It seems as if Silicon Valley has been a consistent choice during the early career phase for several Indian VCs!

Sanjay isn’t an exception as well. After spending his early years in Silicon Valley, in 2006 he came back to India and became an active member of Mumbai Angels. Finally, after 4 years of being an Angel Investor, he cofounded Blume Ventures in 2010. So far Blume Ventures have announced funds of a combined value of $150M with over 192 Portfolio Companies. Some of its Portfolio Companies are – Dunzo, LBB, Cashify, and Unacademy. In this podcast, Sanjay shares his opinions on Indian startup ecosystem navigating through Covid-19 crisis.

Notes –

00:44 – From Joining Mumbai Angels to Co-founding Blume Ventures

03:40 – Backing Naveen Tiwari, InMobi during 2008 Crash

07:35 – How do you test the founders in good vs bad times?

12:02 – How has Covid-19 affected Mobility & SaaS Startups?

15:30 – Advice to founders to navigate through these tough times

16:30 – Startups contributing to building the Future of Work

21:53 – Change in Investment Thesis from 2011 (Super-Angel Fund) to 2020 (Fund-III)

24:31 – Post Covid-19 Scenario for Non-Consumer Startups (SaaS, Deep Tech, Enterprise)

29:55 – Survival of best companies being self-sufficient

32:05 – How to evaluate & implement cost-saving strategies?

40:10 – Considering and dealing with possibilities of mergers & acquisitions

 

Read the full transcript here:

Siddhartha 0:29

Today I have with me Sanjay Nath Managing Partner, Blume Ventures. Sanjay, welcome to the podcast.

 

Sanjay 0:35

Thanks so we’re doing it via zoom this time but I look forward to connecting in person soon as the situation settles.

 

Siddhartha 0:42

Absolutely. Sanjay, we love to know more about your journey how you started Blume before we dive into the current scenario which is prevalent today.

 

Sanjay 0:52

Sure. So, I’ll try and share my brief journey right from the beginning. I am a Bombay Boy, grew up here in Bombay, of course, now we all stuck in our home cities wherever we are. I decided to do engineering, went to BITS Pilani and then my past took me to the US. And, I hadn’t planned to set out and become a Venture capitalist. We see so many different paths that take us to wherever we’ve landed up. I started in Product Marketing with Sun and then moved over to PwC strategy consulting, and it was then acquired by IBM and became a member of the Mumbai Angels which is when I got my first exposure into angel investing into venture capital. So, different journeys, Different paths, same destination, I know you’ve already covered my Co-founder Karthik and incidentally, that’s where I met Karthik at the Mumbai Angels where we were both investing on behalf of family offices then our employers, and we disconnected. So, for me, what got me interested into venture capital was just connecting with people, connecting with founders, and hearing some very interesting people who want to go out and change the world and are very, obsessively, pathologically really care about a problem that’s close to their heart. And after being CxOs, I just thought it would be very interesting to be on the other side, to not necessarily starting companies, but basically to go co-found a VC to back such startups, you know, to follow the dream. So, that was the journey. And interestingly, even though I was in the valley for a long time, I was actually not a venture capitalist there. My entry into venture capital actually happened through the Mumbai Angel. So, it’s interesting that it brought me back into the world of venture capital and then we started Blume.

 

Siddhartha 3:00

For 2020 I believe marks for 10 years of Blume.

 

Sanjay 3:04

Actually, we technically started in 2010. But next year 2021 will be our 10th year of Blume in the sense that if you look at formally, it was like 2011. But the birth and genesis started in 2010. That’s right.

 

Siddhartha 3:21

2011 when you made your first investment from Blume Fund?

 

Sanjay 3:28

First was happened in 2010 December, but if you think of the formal launch of Blume, it is really 2011.

 

Siddhartha 3:37

Sanjay, you backed Inmobi when we had a similar downturn like the current one. We don’t know how COVID-19 will turn out but definitely the economic impacts we are seeing right here right now. And looking back, retrospectively, you have seen Y2K, you have seen the 9/11 crisis like 2008, and currently 2020, COVID. In 2008, when the market was crashing, what made you back Naveen Tiwari?

