back. Think about what money you’re going to make, your employees are going to make, and that’s going to be an important part. So yes, there will be riches in the niches, but commoditized SaaS to a large extent then has to be played from a very different playbook, which is not either a venture funded or a bootstrap, somewhere in between, probably a path will emerge out.

Shashank Bijapur 13:39

So if I can just quickly interject, see, but theoretically, if you’re building in rupees, spending in rupees and you’re earning in dollars, then isn’t this the best time to build SaaS in India? Because you can now have better gross margins, you can have lower R&D costs, where you will compete is probably with a relatively similar sized US company is on CAC, but everything else, every other input metric is going to be way cheaper. So you can probably build a better, faster, more refined product today for somebody who’s gone and occupied that market and own that space completely.

Pallav Nadhani 14:16

So yes, philosophically, no from three angles. One, if you look at your expense, your server costs are in dollars, your LLM costs are in dollars, your S&M on the Facebook, Google, all of those are in dollars. Where are you saving rupees?

R&D, you have 1.5x leverage, India to US engineers, it’s not massive. Like let’s say not an SF engineer, but somewhere in between engineer, like a Midwest or something. Your SMA, sales may, if you have to do feet on the street, they’re assuming you’re an enterprise.

You don’t have any leverage there. It’s only in the inside sales where you have a little bit of leverage and customer support. So overall as a percentage of your P&L how much leverage are we talking about?

Now let’s say the other part, the negative to that is if you’re building a vertical SaaS, your PMF for an Indian customer and PMF for a US customer, unless it’s a horizontal phase, it’s going to be very, very different. Locally, you may want to build and you may want to sell here if you think that’s your customer target. But the things which Indian customers will ask and the things which a global customer will ask, let’s say US, there’s a localization problem, there’s a cultural problem, there’s a regulatory issue, different things will have different impact.

So a PMF here does not mean a PMF out there. So, and then there the ability, so two ways again to look at it, the ability to raise capital is still much higher compared to here. From here, a founder, if he has to sell to US, he’ll have to travel to US, park himself there, figure out the nuances of managing multiple team members.

So overall leverage, is there going to be something which is massive just in this terms of Rupee Dollar arbitrage? Or is this going to be a meta layer on top of that where you have extreme domain knowledge or you have a tech advantage or you understand a market segment extremely well, where you either have a distribution advantage. So this, I don’t believe that this cost arbitrage is probably going to work for the long run because it’s a very small part of the PMF.

But the only thing exits, let’s say in India, if you can list a company at, I don’t know, $10 million or 100 crores in India, that opens a new exit stream, which doesn’t happen in, which would not happen in US, but is that just going to be a time arbitrage right now? Or is this going to be permanent in India once they have lesser scarcity of listed companies? That we’ll have to see.

Shashank Bijapur 16:06

Got it. Interesting. Yeah, so we’ve always looked at, in fact, I always thought that with AI, the profitability is going to get compounded, primarily because if you look at COGS, your support costs are going low, but your fixed costs for servers are going higher.

R&D costs are probably getting lowered by 30, 40% because of productivity. You have S&M costs where a lot of the automated outbound emailing is happening. And you combine that with all of these things with, and G&A, like finance and legal, are being disrupted by AI.

So now combine that with a really low labor cost. I thought that this would create a ultra hyper profitable company, which is venture strapped far earlier in its journey than what it could have done earlier.

Pallav Nadhani 16:51

But somebody in the US can also do this. So I mean, in your, how many humans in the loop are getting involved in this? So the AI is like, so equilibrium will move.

Everybody at some point will be doing that. So then there’s only a time arbitrage. But if you look at SaaS companies, they take anything between one to three years to just get PMF.

Then another couple of years to get to 5, 10 million at some scale. And then you go to the later journey. By that time, I think most of this equilibrium is done.

And the other unreal fact about AI is, in SaaS, every time a user uses a product more, we are happy because NRR, we have more usage, more of the product. And this very incremental cost of the server. In AI, anytime somebody uses, if there’s a high velocity or high performance user, he’s basically taking your gross margins down because you have a cost of LLM.

So some of these things, even we are unsure how this will pan out. But will there be like from 2010 to 2015, let’s say companies have built, they had great leverage on engineering cost, your inside sales cost, customer support cost, even like the likes of product manager and all. Bunch of those are getting eroded away because higher costs here.

And also people like even the global companies have figured out how to have their teams here. But if you look at the P&L, bulk of the cost is going to be server cost, SNM cost. And then part of this is R&D and everything else.

So is there going to be leverage? But then they have other benefits on market access, faster movement, aggressiveness, bigger talent pool, blah, blah, blah.

Siddhartha Ahluwalia 18:07

Shashank, you are raising a large growth stage round. How has the journey been to this round, right? What are the challenges that you have faced in the market, seeing the headwinds in the US market? And how have you positioned yourself differently?

Shashank Bijapur 18:21

Yeah, I think what we’ve tried to focus on is our growth journey, the fact that our customers are very happy and we have pretty much negligible churn. So those sort of when you’re adding value to customers and the investors speak, it’s quite evident. I think where we are losing or what’s happening in the macroeconomic environment, that is somewhere causing headwinds.

People who would normally invest with a little less scrutiny or work to be done. Now there’s a lot more work that’s being done for the right reasons, of course. So the deal cycles are getting longer.

The multiples have definitely dropped. We are now mimicking the 6 to 10x revenue multiples that we are seeing in the US in public markets. So it is slower, but I still see that the good companies are getting funded and the investors who’ve been traditionally investing in SaaS, they continue to focus on SaaS and invest more.

There’s definitely a question on, you know, greater question on tell me, talk to me about the next three to five years, how that journey is going to be. Earlier, that scrutiny was much lesser. I think now focusing on unit metrics, more sort of micro numbers is coming in.

One last thing that I think, you know, we looked at the data and what we saw was that in 21 and 22, the number of seed and series A companies that got funded, I think there’s been that it sort of crowded the market. So there are a lot more companies who are still looking for those seed and series A, series B fundings. So that has led to an oversupply of companies and maybe under supply of dollars.

So, you know, the funds are also sort of taking their own sweet time to make decisions.

Siddhartha Ahluwalia 20:12

But do you think you have an India advantage where companies like Traxcn, Zaggle, Unicommerce have gone public in India? Like Traxcn went public at 60 crores, which is $8 million of ARR today valued at almost 1200 crores, which is $150 million USD, right, Unicommerce went public at 100 crores revenue valued at almost same, right, between 120 to 150 mil valuation. So is this the advantage that you have that you can go public early in your life cycle thereby?

Whereas a US investor would have invested in a US company at your scale. There is no idea to them when they’ll get their exit money. But in your case, the story might be a little different for them, right, they can.

Shashank Bijapur 21:01

Yeah, I think those conversations are beginning to happen now. And we’ve started seeing these early signals. I still feel like the non-Indian investors are still taking time to understand how this will pan out.

They, you know, but one thing is we are an India incorporated and a US subcompany. So we’ve, you know, it has gone to our advantage that we probably have a higher chance of getting, going public here in India at a significantly lower revenue number and probably give better returns to the investors.

