Episode 70 / June 21, 2020

Understanding Exits and Investing in High Growth Startups with Dhruv Kapoor, Sistema Asia Capital

hr min

Episode 70 / June 21, 2020

Understanding Exits and Investing in High Growth Startups with Dhruv Kapoor, Sistema Asia Capital

hr min
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Dhruv worked with ABN AMRO and McKinsey & Company in Investment Management & Strategy roles in the early days of his career. He stepped into the VC ecosystem in India by eventually joining Helion Ventures in 2008. At Helion Ventures he was part of investing in companies like Ezetap, Azure Power, and MoEngage among others. Later when in 2015, Sistema (Russian conglomerate) decided to set up a Venture Fund in India, Dhruv joined Sistema Asia Capital in order to bring the best practices and 8 years of experience on board with him.

Some of Sistema Asia Capital’s current Portfolio includes – Licious, Lendingkart, Netmeds & Faasos among others.

In this podcast, Dhruv shares his experience of investing in mid-stage growth startups across various sectors in India’s Startup Ecosystem.

Notes –

00:57 – His Journey from working at ABN & McKinsey to joining Venture Capital

04:30 – Experience of working with Helion Ventures

07:56 – Joining Sistema Asia Capital – Building the foundations of a VC firm

10:15 – Sistema’s background & establishment in India

14:34 – Executing Exit from Qwikcilver (Acquired by Pine Labs)

19:44 – Investing in Faasos – reaching $1 billion valuation

25:30 – Impact on fintech portfolio companies during Covid-19 lockdown – Lendingkart & Kissht

31:26 – HealthifyMe’s transition from human-centric model to AI-based model

33:30 – Netmeds offering a full-stack model & growing scalable margins

37:04 – Sectors at which Sistema is bullish in 2020-21 – Edtech, Healthcare, & Agritech


Read the full transcript here:

Siddhartha 0:00

Today we have with us, Dhruv Kapoor. Dhruv is the partner with Sistema Asia capital and has over 18 years of experience in investing in eCommerce, internet, mobile and financial services. Dhruv, welcome to the podcast.


Dhruv 0:43

Hi, Siddhartha. Thank you for inviting me to the podcast. Good to be here.


Siddhartha 0:47

Dhruv we love to know about your journey from Delhi University to becoming a venture capitalist. And how did you manage initially to get into McKinsey and then Helion?


Dhruv 0:56

Yeah, so once I completed my graduation from Delhi University I decided to work. I actually joined the banking sector very early on in my career, ABN AMRO bank at that point in time, ran an All India examination to hire at an officer grade. And I was one of the four that joined them in 1999. I also was the youngest employee in all of ABN AMRO. So I was lucky that very early on in my career, I got to work with a top tier bank, ABN at that point in time was pretty much a wholesale banking focused enterprise. And during my stay there, they had also acquired Bank of America as a retail business. So I got exposure both on the wholesale side as well as on the retail side. I spent about two years there and towards the end of my stay at ABN AMRO, I was managing their import payment desk for large enterprises. So, very early got to dirty my hands on the operating side. After two and a half years, I decided to pursue my MBA and then post my MBA found myself in McKinsey, this was on their research and knowledge side. So I joined them in 2004 in the Google office. And given my background in banking, I found myself in the financial services practice. And so, I leveraged that experience and worked with clients both in India as well as the United States. I split my time between these two places. I think what McKensey gave me was a very good platform. As part of my work, I was also a part of the McKensey’s benchmarking project on the asset management side and I actually got to interact with top hundred asset managers, both in US and Canada as part of that project, so that gave me good insights into the investment management field. Now, having spent four years at McKinsey, I was looking for the next challenge, I kind of realized that I had slotted myself in a particular sector too early on, so I was looking to broad base. And given my experience in the investment management field, I got interested in the broader private equity venture capital space. And, then it was serendipity, at that point in time that Helion also was looking to hire somebody at a junior level because Helion had set shop in 2006. And after the partners and a couple of early employees, they were looking to hire an analyst. And that’s how I find my way to Helion.