 

Sanjay 4:12

Sure. Siddhartha you bring up a very interesting point, we tend to look at when there’s a crisis or situation, human nature is to tend to look at the gloom and doom side of things, right, the one side of the coin. And I think the other side of the coin is always an opportunity. I don’t necessarily want to link, you know, Naveen and Inmobi start just through the downturn. But there are a couple of interesting lessons, right. We’ve all seen and learned that jd.com was actually started in a crisis. The SAS crisis had happened then. And apparently, the offline was obviously hit right. So he created this platform to basically replicate the same platform online. Uber was also started about 2009-2010 just after the financial meltdown. So, coming back to Naveen and Inmobi, then I was not a VC I was just an angel. I think there are a couple of things stand out, right. When we looked at what Naveen had given up, I mean, he had gone to IIT Kanpur, Harvard Business School, had worked with McKinsey. He gave all of that to come back. So, then you know that somebody really wants to do something serious, right? This is not just another job they want to do. That was one. Secondly, I think, what impressed us was that he said that Google has cracked the whole search on the website. And India is very different. It’s a local market, It’s about hyperlocal and mKhoj, which is mobile search. This could be the new Google for mobile. He was testing, it was a hypothesis. But I think the deep thinking, the passion and the ability to convince initial stakeholders, early employees, you look at the strength of the co-founders, right. I mean Amit and Mohit and you know, three IIT Kanpur guys, one Roorkee guy who all had seasoned experience under the belt to all come together, right, that gives you a show of confidence. And remember, I was a small check writer, a part of the round. So I think that vision and that the gumption and the passion to go out and make a difference, I think we back that as much as the idea itself because all of us know that ideas pivot. So yeah, that was one of the first angel investments from the Mumbai Angels and I was still in San Francisco. I had not made a decision to move back to India yet.

 

Siddhartha 6:52

Wow. You must be looking back 10 years, and now have confidence that crisis is the best time to back founders.

 

Sanjay 7:01

Siddhartha, yes and no, I mean, you’re right, we are all clouded at the time of crisis because like usual gloom and doom, you’ve got to survive, you thrive later, but first you got to survive, you got to sell your ship, you got to clean house. But there are a couple of interesting things actually, also sometimes a silver lining to do the things and to clean up the house, things that you should do anyway in good times like, for example, you see now the Soft Bank- WeWork fiasco, right? I was on a webinar the other day and they said in good times, how do you test the founder? You tell the founder, okay. It’s good, take more capital, burn more capital, go and spend it. You’re not really testing anything. He has the surety of the capital with him. In a tough time, you’re seeing how you navigate a crisis today. You have to deal with your investors, your employees, your team, your morale, your own health. In this case, the pandemic itself. So it’s interesting if you think about the other way like great companies will survive and thrive and great companies will be created. But I don’t do obviously overplay the significance of the crisis. You know, I mean, I think our first task, obviously, as investors is to make sure that your company survives that they get through this, they get moral support, financial support, all kinds of support. If you think about a VC, Siddhartha, it’s interesting as you’re talking, if you look at the Goldman Sachs, McKinsey, venture capitalists we put skin in the game, but we don’t make a single thing. Like a VC doesn’t make anything. We put our brainpower and our goodwill and all our intellectual capacity and empathy, our EQ and IQ to help our founders, we are a collection of all our founders. So what our founders do actually is extremely critical in this crisis, and our job is to basically coach and mentor and be a guide to them. That realization seeps in every day that you are a coach and mentor, and in this crisis, it’s coming out, even more, you know, they need you. And you have to help them.

 

Siddhartha 9:10

Absolutely. And the way Blume is leading set of the portfolio, you have been doing, I think, almost a webinar daily for your portfolio on different aspects on how to best help them.