Siddhartha Ahluwalia 21:32

And what are those conversations looking like? Like what are, when investors discuss what is the right Indian public number today to go public for a SaaS company here in India?

Shashank Bijapur 21:42

I think the numbers that get thrown around is about 100 million dollars, 100 crores, sorry. And we’ve seen success coming at that. And we’ve also started seeing success come at like three, 400 crores.

But 100 crores is the number that people talk about. But then if you’re an investor, you’re looking at like a, your IRR should be hit with that, you know, if you invest today at that 100 crore mark, so you know best about how to, so how that works. So maybe that number may be a little too early for them to go public. They may want the company to go sizably bigger before going public.

Siddhartha Ahluwalia 22:19

Pallav, what’s your view? You have invested in more than 100 companies as an angel, then LPs in Neon and few other funds, right? What are you looking as an investor, especially in the Indian SaaS market?

Pallav Nadhani 22:33

Yes, I paused investing for about a year since I joined Presentations.ai. I want to keep that as the biggest focus. And, you know, as a founder, you’ll make a maximum return from your own company and you have things in control, your destiny in control. But overall, if I sort of reflect in my portfolio, so most of those are SaaS, but few of them were consumer companies also.

There was a big pool of money which came in consumer and consumer in India gave good returns, right from your listings to a whole bunch of acquisitions. The number of acquisitions in SaaS or the number of listing is very far and few. Freshworks, I think, is the only listed multi-billion dollar company from India, that too in NASDAQ.

But even their last, I think, private round was some, currently 8, 9 or 10, but public markets have been bouncing between 12 at the listing to now I think about 4 and 5. And while they’ve been growing, I think they have what, 600 million in revenue and probably 4 or 5 billion market cap. So it’s been brutal in that sense.

Now, India, while it will give you, let’s say, even if you list at 100, that’s as an investor, you want to make your 5x at, assuming you invested 10 million dollars also. 10 million dollars into 5 is 50 million dollars. Will you have the liquidity on a small exchange or a mid-size or small company in the sense to be able to get off?

So my personal preference, at least for my investing companies, I mean, maybe you may tell that I’m not thinking big enough and I’ll take that very gladly, but between a financial exit of an IPO versus M&A, M&A has turned out to be cleaner for me. So most of the exits that I have made were either a secondary sale to the next round of investor or companies got acquired by other public companies because it’s very clean, I don’t have to wait out, there’s no lock-in period, blah, blah, blah. But if the companies list and if they’re big enough to be able to do, yeah, why not?

But what is the liquidity to get an exit? I mean, even I think OFS now, SEBI has put some new rules on how much OFS percentage can be as part of the listing. And will it be big enough for you to take the money out without sort of crashing the price as well? But I think the listing story in India is also fairly new, two three years.

Shashank Bijapur 24:21

It’s too early for us to say anything. There isn’t a trend line that people are seeing, they’re looking at. But that said, most of the SaaS listings that have happened are surprisingly, they’ve done well. So at least the indicators look positive.

Siddhartha Ahluwalia 24:35

And you want to be early in the cycle, not late in the cycle.

Pallav Nadhani 24:38

So Sid early in the cycle, is it because are you saying investors haven’t figured out the metrics to measure SaaS company?

Siddhartha Ahluwalia 24:46

There’s a window that hypothetical number, 100 SaaS companies will go public in India in the next 6 to 10 years. So you want to be among the first 20 and not last 20, who bear the brunt of whatever, whether it’s good or bad.

Pallav Nadhani 25:01

Sure. I don’t know. I mean, how much analyst coverage will you get?

What liquidity will you have? What happens like once… See, again with M&A, at least purely speaking from a founder’s perspective, once you intend to sell, maybe you have a two-years handcuff.

The moment you have gone IPO, now you’ve suddenly again signed up for a 7 to 10-year new lease of life. And you have to continue. So there are founders who may want to do it, who want to build intergenerational companies or whatever.

There are founders who may have a bigger idea or they want to keep on moving from one to another, depending on what they like. So I don’t have a clear answer. At least my personal preference at some point for my investing companies is M&A.But if they want to go IPO, why not?

Siddhartha Ahluwalia 25:35

And do you see a stark difference between your public portfolio IRR and private portfolio IRR?

Pallav Nadhani 25:42

My public portfolio IRR is mostly non-tech in India. These are the big names, blue chips and everything. So I think it would be unfair to compare them with this.

So there also, while we do have the mid caps and the small caps. But I think that’s a very different game compared to this. But let’s say at a, between a conservative and an optimistic somewhere mid-level, if we look at my IRRs for the private portfolio, I think over a span, once all of those materialize, I think they’ll have a slightly higher IRR.

But that’s also because my good companies are from a vintage of 2000 to 2017, where my entry valuations were extremely, I would not tell them low, but rational. And right now, the 2020 to 2023, 2022 mid, entry valuations itself jumped up. So your IRR calculations goes for a toss and probability of them succeeding that I’ll get to know in the next three, four, five years.

Siddhartha Ahluwalia 26:30

Yeah. And right now, though you have stopped investing and, but you’re part of the same, you know, India SaaS story. Do you see founders in building core differentiated SaaS or it’s like, you know, saying that, hey, Freshworks got successful and Freshworks was inspired by Zendesk. So let me try to follow that playbook.

Pallav Nadhani 26:53

Actually, not been in touch with a bunch of deals for the over the last year. So I would not be able to comment, but AI, I’m seeing half and half, like a pure AI first. I have not seen much.

Like there are a few of them who are like basically front end models, but there’s only one and two. But that is, I think, also too early in the space. People who are fine tuning, distilling.

There are a few like, let’s say the likes of Morph AI and I think they’ve at least taken a different approach competing against 11Lab. So that’s good to see out there. There are a couple who are building on different vertical spaces or let’s say Sanket at invideo building at horizontal and scaling up insanely fast.

So there are pockets of founders who have figured out new ways to do it. There are pockets of founders who are figuring out how do I infuse AI in my existing SaaS? But still they are at that place where they’re like, how do I approach AI?

Is it just at a workflow level? Should I build a new product around it? And the question in the mind is, what is the pricing per seat?

If I do a poor outcome pricing, this is going to kill my business. That’s an innovator’s dilemma. So what Intercom did was, let’s say, changing the per seat to per resolution.

And in fact, this morning I was reading the tweet that they’re in double digit million, growing at 600% year on year just on their AI revenue. And which has been the AI tailwind for a lot of these companies. But that has fundamentally changed the approach to look at AI.

So I don’t know how many traditional SaaS founders would be able to fundamentally re-look at what AI will do for them. And eventually, I think there will be playbooks and through the community, whether it’s SaaSBoomi or through investor community, there’ll be questions which will be put out to them and they’ll start thinking, but haven’t interacted with a lot new age founders. So this is the community and my existing set where I’m able to sort of find these pockets.

Siddhartha Ahluwalia 28:26

My, you know worry as an investor has been that this kind of companies that went from zero to 500 mil ARR in four years, they are repeat founders. Now, India also has like several repeat founders like you. It’s not playing in India.