Siddhartha 4:00

That’s a fantastic journey Dhruv. You’ve spent a good time with Helion, which has been a $600 million fund. That’s a pretty large fund seeing India at the end of 2010-2015. You have sourced over 1000 deals. And were part of investments at Helion like Azure Power, EzeTap, MoEngage, RailYatri, Wooplr, how was your experience working with Helion? And at what stage did you invest in these companies?


Dhruv 4:31

So, Helion was a very different ballgame compared to McKinsey. What I liked about Helion was that again, you know, early on in my career, I got to work with a stellar group of partners who had prior experience in building scaling and exiting companies. They were partners who had built large scale BPO businesses and exited them very successfully to large enterprises. There were people on the technology side that had built technology businesses and sold to companies like Amazon in the 80s. And there were people who had worked largely in the consumer space. So for me as a junior person to work with all these partners and work on different deals that they were leading was an experience to cherish. You know, when I joined Helion, I remember the first deal that I worked on was Azure Power, nothing to do with financial services. This was a solar photovoltaic power generation company. This was a founder who had no working experience in the solar photovoltaic world, but he understood that space better than most analysts that covered the sector. We were impressed by him and his thought process, we actually stepped up to lead the seed round in Azure Power and over the journey of that in the investment we attracted capital from investors like IFC and Foundation capital and a bunch of DFIs and eventually, over 8-9 years of journey with the company, the company actually listed on NBFC. So, that was a great experience overall with the company and working with different partners, I just got exposure to many different sectors, many different stages, many different themes, and many different working styles. Helion was an early to mid-stage fund. So they straddled across seed series A and Series B. So again like I said, you know, it was good to see deals from many different lenses. So seed deals brought their own set of characteristics versus a series B and D are the deals that I worked on, Azure Power was a seed deal. MoEngage was the seed deal. EzeTap was a Series B deal, for example. And then Whoopler and RailYatri were series A, so I did work across multiple stages. In addition, this was a time when a lot of consumer services, financial services, retail services, opportunities were in focus. So, we ended up investing in restaurant chains, microfinance institutions and other such services businesses, and I did get the exposure to work in these deals as well. So the experience was very enriching. And I actually ended up spending the bulk of my career there. I spent eight years with Helion from 2008 to 2016.


Siddhartha 7:53

Well, It was such a fantastic journey, why did you decide to leave Helion and join Sistema Asia capital?


Dhruv 7:59

So, eight years was a very interesting time to learn a lot of things from these partners. And to really dirty my hands. In a lot of deals, I was looking for the next challenge. I wanted to aggregate all my learnings and apply that to a platform where I could sort of nurture it from ground zero. Sistema at that point in time was still an operating entity. In India, they were running the MTS platform, and they just started thinking about what next to do in India. And venture was an idea that they were pursuing around with, they also come to meet Helion and we had some exchange of ideas. So when they decided to launch a venture fund and just to clarify, Sistema’s venture fund was not a corporate venture fund. It was built and designed like a financial institution, financial VC, it seemed like the right platform where I could see myself add a lot of value, I could see myself you know, put in the foundations of a venture capital firm, what should be the investment philosophy? What should be the guiding principles? What stage should we focus on? What sectors should we look at? What should be our portfolio construction? Or should we return profile so, and then really, you know, get to a stage when I could be in a position to lead sectors lead deals, be on the boards of those companies manage those investments over the next 10 years and then nurture them via Exit. So, it seemed like the right platform and so, yeah, that’s when I decided that I need to use an aggregate all my knowledge that I’ve learned over the past 8-12 years and deploy that in a new entity. So there was a little bit of an entrepreneurial bug in me as well, which culminated in my joining Sistema in 2016.


Siddhartha 8:13

Can you tell us more about Sistema, I believe this is a Russian conglomerate, which built a fund in India, and would love to know about Sistema’s journey in India and what’s the center of focus?