 

Sanjay 9:23

Siddhartha, we’d love to even open that up to others. We’re getting a lot of requests, as you’ll see on Twitter. And it’s not that we don’t want to do that. But first, you always get to clean up your own shop, take care of your own family as you can imagine. And as we have a very large family, we are not a private equity firm with 10 or 12 investments. We have more than 75 companies in different sectors, different geographies, different stages of growth, and you know how they’re impacted by this. But it’s very interesting also, I mean, see by nature VCs are always optimistic in the sense that you are betting on innovation. You want a space to be changed. You’re betting on the future, you’re betting on the good people to come up. And you have to look at both sides. I think one interesting thing, I would use the word equalizer is how the situation has equalized and put all of us on the same level, right? And what I mean by that is whether you’re the CEO of a billion-dollar company, or, you know, a junior-level employee, everybody’s working from home. Everybody’s stuck. Everybody’s the same. That’s one. Secondly, there’s a lot of empathy right now, the reason we’re doing these seminars is I think people are willing to make the time, people see that they have time and they want to make the time to take back and to share. It’s so interesting. In good times, we’ve never done this with the same frequency and the same flow. I mean, yeah, we’re doing almost like one a day, one every three days. NASSCOM is doing, Tie is doing it. You’re doing it great. There’s such fantastic work the ACT fund that started. It’s basically brought people together. It’s connected the dots. But I think there’s no doubt that the task is to survive this. And we are creating like an internal survival playbook.Sequoia sent out a framework, you know, with those three cost scenarios, right. And interestingly, they’ve done something similar in the 2008 downturn, right, which is basically if you don’t cut costs, now, it is only the internal variable, which we believe in also. It’s the only internal very variable that you can control is your cost, your runway, and your cash, right? You can’t control how much your gamer is going to spend for your game or the enterprise sales, the buying cycle is going to come back but what you can control is your team, your morale, and your costs. So our task is basically to get a company out of this storm and then emerge stronger.

 

Siddhartha 11:50

Currently, as you said, there are 75 plus Blume portfolio companies right now.

 

Sanjay 11:56

That’s right, more than 75.

 

Siddhartha 11:57

How is the impact across the spectrum? For example, It is like a Demonetization for an Edtech company, especially like Unacademy which is at the right place, right time and building fiercely till this moment and all Test Prep today have moved online whereas you have companies like Milkbasket, Purplle which are also hit in a different way. How are your Saas portfolio companies doing right now? Can you share impact across the various categories and spectrum in your portfolio?

 

Sanjay 12:29

Yeah, that’s a great question, Siddhartha, it’s not one size fits all, as you yourself are saying. So we’ve been trying to map it across different frameworks. I think there will be some sectors that are just structurally hard hit just because of the structure, and then there are going to be the other side, which is what we’ll call lift sectors, right. So, you either have a tailwind, that is defeating you or you have a headwind, that is you’re going and do. So we’ll start with the headwind side, which is the tougher side. So, for example, let’s say shared mobility, right if the government shuts everything right down, that sector is little affected from Ola to UBER, right? Like we look at the US I was talking to my peers and friends there. Interestingly, lots of Uber drivers have moved to Uber eats because those deliveries are more relevant. Now everybody’s working from home. So obviously, even the US Uber and Lyft have been hit. So shared mobility is kind of tough. SaaS is a double-edged sword. Enterprises will take some time to open their wallets again. For SaaS companies, it is very, very important to keep the existing customers close to them to reduce churn to make sure your existing customer base stays intact. On the other hand, if you look at deeper tech plays like robotic process, automation, RPA, let’s say conversational AI chatbots, anything that is basically autonomous systems. This is a new world order we’ve entered. The people are not necessarily going to feel that you have to be at work Monday to Friday or Monday to Saturday, but the future of work is here. So, autonomous systems will drive, a lot of the growth and I think enterprises are picking them up. Now moving to Edtech, you talked about Unacademy, I think Unacademy, touchwood, finds itself in a very favorable situation because EdTech was already moving online. Uncademy was always online. It is one area where Indians definitely don’t want to suffer. I mean, I’ll give an example. My son is a teenager. He’s been in a virtual school. Now for the last two, three weeks, just like we’ve been working from home and I’m sure you a lot of friends, and peers who have kids, and it’s all about the virtual classroom. So for Unacademy, it’s been a boom. I think productivity tools, future of work, EdTech, in one sense are going to be strong. I’m sure you cover that. If you think about everybody from our beloved, you know, all favorite coffees, all our restaurants are all shut. They are moving into delivery, they’re trying to innovative things. So I think what I would suggest to founders is that if you’re in a lift sector, which is positively structurally favorable, then you want to dominate, win market share, keep customers with you. If you’re on the other hand in a tougher sector, then the first thing you want to do is you cut costs and lengthen your runway, and then keep your existing customers close. And then use marketing at this time to come up with some innovative creative marketing campaigns where you can win over new customers and new users once a situation starts to unfold. So you brought up a good question. This is not one size fits all. I think all founders and entrepreneurs have to go back to their existing businesses and really strategize and think about what does it mean for them. You know, it’s not a one size fits all formula.