Maybe people can argue there’s a capital issue in India that the kind of capital that was raised isn’t available in India at the earliest stages. The other issue can be that maybe in our DNA, we are not as bold to take a very riskiest path. So when we are considering like let’s build B2B SaaS, so we’ll figure out what’s a 10x better product in a category that we can build, let’s say, but not completely a differentiated product.

Shashank Bijapur 29:19

So I actually have a slightly different take here. My belief is whatever you’re building here as SaaS, there is some competitor in the US who’s built a product that is sort of replaceable to what you’re doing. Now, when you go to market, your product is clearly, let’s say, 30, 40, 50% of that more mature, more well-funded company.

You don’t have the GTM prowess that they’ll have. Your crutch becomes your pricing. And that’s how you try to innovate.

You innovate on pricing and in price, the first thing that you do is you lower your price. So while you want to innovate, what you want to get to is feature parity with the folks that you’re getting compared with.

When you go in for RFP, they are looking at all the check marks that are there in that excel sheet and you need to make sure that each of those features exist. So, you know, the innovation comes I think slightly later in the journey for us, for us catching up to parity and being compared with the right competitors and being seen in the shelf with all the other competitors is more important and to get there faster people tend to use pricing as the only innovation that they have.

GTM innovation, I haven’t, I personally haven’t seen a lot with Indian SaaS, but I’ve seen a lot of interesting pricing changes that have happened and honestly while product innovation needs to happen, the buyer at the end of the day is looking you know when you, when you look, take a more macro view.

There are a few buyers who will say that I want this one specific feature otherwise it’s a no-go for me, but in most cases they’re looking at pillars, do they exist and if they exist will I get a successful outcome with this product. I think they’re looking at this from a more holistic view and if you’re able to deliver that value then that innovation while it seems important and you know we’re all product thinkers here at SpotDraft also, it’s actually not, it doesn’t really change the wave drastically because of one new feature and one new product line that you have, it does take some time.

Siddhartha Ahluwalia 31:19

But see, the primary issue still remains or we can say in India we are still early in SaaS for at least our circles is postman is once in a decade phenomena from India, whereas in the US, a postman is almost born there every month, postman means a category creator, right. Pallav, what’s your view on that?

Pallav Nadhani 31:43

Yaar, I don’t have an answer, I think this is what the community has been pondering in itself, why only one big multi-decacorn listing, why not enough M&A happening, let’s say at a billion dollar level, I don’t have an answer, but let’s say if I have to ask you, which was the unicorn in SaaS built in the last five years? I know SaaS takes time to build, but which are the next three unicorns in SaaS you see upcoming?

Siddhartha Ahluwalia 32:05

Definitely see SpotDraft.

Pallav Nadhani 32:06

SpotDraft for sure, but that’s 19, 2019, so five years, 2018, 2019.

Siddhartha Ahluwalia 32:13

Yeah, I can talk about our portfolio and then I think maybe we talk about it, I see Astra Security, I see CloudSek, right, and I think because India will still have, right, let’s say Indian investors like WestBridge and all folks that focus largely on SaaS will still have the scale, how many companies are above $25 million above ARR, they’ll be far lesser, so therefore Indian investors will still give them a higher multiple than the US investors will give to US companies thinking, you know, there are probably better exit multiples, you know, these companies can probably scale to few hundred million, right, so my guess is we’ll see at least from India more SaaS unicorns above when the company becomes $25 million plus ARR.

I think the issue still remains, are these companies which have become unicorns exitable or not, there is no real answer to it, like Accel is considered to be one of the most famous SaaS investors from India, right, Shekhar Kirani, they are sitting on Zenoti 100 mil ARR, BrowserStack 200 mil, Chargebee 70, 75 mil, but in today’s market and these funds are nearing their fund cycle, which is 10 to 12 years today, so these companies are unexitable and for if they were small funds, then probably they could have taken a, like Postman did a secondary recently.

Postman last primary valuation was 5 billion, recently secondary happened between 2.5 to 3 billion, whoever wanted to exit, right, similarly in Icertis, Icertis in your space, the last primary was at 5 billion, today secondary happened at 2, 2.5 billion, so but for large investors, they can’t take 100 million off the table. Correct. Yeah.

Pallav Nadhani 34:05

So I think liquidity is one of those, but liquidity, I think the key thing is everything can be sold if the price is right. Yeah. Now if you are sort of benchmarking with the last round price, assuming you are not growing at the same rate or the multiples are compressed, it is just a function of what do you internally accept.

But in terms of how many much, how many more centaurs can be with 100 million dollar companies, so security I understand is space because there is a constant need for newer things, the newer threats and that is probably one of the categories where we will see AI also doing a lot of part because signal versus noise ratio, you want AI to sort of cut it down.

Then similarly, let’s say DevTools, now DevTools, I haven’t seen too much consolidation happening in DevTools because now there are pockets between let’s say Microsofts of the world, other companies, JetBrains and the infra layers, so we haven’t seen too many big purchases happening there, so pure SaaS workflows, let’s say without the AI, is there a space to hyper grow to $100 million in 5, 7, 10 years, I am not sure, which is where this is a very tricky spot for a unicorn to be stuck between this $20-25 million ARR.

Because now you built a great company, but you are neither here nor there, then what do you do next, even if you list. The again there will be a cut down on the valuation or again you will have to run, sorry, you will have to run it for a very very long time to justify the last round valuation and then in terms, so is it a function of space itself not growing fast enough and or too many companies in each space sort of buying for the same market share or is it a function of what you are calling Indian, lack of Indian founders aggressiveness or lack of talent or lack of market access for local customers.

Like Wix can grow so fast, because they are basically adding a whole bunch of customers across the globe now and the founders knew the game, they knew what partnerships to do, but sitting here let’s say for a first time founder or even if a second time founder is doing in a different domain, does the knowledge then sort of get translated into that or are you learning new and for a lot of founders I have seen, I mean yes, doing in the same industry does give you a slightly more edge on coming closer to success, but a lot of founders are like I want to do something new and interesting.

 

They wouldn’t want to do in the same domain at least once you are financially made money, because at least even for founders, yes, while you want to build a successful company, there has to be some new learning, new joy, things which are unfolding new in your life, otherwise it’s just a grind, so I don’t know which part of this, which elements of this will sort of change that or is it just a function of time.

 

Shashank Bijapur 36:18

Yeah and to add what you are saying, it is also the environment that you are in and the community that is there, right now we have got SaaS Insider and SaaSBoomi and all of them, at least five years ago I couldn’t go and find five other SaaS founders in the similar journey who were having similar problems where I could go and they were willing to speak about their journey.

 

And the numbers were so far and few in between that you didn’t know if that was the exception or the rule, so a lot of the times it does feel like you are sitting in Darbhanga trying to sell in Dallas, like you are trying to bridge that gap and all of that you are trying to sort of do it faster by reading blogs and podcasts and looking at Twitter but actual experience of being in the market, knowing how these sales cycles work, what is the cultural nuance of building what you are building, why a certain type of design is important and works well, like all of these things take time to get ingrained.

I think the one thing that the Israeli startups have done really well is they have gone ahead and sort of bridge that gap much faster, you are seeing multiple Israeli companies, especially in the security space who have been able to grow pretty massively in a very short duration of time.