Dhruv 10:30

So, Sistema is a large Russian conglomerate, we like to call them as the Tatas of Russia, they have operations in about 18 sectors, and these vary from telecom to financial services to retail, healthcare, paper, and pulp, etc, etc. In India, Sistema had a joint venture with the Shyam group and they were running the MTS telecom operations. For about 10 years, we know how the telecom story ended for a lot of the players. So they also wrapped up their business somewhere in 2016. And, decided to exit the telecom business. But while they were here, they built a lot of equity and network with the startup community, a lot of early-stage companies would reach out to them to tap into the balance sheet and to form business partnerships. And so, Sistema at the parent level decided that we need to have a play in India, and we need to learn from the Indian ecosystem. So in India and Russia and Germany, they launched a string of venture funds and private equity funds. We were beneficiaries of one of those themes. We started this fund in 2016, with a focus on mid-stage investments. We looked at the landscape fairly deeply and realized that while early-stage has a lot of established brands, and late-stage has a lot of capital in terms of SoftBank and DSTs. And all those guys, the real mid-stage of Series B and early Ser was still nascent. There were a handful of players operating there. But there was a need for a dedicated Series B player in the market. And so we set ourselves to establish us in that segment. Sistema’s pedigree and DNA are to help companies scale. And so, that coincided well with our Midstate strategy. So we look at companies where product-market fit has been established where there’s evidence of, monetization or business model evolution, but we like our money to go towards helping companies scale. So really take them from 10x to 50x to 100x. So that’s the space on the stage that we like. In terms of sectors, we are fairly agnostic. We look at anything that is technology or technology-enabled. And these could be businesses in FinTech, health tech. And we do enterprise software and SaaS as well. Our typical cheque sizes are between three to 5 million in the first round. And then we end up backing our companies up to $10-$12 million over the life of the investment. Over these last four years, we’ve built a portfolio of about 10 companies. We’ve had one exit in the form of Qwikcilver, but most of the investments we made were in 2017 and 18 timeframe. So from our standpoint, they’re still fairly early and our fund is, you know, interestingly a mix of Sistema Capital and 80% of our LP base, a Sistema group, but the balance 20% is actually Indian high net worth individuals. So we were lucky to partner with about 25 high net worth individuals in India who wanted exposure to the portfolio that we’d built, or we’re building. And so we work closely with them.


Siddhartha 14:28

So let’s take our listeners through the companies of Sistema. Qwikcilver, as you mentioned, is one of the large exits, 110 million dollars to Pinelabs. Wooplr, Mobikon, Fasoos, Netmeds, LendingKart, HealthifyMe, Kissht. Can you tell us about starting with Qwickcilver at what stage of valuation you entered in the company and how did you grow the company? And finally, what was the thought process behind the exit? I believe from an exit point of view, it was still early, but a very large exit.


Dhruv 15:09

Yeah. So interestingly, I was still at Helion when I had referred the Qwikcilver deal to Sistema. And it was something that my partners felt very strongly about, and they had invested in the company even before I came on board. And, the thesis there was that gift card market is a large, multi-billion-dollar market in the country. What Qwikcilver had built through its managed services business was a solution that pretty much had monopolistic characteristics. They were at 90% of the market. They were powering gift card solutions for pretty much all the retailers both offline and online. So, this was one of the first few deals that we did. We were conscious of the risk that we were taking. So this seemed like a good deal where downside was protected. And we could really see about 3-4x on the upside from the stage at which we came in. We came in, I think, early series C in this company. This was an internal round that the investors were doing and we joined that internal round with a 4 million check. We had a journey of about two years with the Qwikcilver, where we actually helped them open their Russia operations. My partner who was on the deal, actually helped hire the first Russian head for Qwikcilver and then launch the Russian operations, that operation scale to a certain degree. But while we personally wanted to stay on in this investment for over a longer period of time, I think PineLabs came calling and you know how exits work, right? You don’t really go sell a company, companies get bought. So, when PineLabs came calling, it seemed like the right space, time stage to exit that company at the right valuation. So we were invested all of two years in this company, and we ended up making a decent IRR actually a pretty good IRR on our investment.


Siddhartha 17:26

That’s awesome. So if you can share for our listeners, what was Qwikcilver’s revenue so that can be learning from the exit.