 

Siddhartha 16:17

So you talked about the future of work. So can you share about the portfolio companies in Blume that are working on future of work?

 

Sanjay 16:25

Sure. TapChief is one or Frapp the other. So, I’ll share a bit about TapChief and also, I just share my micro about future work. Here, I like to say that the future of work is already the present. It’s not the future anymore. Multiple things have happened. I don’t know if you saw the stats. Zoom was apparently on 10 million AMU for some time, and in this crisis, it’s gone up to 200. In fact, Yesterday, I had a couple of calls, and the person just called directly and I’m like, why are you calling me, don’t you have Zoom. And then I just realized that we’re letting zoom take over our lives that zoom has become the default or any productivity tool. So, that was one big macro factor. I think everything from reducing air pollution, environmental pollution, to reducing congestion on the roads, the corporation is really thinking what tasks really has to be face to face in the office, and what can be done remotely, right? That’s a macro. And I think this is the future of work. I think we’ll be here sooner than later. Right? If you look at the corporation of today, look at a company like our own GreyOrange in robotics, totally distributed model, founders are in the US, R&D center centers in Germany and in Boston, you know, the basis in Gurgaon. R&D is also in Singapore. You’ve heard about all this. And I think that’s already the future of work. So productivity tools, WhatsApp, Slack, I mean, think about the apps that are available to us today, which were even there five years ago. You just had WebEx for Telecom. And then you had Affinity. I’m sure I’m forgetting some names and Zoom and many more that people use. So moving on to TapChief. It’s a two-sided marketplace, basically, for the gig economy. It is that workspace and platform that lets freelancers manage their work that gets access to gigs, and on the corporate side, if people don’t hire full time, it gives them access on a real-time basis to really good skills and take design and marketing. There are other models also in the US. That’s one example. Frapp is doing some similar, it’s focused more on students. So, I think the future of work is already here and it will work in tandem with productivity tools. Also, education, look at Lambda school, it all sort of ties in together. I’ll say this earlier when Karthik and I did say, you know, we planned our career trajectories, you do engineering, then you go to business school, you will work for 10 years, then you may start a startup or you might become a VC right. Today, if you look at most of the kids there, paddle processing, you know, that’s a world. I think that’s important. I don’t know if grad school is the importance of that is going to reduce maybe it might. Lambda school, look at all these kinds of testing formats, SHEd homeschooling I mean, think about this, homeschooling is such a new concept. What if you have, like pooled homeschooling or shared with somebody? I think they’re gonna be a lot of models, which future work also comes in earlier and touches even education, you know before we graduate so it’s all related.

 

Siddhartha 20:16

And how is the impact of the COVID-19 situation across the companies you shared TapChief and Frappe? Are there more gig workers available today or the company that are looking to outsource some of the fixed workforce?

 

Sanjay 20:36

On the supply side(which is the number of gig workers) I think it will definitely go up. Look at a state like Goa, for example, lots of the best designers are saying that I don’t need to be in front of the corporation and meet them. I can be anywhere. I don’t know if you know, but the CEO of Delhivery, Sahil sits in Goa. He’s moved to Goa. Can you imagine a unicorn company operating out of Goa? So, the reason I mentioned that example is that the supply has increased. I think what has to come back is the demand side. How are corporations going to open their wallets again. is this discretionary or non-discretionary spending? I think right now, the focus right across is on discretionary. Renegotiate your leases, cut all your non-discretionary expenses, contact Azure and Amazon AWS. You don’t need the expensive office. So I think on the demand side, corporations and even startups will take a hard look, but there’s no doubt I think on the supply side that the supply of workers will increase.