Siddhartha Ahluwalia 37:33

I think one thing which has improved is, if you see the street where your office is in HSR in Bangalore, you have a company opposite to you, Whatfix, $70-75 mil, ARL, almost a unicorn, another company just opposite to you, Accel Data, between $30-50 mil, ARR. So, if I were a SaaS founder today, I would just take a small seat in that lane. That was not possible 3 years or 4 years ago.

Shashank Bijapur 38:00

Yeah. It, Yeah, so that, you are right. So, now that is there and we also have investors like you who are also facilitating discussions between others, I can come up to you and say, hey, do you know anybody who has gone through a similar challenge?

And you can now find 5 examples of it. That earlier did not exist. So, for us, at least we were doing, we felt like we were doing everything for the first time and we made so many mistakes.

While, you know, building a startup in the same space will give you that, you know, you will understand your ICP and that market lot better. But just by virtue of being a second time founder, you know the 100 things you are not supposed to do. I think that is very important.

Like, one of the things that VC Capital gives you is the ability to make some of these experiments and fail. And you know that, you know, 6 out of 10 experiments will not pan out. Now you can be a lot more focused and you know exactly what not to do.

And that itself is faster growth, lesser time, you know, money spent on doing things that don’t matter.

Siddhartha Ahluwalia 39:06

You will be surprised by one stat, right? In our portfolio, we see equal number of second time founder companies not working out. And these are like super second time founders, built $50 million ARR companies.

Their companies are not working out as equal to first time founders. Why do you think that is the case? I think few reasons, right?

Playbooks have changed a lot, secondly. And once as a founder, you just jump into any adjacent market, right? You as a founder carry a lot of previous learnings, right?

Now, it depends on how fast you can unlearn. And unlearning only happens when you are in a circle which is better than you, right? It’s like how many people we encounter, like are so self-conscious that they can count it, I need to unlearn this, right?

And that kind of circle, I think, is not yet there in India, right? That people can tell you on your face if you have built a $50 million ARR company previously that you do this thing what you’re doing, you know, it needs to be done completely different. So, go with a beginner’s eyes, right?

Don’t assume anything. Though you have that few advantage with you, capital is an advantage with you. There’s capital not on day zero, day minus one for you.

Shashank Bijapur 40:21

And also talent.

Siddhartha Ahluwalia 40:22

Talent. All your previous members want to join with you because you created wealth for them. But it’s going to be equally or more challenging for you because your own biases are going to act against you.

Pallav Nadhani 40:34

Interesting. Also, two more things, one on a serious note, one on a lighter note. On a serious note, the path to PMF is still not a science. Like you can scale up an S&M process, you can scale up partnerships.

These are things where your network or let’s say your knowledge will come to play. But if you’re even doing in the same industry, PMF is not a given. Even for a founder, let’s say who has raised, second time founder, $5, $10, $20 million.

And on the lighter note, second time founders are distracted a lot. They get called to do podcast sessions and even conferences. So, they don’t get 100% dedication and the chip on the shoulder to be proven right.

And also they grow old, they have kids. So, they sort of split across multiple things. So, that obsession about putting your 100% out there, that sort of gets diluted.

I’m not saying for all of them. I mean, at some point in time, you’re like, you also evolve and say, okay, now you slot your work-life balance. If that’s a term they even agree to.

But a bunch of things, which like Sid also said, your learnings become your, if you’re not able to unlearn and sort of get challenged on new things, that itself, you are then applying the same old playbook.

So, I believe in most of this, because we have sort of made playbook as such a core tenet of SaaS. You can take out leaves from somebody else’s playbook, but you cannot replicate somebody else’s playbook because a number of variables which are out there, you might not even know which variable has changed for you, whether it’s a temporal change in context of time, or it’s a structural change in the markets or the bunch of other things that goes into building a company.

Shashank Bijapur 41:56

Yeah, interesting. So, you know, how do you measure PMF? Like what, according to you, is your definition of PMF? I have one that I have, but I’d love to hear what you have.

Pallav Nadhani 42:06

Yaar. So, in a, let’s say, let’s add fusion charts. If an average sales guy is able to sell the product without, in a lesser time than the previous best sales guy, I have achieved PMF. Because there’s a pull from the customer, an average sales guy should be able to sell at a very non-quantitative way. But then let’s say at a prosumer product, because there will be different cohorts. So, let’s say in an outcome, part of the PMF is measured by my CSAT score. Like, did this guy find value?

How many hours did he have to put in building that presentation after our system gave back? Are enough people converting without us having to sort of talk to them? Is there a ceiling, sorry, is there a baseline price where I don’t have to give discounts or anything?

Is my volume increasing month on month or week on week with both my conversion and people who are happy with the CSAT score? So, there’s no one metric of PMF, at least in a prosumer product that I’m running right now. But in a B2B, I think the app, if any new sales guy should be able to sell with lesser and lesser amount of effort.

Siddhartha Ahluwalia 43:00

What is your definition of product marketing?

Shashank Bijapur 43:01

So, we first all heard about the million dollars, right? Now, we were seeing traction both in EMEA, in US and in India. So, we had to, we felt like we had to undergo PMF three times over, just to say that this market is good enough.

But then, when I look back, and I look at that moment where we felt like we had PMF, it is when it didn’t matter what the logo was, I could go with a pre-recorded pitch, say the same damn thing, right? And close that customer, maybe in a faster pace than what I could do earlier. And I was able to build that flywheel, I felt like we had PMF.

And this actually happened with us. I went and pitched SpotDraft thinking I was on some other call speaking to some other customer. But I gave the same pitch, and the customer closed.

So, I was like, okay, something is working, it’s resonating what we are building the product, and the market is resonating to what we are doing. And we saw that that turned from an outbound motion to an inbound motion. People would come in, read the copy, make the buying decision pretty much within that flow.

So, that sort of gave us a lot more confidence. But again, for each, you know, industry vertical type of pricing, that PMF may differ over a period of time.

Siddhartha Ahluwalia 44:10

Yeah, I think another thing that acts against us, I think it’s still because we are a maturing ecosystem and not a mature ecosystem, is that if you are a $50 mil ARR founder here, as Pallav said, you will get invited to podcasts, speakers everywhere, right? You will be a god in this ecosystem, for example, right? If you go to Bay Area, at $50 mil ARR, you are nobody.

A second time founder who sold his company between $100 to $500 mil, you are still nobody. So, I think that feeling of nobody is very essential to being a founder, that hey, I am nobody, right? And I don’t matter.

Pallav Nadhani 44:51

So, actually, Usme Sid, Bay Area doesn’t care so much about as much as revenue, as opposed to what sexy thing are you doing today? This is more, let’s say, Midwest or like more like you go to Chicago or probably even in New York. Bay Area, like today, if you talk SaaS and not AI, what is the new cool thing?

Are you talking about biohacking? Are you talking about AI? There, SaaS means you are scraping the bottom of the barrel.

Siddhartha Ahluwalia 45:11

Then even in AI, if you are not perplexity, right? If you are not endurial, if you are not open AI, then nobody cares about you, right? And maybe wherever in your cycle, how core AI company you are.