Dhruv 17:34

See, they were actually at the point of exit. They had a throughput of almost $2 billion, which is all value of gift card solutions flowing through the systems that they built was about a billion dollars and their revenue on that was early single digits but you know, these are tech businesses. So a lot of that flows to the bottom line. So this was one of the companies where very early on, they turned profitable. And not just at a monthly level, but at a PAT level, they were profitable. So high scale and profitability were really what got them sold in the market


Siddhartha 18:23

So this could have potentially been a billion-dollar business, had it not been bought?


Dhruv 18:27

Well, you know, that’s not how many services businesses get valued. I think the multiple we got was a fairly decent multiple from Pine Labs. They, as I said, were already 90% of the market, billion dollars was the throughput but the Commissions, the revenues that they make on that throughput was, you know, early double digits. So from that standpoint, this was a very decent valuation that the company got. Billion-dollar would have happened had they launched their own B2C brand. And they launched a B2C brand. But if they had scaled their B2C brand, and, basically scaled that part of the business, then what would have seen the billion-dollar opportunity, but they were largely on the managed services business. And since it was a great outcome for all the investors.


Siddhartha 19:21

Fantastic. You’re part of two food businesses. One is rebel foods, popularly known as Fasoos. And the second is Licious. Can you tell us about your journey? At what stage you entered the companies and why did you feel so strongly that these businesses would become today what they are, especially Fasoos today is about to hit, I believe a billion dollars in valuation.


Dhruv 19:46

That’s right. So Rebel foods or Fasoos is a fairly old company. They’ve had about a 10 years journey from the time they started, but when we came in, it was a very pivotal moment for the company. They were transitioning from Fosoos, which is their own brand, to a cloud kitchen platform. And what we liked was that, you know, on the back of these cloud kitchens or internet kitchens, call them whatever, you could leverage the economies of scale in terms of sourcing infrastructure, people, etc. and launch multiple brands in the market. So when we came in, and we came in fairly late in this company, we came in at a series C stage. But it was the right time because, you know, they were just stepping the pedal on the cloud kitten story. They had about 120 plus cloud kitchens in the market. And they had launched about four brands so we could see the evidence that how you could leverage the back end in infrastructure and keep launching multiple lines of cuisines from the same kitchen. So, that’s something we felt was highly scalable. And we also felt that this is a team that really understands how to scale this business, not just locally, but they had also international aspirations. And, after we’ve come in, the company launched an international expansion as well, and they had the right strategy to do that, instead of putting feet on the ground. They actually partnered with grab to launch it in the Southeast Asian market. So, that has happened. The company has attracted top tier institutional investors after our round and yeah, it’s on a good track to be the next unicorn out of the country. Of course. COVID has reset some of those businesses because in a lot of cities were under lockdown and some states like Maharashtra had pretty draconian lockdown, so their business did suffer during that lockdown. But we feel very confident about the scalable model that they’ve built. They have scaled from 120 cloud kitchens to almost 300 Cloud kitchens in the country now. So as soon as the lockdown ends, we’re pretty confident that the scalability will be back and they can scale the business to the right scale. I think Licious is something we feel very strongly about. That’s the next food tech investment that we did. And we came in fairly early in that company. We took an early Series B bet. This was 2017. What we liked about Licious was that they were organizing a highly unorganized and fragmented market where almost 90% of the meat is sold through local butchers or the vet market. And there is no focus on hygiene, quality, disease, etc. And there is also a taboo in terms of you know, going to the local vet market and, buying your meat. This is in a country where 70% plus of Indians actually eat meat. So, we like the story where both the founders wanted to create a pan India brand in the fresh meat category. And, so we came in Licious by based on that story. What we also liked was that you know, to be able to build a brand and to control quality, they had to go full-stack and they were thinking in the same direction, ie, they were sourcing the right kind of meat from the right integrators in the market for which they had entered into partnerships. They were transporting that meat in cold storage trucks, the meat would come to their own processing plant where there it would be clean and cut in the right manner. So there is a science behind how you clean and do quality check and cut and hang at the right temperature. And then they had built a bunch of delivery centers through which their own delivery staff will pick up the meat and deliver it to the customers’ doorstep in 90 minutes. So we like the supply chain that they build end to end. And we like the aspiration of building a pan India brand. And we took the bet we came in Series B and we’ve participated in that company in series C, D, and E And continue to be very bullish about the opportunity. Actually, they are one of the companies in our portfolio, which has seen strong tailwind during COVID. Their business has actually doubled between April and May because they’ve been the de facto provider of meat across the seven cities in which they operate,


Siddhartha 25:22

and I believe you entered when it was a $10 million Series B.