 

Siddhartha 21:50

And Blume works as a thesis across all the partners, the team members. So, has there been a change in the thesis of investments? What you are going to do in 2020?

 

Sanjay 22:06

So I’ll answer the question in two ways. I think for Blume three, we have become far more thesis-driven so I’ll go back to the evolution. If you look at it, we started like a micro VC or what is called a super Angel fund right in 2010-11. Then we moved to a more classic pre-A VC when we were cutting like half a million-dollar checks about three crores in fund two in 2016, in fund three which is today which is the hundred million dollar fund we are still pre A, but today we’re doing upwards you know, 1 million minus but also going up to 1.5 even to 2 in some cases. We have become far more thesis-driven. Earlier, we were looking at things like okay, we will break it up into sectors. We will look at Consumer and then B2C, we will look at Enterprise built-in Bangalore for the world global markets and we look at SMB, Kirana shops and things like that. Now we actually have gone even deeper and saying that, okay, we will look at even deep tech now and deep tech, what’s happening in drones? So we have a thesis around drones. We have a thesis around space tech. We have a thesis on the other side on Agritech, even in FinTech what is going to happen in lending, in investments, in the distribution for example. So we’ve become much sharper, and we have even sub thesis. And we’ve also organized a team by that. So, right from the partner level, to the principal, to the analysts, and associates, we are all mapped to broadly two sectors and we have some overlaps. I think you have to be because India is now becoming, you know, not only do we have 1.3 billion people, but we have got Jiofication, we have huge middle class, we’ve got the technology in hands of tietr1 and tier2 but it can’t be one size fits all, you know, that just the era the generalists VC is over. So we have become much more investment thesis-driven.

 

Siddhartha 24:05

And you specifically from the beginning have focused a lot on B2B and SaaS. So, you shared briefly in the podcast till now, like SaaS is going to be impacted, a lot of renegotiation is going to happen with the existing clients. But what are you thinking? What is 2020-21 now going to look for SaaS companies?

 

Sanjay 24:27

Yeah, I will broaden SaaS to also include broad enterprise. I’ll include SaaS in that. I will include enterprise software in that. I’ll also include deep tech in that, let’s say non-consumer, broadly. So I think on the tough side, like I mentioned, till enterprises come back fully and open their wallets again, I think, lengthening runways and maintaining your existing accounts, reducing churn is very important. No matter what do you do, whether it is classic enterprise software you’re selling, you know, a hundred thousand dollar accounts or, you know, $20 a month as you got to keep your existing customers. That’s first and foremost very, very important. On the other hand, I actually think that this is going to be one of the most exciting and important sectors because like I call the New World Order, which future of work and I won’t say less human contact, but most selective human intervention and contact. We don’t need humans for every task and with the move towards automation, the rise of autonomous systems, technology is going to increase. In one sense, you could say that Grey Orange robotics ahead of its time, you look at UiPath. In the US also on the stock market, there’s been a lot of success, a lot of IPOs from these SaaS companies, Datadog, Slack, zoom all these names. What investors are also looking at and saying is that if they play the cards, well, this can be annuity business that is growing quarter on quarter, a year on year it is predictable. It’s almost like in one sense as a public market business. Because if you have good technology that is being used by customers payout, then the switching costs also higher right? You can build annuity contracts, you can sign your contracts. So I think overall likely the outlook for SaaS and tech, I think actually is very bullish in my view, I think in the short term they have to survive. This is an important point I will stay, that they must focus as much on receivables versus just order books and purchase orders. Because you may have a great pipeline and your receivables may look quite strong but are you collecting you’re passing up you know, the 30 days are becoming 90 days. The collection and receivables, the focus will become important.