So, I think the hunger in the founder there, right, never dies. That’s what I am trying to say. Here, but at $50 mil ARR, if you feel like a God, then…

Shashank Bijapur 45:40

Yeah, but you are also at $10 to $12 million ARR, you are also getting going public. You have the ability to go public. I think it’s…

Siddhartha Ahluwalia 45:45

Yeah, but I think both public is also, right, constitute, and I would say, blame the VC community, including myself. Public is not an exit event. It’s like an entry event.

And at $10 mil ARR, let’s say, SpotDraft goes public today at 100 crore revenue. I would still like to stick with SpotDraft for the next seven years. Obviously, Pallav has to allow me.

But, yeah, so it’s not an exit event, which is, right, it’s a point when company becomes liquid. Even if you see the companies that has gone public, even let’s say, company like Mamaearth went public at 1.8 billion. Every investor just sold in a span of six months, only 2 to 3% of their equity.

There was not a single point in time where an investor could go and sell that, I want to sell my entire 10% stake.

Pallav Nadhani 46:38

Was it because they did not have an option or that was…

Siddhartha Ahluwalia 46:40

They never had an option, right? It’s just that if they sell 10% at one point of time, the market, the share price would tank.

Pallav Nadhani 46:47

Sure. So, another way to look at this is, and I can come from a personal story, is this an ecosystem problem or individual founder aspiration problem? Now, let’s say, from our individual founders, let’s say, after selling the second company, I took an 18-month break, sabbatical doing random shit here and there, talking, reading about different things.

But now, let’s say, with this opportunity that I have presentation, suddenly I’m looking at, hey, what would make us the world’s most loved product? And with those 18 months of break, I was able to sort of reset myself and rethink what to do. But here, a lot of times, people say, what are you doing now?

I mean, I could take those 18 months break to be able to sort of understand a bunch of things going around and basically put my foot down, including to people who are near and dear, close to me. And now in hindsight, they’re like, okay, this made sense. So, we also do not allow that flexibility to think big and fail big.

Even now, for a second time, third time founder, if that doesn’t work, in the ecosystem, in the backgrounds, people are like, what the hell is he talking about?

Shashank Bijapur 47:38

Yeah. But this fear of failure is ingrained in… From your…from a childhood. Like, right? Like, we have been, I mean, all of us, it was important to do well, but it was also important to do well compared to your neighbor.

What is Sharmaji’s son doing? What is Sharmaji’s son doing? Sharmaji’s son has 5, why do you have 2?

So, it is both competitive. And for a lot of us, like me, like we come from, I at least come from a salaried class, middle class family. So, I have not seen my family take the kind of risks that they’re taking.

So, for me, this is at one point, it felt like once in a lifetime goal to go and take this risk and perhaps work or not make it work. So, I think that also is, you also carry the aspirations of your family as you build this. And you started like, what, you were 16, 17 when you started your first company? Yeah. So, 16, I was still eating lollipops and chewing gums.

Siddhartha Ahluwalia 48:37

I think one thing which I would say has been unfair to our founders, right? It’s not a fault of their own. By the time our founders couldn’t even learn how to build a $100-mil ARR company, the ecosystem, $500-mil ARR became the benchmark, right? So, it’s like expecting a second grader to clear a board exam or clear a college exam.

Shashank Bijapur 49:01

So, you have this Janus-like head now because you’ve been a founder and you’re an investor. And you’re speaking to both a founder and an investor and predominantly a founder. What are you looking for when you invest in a SaaS company?

And does that change for both of you? And does that change when it’s not SaaS, it’s a consumer company? Does that metric change for you?

Siddhartha Ahluwalia 49:25

So, I can speak because I only invest in B2B enterprise SaaS and now have a lens of working with founders across 55 portfolio companies. What we are looking on day zero is, are these founders clearly thinking of going to $10-mill ARR? And is it well thought through in all their aspirations, actions, in the minutest of details?

Why is that number important? The first is, it’s a minimum milestone that a founder creates for themselves a exitable, nicely exitable company, right? A company that can, you know, have between 50 to 200 employees, right?

And at that point of time, the founder can also think of, right, do I want to continue? And at that milestone also, a lot of founders think that do I want to build it for another 10 years or, right, I’ve done too much of it, I’m burnt out, right? So, I think we need a founder’s clarity to that number, right?

And then what are the supporting factors, right? Like if a purely tech founder say, no, I’ll hit 10-mill ARR without any basis, right? You need a supporting go-to-market co-founder, you need an insight or a wedge into a market to just land their foot inside it, right?

In some cases, you know, they have design partners or customers who say that, right, how these guys just do one thing amazing. Also, what we look is, right, not so good storytellers. Okay, interesting.

Right, not to judge you, you are a fantastic storyteller Shashank. But what happens is a lot of founders in their storytelling, right, enamour, right? So, the one way to judge is, can the customer speak the story of the problem and the solution better than the founder?

Shashank Bijapur 51:17

Got it. Interesting. Right.

Siddhartha Ahluwalia 51:19

So, these are the few things and I think that at $10 mil ARR, it’s a founder’s call that do they want to aim for a $50-100-mill era company or not, or if they want to sell it at $10-mill ARR. But I think, for us, that clarity from the founding team becomes very important. Now, what we have also crystallized thesis is that it’s very tough in this market to migrate a founder from India to the US.

Either you are very clear that what, let’s say, you are building, that you don’t require for a large period of time to set up a US entity or have a team in the US in your kind of business, right? But in most of the cases where you are selling 50-100 thousand dollars of ACV, is the CEO already has a work experience or already based in the US and their tech team is in India, right? If it’s not there and it’s a wishy-washy imaginary thinking that, hey, once you give me your money, I’ll get a O1 visa and I’ll migrate to the US.

I think it all just shows that how deep are the founders thinking through, right? Or else the founders can clearly say to us that US is not a market, we are only building for India for the next 5-6 years. I think we can also like that clarity.

But yeah, so in short, that’s how we think. One more thing is, right, when new founders start a SaaS business, they think of their first sales leader or proper account exec or sales hire as somebody from Wolf of the Wall Street. It’s hard for me to dispel that, you know, that this is not. A good salesperson, is a programmatic person. They might not be slick, they are not selling you snake oil.

Shashank Bijapur 53:13

Yeah, so you’re right. And what I’ve seen is that the best salespeople actually have the best cadence, like their hygiene of the CRM is great. You know, their emails are always on time.

If you tell them something, they will remember it and they’ll ensure that they follow up with you on it. They’re very unilaser focused on making sure that not just that this is the highest value, but you’re also selling a clean deal. You know, it’s very often when you’re growing, people can say that I integrate with your washing machine, my SaaS tool integrates with your dishwasher, all of those kinds of things happen.

But then the good ones will always have clean deals. You know, and they’ll, they will almost make it a consultative process, then this very snake oil man like. Their demos necessarily don’t have wow moments, but they know exactly what the customer wants. And they’re able to show how the platform is able to deliver the outcome.

But yeah, that cadence and consistency is what I’ve seen in 100% of good salespeople, at least at SpotDraft.