Dhruv 25:27

yeah, it was a $10 million Series B round.


Siddhartha 25:29

And the company has since raised, you know, series C, series D Series E, as you mentioned, yes. The latest one was a $30 million round.


Dhruv 25:38

Yes, the latest one was 30 million by vertex growth.


Siddhartha 25:41

Well, that has been a fantastic journey.


Dhruv 25:43

Thank you.


Siddhartha 25:44

And now lens on the FinTech side of your portfolio, Lending Kart and Kissht. How are these companies doing in times of COVID? There’s a report that you know, lending is slowing down in the market. And there’s a lot of conundrum on the bankside on the RBI side. We would love to have your thesis on these two investments and the general FinTech sentiment in the market.


Dhruv 26:12

See, the NBFC sector has actually witnessed four mega shocks in the last 12 months starting from ILFS then DHFL then yes bank and then COVID, which has resulted into back to back moratoriums. So the story for NBFC businesses hasn’t been very positive, unfortunately. What that has led to is, you know, the cost of capital certainly has gone up by 100 to 200 basis points. The availability of capital has been a challenge. And, because of lockdowns due to COVID just collections became a problem for all companies, not Just our portfolio but, you know, established companies like Bajaj finance as well. So what our company has decided to do during COVID was to pause disbursements because unless you can collect there’s no point dispersing capital, and they reallocated a bunch of their resources to Tele collections. I think on LendingKart, we were surprised to see the numbers that even in spite of COVID, their average daily collections numbers stack up very nicely in the market. And I think, given what we’ve benchmarked against competitors, they’re probably best in class in terms of collections. So while their new disbursements have paused. We’re just waiting for the lockdowns to end. I think on the demand side, there has been no constraint at all. SMEs want this working capital and they have no other option to tap into Banks structurally cannot give small ticket loans. It just doesn’t work out economically for them. So, the alternative is a local moneylender, but if you have a digital lender that can service you in the right economics and make the product profitable, then that works out better for everybody. So, we are just waiting for the lockdown to end and the economy to pick up for these companies to restart dispersals. Thankfully, both of them have enough capital to tide over the next 12 to 15 months. But we are hoping once the economy opens up dispersals begin the flywheel starts you know they should slowly get back to their run rate. I think this year for all practical purposes will be a washout year. So, what they were doing last year if they can get to that number by FY21 you know, they are actually in a pretty good position. So, we feel strongly about LendingKart I think they really have built some key digital assets. And they should come back once the market picks up. On Kissht, I think the consumer finance story is actually more severe than the SME finance story. Average Daily collections are down certainly in the market and NBFCs across the board are feeling the pain. Thankfully, this company has taken the right cost measures early on. They are you know, tapping the right RBI lines to get more liquidity they have enough cash in the bank. So they are also okay in terms of starting the business once the lockdown eases. My view on lending is that you know, the last 10 years of NBFC ride, we’ll certainly see some rerating the power of balance may be shifting back to banks. However, having said that, I still feel good NBFCs with fundamentally strong unit economics and business models will continue to survive and scale. And we feel strongly about our portfolio. LendingKart is actually a systematically important NBFC and, they are in a very nice sweet spot where they will continue to lend to SMEs and they are a pure SME focused NBFC so they have not diluted their core focus. And similarly Kissht we feel very strongly about the team and their ability to navigate these troubled times. So we’ll see how the NBFC market shapes up I think there’ll be a rerating smaller NBFC will struggle to survive and raise capital. And, but the good ones, the fundamentally strong ones will be able to emerge stronger from the ashes.