 

Siddhartha 26:48

And from the investment point of view, is Blume spending still majority of the time, let’s say 30-40% looking at new deals, or the focus is completely for the next one, two months on the existing portfolio?

 

Sanjay 27:01

I think it’s first most important to get your house in order as VCs and even as startup CEOs. We talked about the tailwind and headwinds factor. Are they adequately capitalized? Are they in denial? Or do they really know what’s going to hit them? Also, what do you want to plan now is not just for the months, right? It has to go across the next 12 months to 24 months to the next five years. So first is assessing their impact. So to answer your question, yes, the large percent of the focus and make sure that you know that the best companies are protected that they have enough capital and they are conserving cash and extending runway. That’s number one. Number two, see, we have already quite an active backlog, right? I mean, from last year, we have built that brand. We have great companies approaching us. In one sense, It is an investors market as you can imagine. I don’t think people are rushing. I don’t think anybody’s rushing? Have you stopped evaluated? No, of course not. Are we running to plan IC for Monday? Of course not either. But I think there are good options there will be a lot of good talent actually floating around. I see also a wave of consolidations and mergers M&A, more than M side than the A side. Consolidation doesn’t necessarily mean distress. I mean, good companies banding together which means there’ll be a lot of talent available. Some of the talents will be available to join startups. Some of them may be starting new companies. So, I think, of course, we are open for business to use that word. But we are not necessarily rushing. I think we will all go at a more measured pace.

 

Siddhartha 28:45

That means that a few Mondays IC meetings will be skipped, right?

 

Sanjay 28:50

No, no, I will tell you IC meetings are for everything. IC meetings are for when the company’s raising the next round, you have IC for that. IC could be, should this company merge with another company? Should we acquire another asset? You can have an IC for that also. I’m saying that earlier the investment decision was more a term sheet, let’s invest. I think now you’re looking at multiple things that you almost like operating as a business. Okay, you shut down one business, you put more resources in other, should you merge? Should you actually hire? You get the gist, right? I think you’re looking much more broadly and holistically.

 

Siddhartha 29:32

And would it also affect your reallocation of capital because as you mentioned, your focus would be to make sure that the best companies survive the gloom period?

 

Sanjay 29:43

You’re right. The best companies are the ones who are always the most self-sufficient. You never want to be dependent. You may be lucky to have a well funded VC backing you or may raise the huge rounds, you have this other cash in your bank, which is a good position to be in. You shouldn’t actually spend it but we like the best companies to be self-sufficient, right? Does it affect the reallocation strategy, I think we will obviously want to make sure we conserve cash for the best companies. But you also want to encourage these startups to think in a self-sufficient way themselves, right? And not be dependent. Again, I’m coming back to that SoftBank-WeWork example. I know it’s only one example and overused. But the fact is that what it was also creating was an endless supply of capital. Right? Okay, you know, You’ve got a big daddy that you can go to, and you keep using it, or I think now VCs will ask the question hey, listen, what do you really need this money for? Earlier It was like, okay, you know, we can’t deploy less than 3 million because that’s a minimum check size. So let’s take it you know, past the money. And you can put it in FD, I think now we are very careful. What do you really need the capital for? Is the business that ready to absorb it? In one sense, this is actually going to impose a lot good behavior, if you think about a panel, Let’s see if we’re doing this podcast three months ago, a lot of questions I had imagined would be around. Okay, let’s talk about what’s happening with the WeWork and Soft Bank. Is there too much capital in the business? Actually we need to think about it, It’s a great time to come back to those first principles, which should be the case anyway.

 

Siddhartha 31:27

So, can you share a few examples within your portfolio where the companies are cutting costs in the most elegant manner, and where you’re saying, Hey! this is the playbook which you should be following to other companies?