Pallav Nadhani 54:17

Yeah, so I mean, I always say sales is about process, marketing is about outcome. Otherwise, marketing people throw 100 things they have done and if you’re not getting the outcome, you’ll still be enamored by okay, but what’s my metric? Sales good process leads to great outcome.

And also it’s not just the SDR and the AE, the sales manager, whether it’s your media manager, SDR manager, or even at like director of sales, they have to come with a strong sense of, we’ll run a tight process, we’ll move by metrics and we’ll do this daily standups or whatever this is where we’re learning from each other. So what was the best call? What was the most objections?

And also salespeople should not fight internally for the feature, they should fight with the customer to be able to say how do push it ahead. Half of sales is not because you’re fighting against the competitor, you’re just basically fighting against the process of the mind of the customer, at least in a mid market or enterprise deals out there. So this is just like basic hygiene.

And it’s maybe in a $500 million deal or $50 million single deal, you need the charisma and everything. But for most of what we’re doing in SaaS, which is let’s say $50k to $1 million a day is just about the process.

Siddhartha Ahluwalia 55:16

And Pallav there’s a lot of narrative on LinkedIn posts by many influencers in the SaaS industry that SaaS is dead. What does that mean? And why are people saying so?

Say 20% of the 25% of the market, they’re saying is dead. Is there any basis or truth to it? Or is it more just because, hey, a doom time, so let’s declare one more doom of an industry.

Pallav Nadhani 55:40

I don’t think SaaS is dead. The sexiness of SaaS is dead. Now, it’s going to move to a, hey, we have to run this business with business principles, with the unit economics done right, it’s going to be more grind.

So what was sexy about SaaS, this 50x multiple, 100x multiple, people buying like shitload of software, and everybody sort of seeing that up curve in the early days and all. I think it’s going to be more and more difficult. And it’s not just a function of AI, it’s just a function of multiple things, too much commoditized space, too many players in each one, buying revenue has gone down, people consolidating products, whole bunch of those things.

So, and also VCs have realized or even public market that multiples are going to be compressed. So if you look at traditional companies, we value them on the P/E. Here the assumption that at some point in time, the cash flow and the gross margins will sustain.

So now at some point in time, I think traditional finance metrics will be more relevant here, like what is your P/E, what’s your free cash flow? So which is where the business will be there, I don’t think we are probably beyond 30-35% adoption of even cloud in the world. Yes, the lagging industries will always have larger sales cycle and so on and so forth.

But eventually it’s ultimately it’s a business. So the delivery model will be there, the recurring model will be there, but the aspirations or the hope or the hopium that there will be multiple decacorns in the space, there’s just not enough space in that. Yes, there will be a few categories where it will be there. So the sexiness is dead, the business is not dead.

Siddhartha Ahluwalia 56:58

What do you think, Shashank, especially you are pitching to investors?

Shashank Bijapur 57:03

I think, I don’t think SaaS is dead. I think there are a lot of questions on how horizontal SaaS does and there is a there is a greater requirement for verticalized specialized SaaS to be there. So we know that, let’s say, a lot of the stuff like a Grammarly, what a Grammarly could do today, perhaps, you know, a chat GPT can do.

But something that requires you to, you know, look at health data or legal data or something more or like financial data, which is highly verticalized and specialized. I think that will continue to remain. Secondly, the expectation of customer from your SaaS company is very different.

Even let’s even look at UI/UX. Earlier, you want to start a new workflow, click on new, create, fill up a form. Now you can just say that, hey, create a new workflow like the one that you created for X, add the following two people, and it should be able to generate that. The expectation is that it will get smarter and it will get more, more specific rather than general.

Like there has to be that one single thing that does well. If you look at SaaS as a concept, I mean, what it means is there has to be recurring revenue that compounds. Conceptually, that is not going to die.

Cloud was the mode of delivery. I think AI is a new mode of technology that will deliver it. Companies will need to reinvent themselves.

But I don’t see that SaaS being dead, dead, per se. No, I mean, we’re at least for us, we’re growing and there seem to be enough interest in the investor community on what we’re trying to do.

Siddhartha Ahluwalia 58:30

I also thing one thing is that Indian companies which are legends today in SaaS like Freshworks, the timing at that they got created, that timing cannot come back when ads were so cheap. You could sell a $5K, $10K software so repeatedly. It has now become much harder to sell smaller deals today.

And earlier in Freshworks, I remember talking to some of the marketeers who are my friends, they said they would leave a campaign in the night and come in the morning and see $50,000 of revenue generated overnight.

Shashank Bijapur 59:09

That’s the kind of stuff that gives me heart attack. It’s the stuff of nightmares. No, at least today, the ad words are like very, very expensive.

And I feel like and I don’t know if you’re seeing this as well, the conversion from ads has reduced. People’s inherent ability to trust an ad is not as much as it used to be before, especially after the pandemic. What has started what we’re seeing has started working well, and we are trying to experiment now is outdoor advertising. I think it also builds trust and

Siddhartha Ahluwalia 59:42

But that is expensive. A company at only your scale, or more scale can do that, right?

Shashank Bijapur 59:47

So we actually have a hack for it. There is a you can buy a 10 second slot on a billboard in a very major highway for about $100. It’s actually pretty cheap to do that. There are a bunch of companies that have digital boards and they’ll keep showing your ad in different billboards over a period of time. And it’s not, in fact, our ROI for the limited experiment that we did was better than targeted digital marketing or, or targeted performance marketing that we did online.

The problem is with attribution. I think that’s broken everywhere in B2B marketing because it’s not a linear buying journey, but.

Pallav Nadhani 1:00:27

So to add to it, Shashank said two things. I think in US, so talent density, like number of people who’ve even scaled as a CXO or a VP from $50 million to $500 million, you’ll get dime a dozen. In India, if only 10 companies scale, mostly have been founder driven, not professional driven. So today, if an Indian founder has to go out and hire their somebody, then either he has to move there, move his CXO there..

You cannot just have a VP Sales or VP marketing running isolated teams there, and then you have India teams. So even if you look at some of our more successful founders, all of them have relocated to US and it has worked out for them. Second on the second point, you said, I don’t think we fundamentally understand brand marketing as SaaS India. So whether you look at Dropbox or Atlassian or even MailChimp, when they started, they understood the value of brand marketing.

Humare hain abhi bhi, we are more focused on this performance and quantitative driven thing, because like attribution problem ki cashflow aa raha hai ki nahi raha hai. So fundamentally we have like, we are under marketed in the minds country, like consumer brands do some marketing, but US is filled with consumerism and marketing. They really understand that there are more opportunities out there.

So the ability to say, Hey, we are going to do this brand marketing. Like, even if you look at a bunch of Indian companies, they struggle performance, sabko samayenge aagaya. But brand ke liye, they have to hire somebody from outside because very few companies, or they have to hire from consumer space, in which case they have to get accustomed with what is happening in the B2B SaaS world.

So that is something which also needs capital, which needs risk taking like half of Indian founders. If you talk ki brand marketing karna hai, they are like kyon karna hai. And we all know there’s going to be glass ceiling.

So brand marketing is important for your differentiation. There’s going to be a glass ceiling in performance because there is only search, so many search impressions or ad slots are where you can meaningfully get revenue from those things. So all of these big companies, like even I remember Airtable brand marketing, they are probably at $30, 40 million, it sort of propelled them into a different orbit out there.

So small, small things that we learned, talent, density, brand marketing, then ability to sort of ask the question, where is my… Like HubSpot, I think at a hundred mil. They already started thinking what’s the next new product, which is where they got the CRM. And the question they put that if you have to reach to 500 mil, this product is not going to do that.

So we are also hyper-intense on saying ki hamara ek saal ka or do saal ka plan kya hai because it’s synced to the next fundraise. Still not synced to what will get us to 500 mil in IPO. I think those are things which will change some in our control, some not in our control.

Siddhartha Ahluwalia 1:02:34

So Pallav, we are towards the conclusion of our podcast today, right? And a few questions that I want to address towards, you know, which are important for founders, as a founder today in B2B SaaS, should you set up your company as a US HQ or an India HQ company?

Shashank Bijapur 1:02:48

I mean, Madhav, Rohit and I came back to India to start a world class company out of India, and we feel very strongly about it. So we have historically resisted any, you know, push to switch. So I feel like that difference of being in US versus India has gone away.

Also, I don’t think that India is necessarily inferior if that is what the projection you want to do. So, and a lot of the investors find it easier to invest in India rather than invest in a US sub after a certain point, a US Holdco after a certain point. So I don’t see a problem with remaining in India.

You can be an Indian holding company and a US sub. There are pros and cons, but I feel like there are much bigger pros of being in India.

Siddhartha Ahluwalia 1:03:38

What about you Pallav?

Pallav Nadhani 1:03:39

I think you’ll have to look at it from multiple lenses. As a founder, at some point, if you want to do M&A and the buyer is a global buyer, you’re basically striking off half the buyers if you have an Indian holding company.

Second, from a purely tax optimization perspective, India is still slightly on the higher tax, unless you’re looking for a very long term and you’re doing structuring one way or the other. From an investor side, I think it has become homogeneous. People are okay investing.

You will have to have, if you have customers in the US, you will have to have a sub or holding, whatever you want to do. So it’s a mixed bag, but depending on what you’re optimizing, if M&A, a global M&A is probably your top priority. I think India still has a long way to go, right from the capital controls to your RBI regulations, to banking regulations and everything.

And then you’ll have to structure a deal as an asset deal, which again comes with its own complications and tax complications. You’re cutting down potential number of buyers because many of them have not done an India deal yet. And I think a couple of them, I think Facebook, you were telling me after they did the last deal with Kumar’s company, they have not acquired any company in India.

They’re very clear about it. So if you’re cutting down half of your universe, doesn’t make sense. Though that being said, from a listing perspective, it’s easier in India for sure, right now, how long will that last? We do not know.

From running the ops and running like some of these ops, whether it’s your CA/CS, a bunch of these things are going to be way cheaper in India. But if you’re looking to scale that company and customers are going to come from global, it’s I mean, and also if you, if you’re okay living in the US, why not US?

If you want to sit from India and run the company and visit US once a quarter or once a year, then the mixed structure works.

Siddhartha Ahluwalia 1:05:11

So where was Fusion Charts HQ?

Pallav Nadhani 1:05:13

We were all Indian.

Siddhartha Ahluwalia 1:05:15

And Presentations.ai?

Pallav Nadhani 1:05:16

We are Indian company.

Siddhartha Ahluwalia 1:05:17

How does these two choices happen for you, like in your personal?

Pallav Nadhani 1:05:20

So Fusion Charts, when I started, I didn’t have an idea about all this structure. So we started in India, kept it simple. Also, there was a sense of patriotism back then, but then you realize business doesn’t run on patriotism.

So we did have our own issues from a exit perspective, purely from asset versus company, taxation, all of those, though we had great teams to be able to help us with that. But there also the buyer was flexible enough to be able to sort of navigate through a lot of these, but will all the buyers be the same? We do not know.

Siddhartha Ahluwalia 1:05:50

And what about, how did you structure the decision in Presentations.ai?

Pallav Nadhani 1:05:54

Simple. Here we are getting a company and a bank account, which Singapore was not giving. I know.

So I think a couple of things, US now has this new law called section 174, where you cannot amortize. So your development expenses have cannot come in the P&L. It has to be amortized for 15 years.

Now, if you’re a loss making company, it doesn’t matter to you, but there also, then you’ll have to pay more taxes on the notional profits, which get amortized to the next year. So when you’re looking from a cash flow perspective, I think that becomes important over a longer term. I think a lot of people have not realized this was, I mean, people are hopeful that with the bipartisanship, this will be reconsidered, but I don’t think that’s happening.

So fundamentally your cash flow is going to be hurt from that. And second, we realized that both of us are in India right now. Our motion is a PLG motion and seems like a great place to start.

And you always have the flexibility. Obviously there’s going to be a large tax event to flip it out for a very specific reason. We need to do that.

Siddhartha Ahluwalia 1:06:51

Got it. And right now, what is the aim that you have? Fusion charts, was it a clear aim that when you were in the process that it will be an M&A?

Pallav Nadhani 1:07:01

No, no. So fusion charts, when I started, I didn’t even understand the word M&A. It was very simple.

Make good products, sell to global customers. This is 2000, 2002 when I started. It was somewhere, I don’t think India knew also product or global selling, we had to figure all of those out.

There were no playbooks, but essentially we tried a bunch of things. We got lucky, we were profitable. So we ran it profitably for 20 years while we were selling.

And the reason also we sold, we had just headwinds, which is against open source, against the overall market itself, sort of not growing as fast as we want. And we could see our competitors number as well. We’re clear, whatever we do, and we put our best effort in the last couple of years before the exit to make the best product out there, do a bunch of other adjacent things.

We could not see that this is going to be a $50, $100 million business. So we’re like, hey, that’s the right time to exit. With presentations, I make the world’s most loved presentation product.

That’s all. So if we can reach 100 million users for this product in the timeline that we want, that I think would be a great success story for us.

Siddhartha Ahluwalia 1:07:59

Got it. And do you think in SaaS, in consumer definitely a product wins, but in SaaS, Slack is a great product. I think one of the best in its category. But when Microsoft entered that category with Teams, it replaced Slack like anything.

So it had the distribution with the clunkiest looking product and still Teams has more revenue.

Pallav Nadhani 1:08:25

I don’t think distribution was the only thing. It was a pricing in as a part of a bundle. When Microsoft goes and says, I’ll give it to you Teams for free, a CFO will say, boss, why am I paying $8 for Slack?

Like, yeah, I understand that you’ll be using a better. And second thing, they integrated with everything. SharePoint, Power BI, for Slack, you have to have bots.

So Slack tried to get the sanctity of the UX saying that I’ll not come somebody else. I’ll not have somebody else from the outside to come and scoop. So while they had the Slack bot environment, it was limited.

Microsoft said, basically, here’s an iframe, you do whatever the F you want within the iframe, we don’t care. Within the Teams product. Now for enterprises, I think as long as it’s available within their ecosystem, SSO pricing, which the CFO cares about.