 

Sanjay 31:39

I won’t divulge names, but that’s a great question. And it’s very appropriate and important for these times also. So I’ll give you a couple of ranges. So, some of our portfolio companies have taken that framework that we’ve seen shared by Sequoia and the others, which is a good one, and we are also developing our own framework. But basically a couple of approaches I’ll share. Let’s talk about hiring. So that’s the most difficult. So let’s say, you and I are co-founders and we’re talking, okay, what should we do? Should we do pay cuts or should we do layoffs? So, one approach for pay cut says to do it right across. You could do it proportionately. Obviously, the people who are in the lower bracket, you don’t want to cut them because that will cut into the bone. You don’t want to cut into the muscle, you want to cut the fat. Now, founders take a higher proportion of the salary cut, because leadership should start from the top. The other is that you cut your bottom performers which you should be cutting anyway. And maybe do a marginal cut on others right across the board, so some of the founders are doing that. Another interesting strategy is that if you’re really young, and it’s been too soon to tell who’s top performer and not top performer, you can even defer right, you can defer the part of the salary. But once we meet our milestones then there is full recovery expected to take that, which is actually good skin in the game because morale is also high, you will know that that part is still there. It’s just that you’re not taking upfront. So this is on the team side on the pay cuts versus the sort of layoff side. But sometimes, you have to make some hard calls. I think it’s very important to communicate with clarity and consistency and why you’re doing it and leadership starts on the top. For example, structurally, the government is shut down, let’s say our business, we can’t operate, warehouses of clothes, shops are closed. The online, we had to deal with agents and other people in the field. So, we have to make some tough decisions. So from the top, I’m taking a 50% salary cut, right? As we go down, we’re going to proportion to that. I think when employees see that the founder and the CEO, and the CxOx are leading from the top at their part with them, they’re more likely to be engaged versus HR saying, I’m okay, you’re on the other side of the fence and I’m cutting you. So I think this is also a time to build empathy and to show that you care and the only way to show that you care is to show that you’re part of the whole thing as far as money is concerned.

 

Siddhartha 35:01

And you have backed some of the very resilient founders. And you have seen great exits, for example, METTL acquired by Mercer, Minjar cloud acquired by Nutanix, Taxi for Sure acquired by Ola. These are some of the companies which had a face value of death at one or two, many times in their lifetime. And you were along with them. What are you learning from these founders when these guys face value of death but still they have a very successful exit at the end of it?

 

Sanjay 35:34

Yeah, Success is all relative. I use this word equalizer. It actually brings in this term of marriage and partnership even more. People say, oh, we’re smart capital. And we have two partners. We are entrepreneurs who back entrepreneurs, but when there’s a crisis, you see that coming through. So basically the CEO’s job is very lonely. Think about it, who can criticize a CEO? Only the board and investors or maybe the co-founders? No Junior employees technically can. So what they really need is the FPG friend, philosopher, and Guide, the shoulder to cry on, the sounding board, and you have to be there. This could be some specific M&A agreements and questions and term sheets to things like, how should our co-founders divide up a role, so I’m just feeling depressed right now. They just need somebody to talk to. So we’ve always been there with them. We’ve been there with them, good and worse, but obviously, in tough times you need them even more, which is when all these yoga and meditation sessions and, learning from leaders who’ve also been through a crisis and learning from the mistakes is becoming important. This support structure, I use that word. I think people appreciate the support structure where people say, Well, I’m not the only one going through this, you know, not only our Blume founders but all founders are going through it. Between us, we called Aditya Ghosh to come and talk and he was fantastic with the super caliber, that person coming in, talking about mistakes they made, or crisis they’ve gone through, then you really realize, wow, if they have gone through this, I can certainly do it. So I think our job is to be a facilitator, enabler and create those support structures and support systems, human infrastructure to give them that support.

 

Siddhartha 37:46

Many are predicting that 2020 will wipe out approximately 20% of the startup and another 15-20%, as you said earlier in the podcast, have to explore merger or acquisition. Also, how are you approaching this playbook for the founders who are listening, who might have had guests there and may for the next six, nine months for a merger and acquisition where there is no gear cut involved?