And even if the experience is a little bit clunky, but you get your entire SharePoint, this thing out there, like a Power BI dashboard out there. Like in a single window, this is my access to all the information, like a portal to everything I need to work for a day. So it was not just one thing, distribution, but a culmination of all of these things is my understanding.

Shashank Bijapur 1:09:15

Yeah, I think the right to win is not just one thing. It’s 10x on pricing, 10x on GTM, 10x on product, all three have to work together. I don’t think with a really tardy product, you can go far.

I don’t think just pricing alone will work. And just distribution alone will also not help. So I think all these three have to work in tandem pretty much in the same way. Only then will…

Siddhartha Ahluwalia 1:09:37

Well, let’s say a new age CRM has to replace Salesforce, right? And we all know that people don’t enjoy using Salesforce. But it’s one of the most hardest product to replace.

Shashank Bijapur 1:09:47

But that’s because of… I don’t think that is necessarily because of that. I think the reason for doing that is the change management cost and the cost of retraining people and retraining your workforce is so high that people are not willing to make that change.

If you build a workflow product, taking it out has like a lot of domino effect in a lot of places. And I don’t think there is a product today out there that can truly go and absolutely pound for pound replace it. Replace Salesforce.

That said, look at, let’s say, a Zoom Info versus Apollo.io. Or look at Cisco versus Zoom, right? We have seen that… Or Coupa versus ZipHQ right now.

We’ve seen where generational companies have gotten disrupted by newer entrants. Only because, you know, I mean, they innovated in all of these, each of these three things. But workflow products are just inherently very difficult to…

Siddhartha Ahluwalia 1:10:44

Tentacles are very deep.

Shashank Bijapur 1:10:46

Correct.

Pallav Nadhani 1:10:46

See, the most hated products in a company are the most difficult to replace. I’ve understood.

Shashank Bijapur 1:10:49

Coupa.

Pallav Nadhani 1:10:49

Coupa, yeah. How many workflows have been built? Who has built? Has the person left? What is that tribal knowledge? How many people will be affected? How many stakeholders have to approve to do what? Provide better UX or maybe 20% lesser cost? No.

So unless it attacks a different segment of the market, which is where nobody’s using hypothetically Salesforce or that system of record. Or you’re coming from a sideline and then going in the center. System of records are really, really hard to replace in any company.

And the longer, bigger they become, the more integrations they have. They will have this custom workflow, some special app built for some special team. And to get a sign off from everybody and say, we’re going to replace Salesforce.

The first question would be like, why? Like Atlassian’s Jira, most developers hate, but every company will have that. Yeah.

Linear is replacing things for new age teams for up to 20 people or whatever this is. They’ve taken a view of small teams who get used to linear itself on day one. Then they’re like, Hey, we don’t have to go to Jira.

But my hunch is at some point when they grow large enough, not the, uh, not linear, but the companies and they need more processes. They will have to sort of move up. Like people move from HubSpot to Salesforce because the big companies have figured out what is their thing, whether it’s ServiceNow, whether it’s workday, whether it’s like a Salesforce, they have their tentacles. That is why all of them are what? 50 to a hundred billion dollar companies.

Siddhartha Ahluwalia 1:11:58

Yeah. No. In fact, service now is an $8 billion revenue company growing 30% year on year, with the clunky UX.

Pallav Nadhani 1:12:06

So all of them have made the product as a platform. So multiple vendors have built products on top, multiple internal teams have built things on top. So you’re not just replacing a workflow anymore. You’re fundamentally replacing an ecosystem, which has become mission critical to the company. So very

Shashank Bijapur 1:12:20

I think it also depends on who you sell to. If you’re an enterprise first company, you would have started in a much older, like pre 2015, 16 era. And you tend to see that these companies don’t innovate on the look and feel of the product as much the ease of use of the product as much.

But if you look at similar time companies, but they they are selling more mid market and SMB, you will see that that innovation is much better. Like look at a intercom, for example, like it’s continuously innovated. Whereas some of the more enterprise first companies in that era, like they look like they were built using GeoCities.

Siddhartha Ahluwalia 1:12:55

So which which comes to my next question for SaaS founders starting today, right? Do they even should aim to replace a system of records or should they aim for smaller problems, which are integration into the system of records to start with?

Pallav Nadhani 1:13:12

So two things, one is how big a company you want to make. Now, system of record also again, why do you want to replace? Find the niches which do not currently have a system of record, which could be large enough.

Now, let’s say, for example, just say in between, there was this role of chief data officer when GDPR came. There’s no system of record or no system for them. So what is the technological shift in which enables you to bring things?

What is a behavioral shift or regulatory? And there’s always constant change in the market. So find from a niche which you think will become large.

So what are the new designations which will come, which will need a system of record? What technology shift will come, which allows a layer to be added on the side of the system of record, which is what we call system of engagement or for a niche where they do not have. So the other counter belief is if somebody doesn’t have a system of record and they have been in their job for four or five years, do they even need one?

Like what is the system of record for marketing? Or do we call it a A-B testing engine? Is it a list of all their campaigns? Is it a list of all their creatives? Or is there something? Maybe they don’t need a system of record because you are not doing anything with the record.

This is a system of experiments and system of tracking. Whereas sales, engineering, code, HR, like services, all of these need a system of record. So yeah, a system of record, if you can do it right, that’s a great outcome, but very, very hard to disrupt.

So look at the greenfield or the niches or run on one of these three shifts to be able to sort of determine how to do it.

Siddhartha Ahluwalia 1:14:24

What is your view?

Shashank Bijapur 1:14:25

I mean, we are building a system of record. But I think there are a few things. First is the age of age of SaaSification of every vertical within a business is different.

It matures over a period of time. I think there are a bunch of things that are clearly not mature enough, and there is space enough for it to be disrupted. Second is if you build a system of record by design, it will be more, the space will be more cluttered, but the TAM will be much bigger.

So it’s really, you know, do you want a sizable TAM? You can build a fairly large enough business for the right ICP where there is, you know, where SaaSification hasn’t happened yet. It’s possible.

The problem with building something that plugs into an existing system of record is it, I think the biggest challenge there is it becomes a platform play. Like you’re so dependent on the platform, the platform ends up sherlocking your feature, then you’re no longer required. Like, you know, for example, Slack recently launched their checklist and sort of their Kanban board system.

We stopped using Trello after that. And we saw that our usage of Google Meets dipped when they started their, you know, the calling feature on Slack. So it’s a problem, you know, that can work both ways.

With systems of record, you know, it’s harder to build a company, but it’s a much, much, much bigger TAM. Like, for example, procurement, it’s still not disrupted well enough. I feel like there is space to build a great system of record in procurement. You know, there is there are many such other things that can be disrupted and haven’t SaaSified itself.

Siddhartha Ahluwalia 1:16:02

You know, I enjoyed this conversation so, so much, right? Sitting with friends, having very diverse point of views, right? For me personally, it’s been amazing learning. You know, Shashank and Pallav, I enjoyed it a lot.

Pallav Nadhani 1:16:16

I’m so glad we are here.

Shashank Bijapur 1:16:17

Yeah. Thank you so much.

Thank you for making this happen. Amazing.