 

Sanjay 38:17

Yeah, It’s a great question. It’s a tough one. And I won’t disagree with the stats broadly. So see, the first thing is you have to take some painful decisions now, operate lean and mean, cut the flab and cut costs. So everybody has to do that whether you have 100 million in the bank, you don’t cut costs but you don’t use the cash as fast. So that you have to do. I think mergers and acquisitions will be a different type of side. If there are layoffs there will be a lot of talent outside. So by now you know, we have Constellation platform PassionConnect And we also have a separate like Acqui hire practice, you know, there will be a lot of good talent on the streets now either from layoffs or from pay cuts. So for whatever reason, the company’s going down, where can you absorb the talent? Can you found us absorb that? Can you help because there’s only good talent number one, then they’re actually hired, right? So I would suggest the companies that if you have about three to six months in cash and you do see the writing on the wall, then maybe enter into discussions with other like-minded partners where you can be absorbed or you could partner. Then you have true consolidation which is more merger of equals where you can have bankers because there’s the real value that will be created. Then you have M&A for the better companies. I would say that the faster the decision is made, the better it is because you know that in any M&A when you’re closed, you have one month cash in the bank, then it becomes distressed because the person can squeeze you. So, I think it’s a good time to start thinking about strategic partnerships alliances to tide over this and so I think right now, the task is about the two categories, the well-funded companies, which is more about, okay, how do you grab market share, how do you merge strong and win from this, and then the ones who are not so fortunate, It is about the survival, right? So the only way you can survive now as you cut your costs, you bring the dependency back to you versus keeping on some receivables and the miracle you see collected in 30 days, so you have to cut costs.

 

Siddhartha 43.08

What can be the best-case scenario coming out of 2020 shared by Blume founders or even the Blume team because we are all preparing for the worst-case scenarios, we haven’t described?

 

Sanjay 43. 29

This is a difficult question to answer because like all the crises before prior to that, right from Y2K, 9/11, the financial crisis. None of them involved a pandemic. Now, the reason I mentioned that is that the concept of business is basically going out and talking to customers right. Now you’re all limited mobility. So everybody’s working on zoom and has basically created a lot of inefficiencies in the whole supply chain. I mean, travel has come to a standstill. So if you look at the best-case scenario, obviously, is that you have a quicker recovery. The country stabilizes, international flights start, goods can start moving again. Let’s say we’re talking about the summer, right, June, July, August, the worst case is it goes on to pockets of isolation to the end of the year. So I think it really depends on which sector you’re on, whether it’s a headwind or a tailwind, or what will people do more like? Just think? I think on the enterprise side, the movement to the cloud has already happened. It’s already taking place, infrastructure, everything moving to the cloud, autonomous systems, future of work, productivity tools, that is going to hike AI Ml. I think this is going to happen more and more. On the consumer side, I think, digital-only online. As far as FinTech is concerned, it’s going to take up a bit of help because people will be tied in their wallets a bit, but yet they will need more tools and technologies. So that will be good. Things like Agri tech you know, again interesting sectors but again we’ll be depending on mobility and mobility of goods. So to answer your question, best case, you know, I mean this is really a guess. We tell founders you plan for the worst case, have enough cash in the bank, you focus on your business and you try and make the best case happen, right. You can’t plan for the worst-case and we’re all praying and hoping for the best case but you can’t really plan for that. But my sense is that it’s going to be somewhere like six months, international flights, resume in a couple of months. To me, fall is you know, the June to September period would be according to be like restabilization and then hopefully the last quarter is a good one.

 

Siddhartha 46.07

Thank you so much, Sanjay, it’s been wonderful to have you on the podcast. And thank you for sharing your experience.

 

Sanjay 46.13

Thank you. So, I wanted to end on the same one thing, this crisis has really brought all of us together. And I think that maintaining a positive attitude and a mindset is super important. And the fact that you’re doing podcasts like this, and there are webinars is probably the biggest thing that we can do. Our role is shifted from investors and financiers to more listeners, mentors, coaches, helpers facilitators, to help our founders come out of this. Even this podcast that you’re doing. I think it’s a great service because we basically facilitate in discussing the very points that are going to hit home for founders. So I think it’s fantastic for all the facilitators who are doing this because, in a good time, do you need it? Of course, you need it but today it’s gonna be a big impact so I think it’s fantastic that you have the platform and you are making time to do this again.

 

Siddhartha 47.10

Thanks, Sanjay.

 

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