Siddhartha 31:14

Thanks for sharing your insights on the FinTech market. Dhruv, Healthcare has been a very good sector again for you just like food tech, you have two companies there are Netmeds and HealthifyMe. There’s been recent news of you know, Netmeds getting acquired by Reliance Jio for $130 and $40 million and HealthifyMe has also been doing well. Can you throw more light on you know, when you enter those companies? How has your journey been in health tech?


Dhruv 31:46

So, HealthifyMe, like we were discussing, is a company where we pretty much ended up leading that round. This was a series c round. The company at that point in time was still focused on a human model of offering advice around nutrition. So they had nutritionists on their panel, and people will call up and, you know, they would get their advice. I think what they’ve done beautifully is the transition from a human-centric model to an AI-centric model. Where now, technology can help you guide and reach your end goal. And they’ve actually seen strong tailwinds in this market. People are sitting at home, they’re focused on health. And well, we’ve seen a lot of downloads and activity on the HealthifyMe app. So we’re seeing strong momentum in this market. We believe this is a business that can certainly go international. The company has plans to take this to Southeast Asia, while India Market is deep. We have plans to take this to Southeast Asia. The monetization of this business is doing fairly well. We, as I said, came in series C, we’ve had one round after that, and the company will hit the market for a large round in a few months because they want to capitalize on the momentum that they’ve built. We actually met all the companies in the pharmacy space, what we liked was like I said, we have this inclination towards full-stack models. So, the beauty of Netmeds was that while they were running the pharmacy part of the business, they also had the distribution stack in place. And as a result of managing both front end retail and back in distribution, their margin structures were probably the most healthy in the industry. So that was our thesis in backing Netmeds. We came in, I think this was a series C round when we put in five bucks to come in into the company. And we’ve had a bunch of rounds after that. And, the latest news is what you just alluded to, I cannot comment more on that because the transaction is still in the works. But that’s where it stands.


Siddhartha 34:26

Well, so I believe all the companies in your portfolio of 10 are doing well, except one which is Wooplr. Can you share your learning from Wooplr why you are too early in that market?


Dhruv 34:39

Yeah. So, Wooplr is something I actually worked on at Helion as well. So I was very close to that transaction. And then when I came to Sistema, I felt very strongly about that model. And so I ended up backing that company at SIstema as well. They went through multiple pivots. But eventually what they ended up with was a social commerce model. And, they, from what I have looked and understood from the market had probably the best economics in terms of just running the social commerce model. They were the contribution margin positive. They were scaling very nicely. They’d gone from literally 2 million to 30 million in a matter of 12 months. Unfortunately, they struggle to raise capital. I think the competitive intensity in the market had certainly increased and our ability to support the company going forward was limited. And they had two term sheets that fell through, so unfortunate for the company, it happened at the wrong time. And so the founders decided that given the capital this business would require to scale. and the fact that the capital was not coming in, it was a hard decision to wind down the company. So I don’t think it was too early or too late. I think the founders were savvy enough to transition the model from a content commerce lead model to a social commerce lead model early on, even before some of the other names got very popular. So they were certainly ahead of the game. It’s the nature of the business that, you know, some mortalities to happen and we were unfortunate that we weren’t able to raise capital for this company. So it ended up winding down operations.


Siddhartha 36:50

Dhruv, going forward, you know, in the post COVID world, what are the sector Sistema is now bullish about in 2020 and 2021. Because a lot of consumer and enterprise behavior will change.


Dhruv 37:05

Yeah. So I think we are still studying the long term impact of COVID. I think if you look at China, and from what we understand some of the metrics are back to pre COVID levels. ie, you know, people are back in restaurants, people are traveling, people are going to movie theaters, etc, etc. So if that were to happen in India, then I’m not sure what will fundamentally change, however, in terms of, you know, fundamental business models, but there will be some impact. And we are still studying the impact of that, I think, visibly where we stand today, few sectors that certainly have experienced renewed interest, one is Edtech. This was a sector where we have been tracking for a long time But just didn’t have the confidence to pull the trigger. But now in the post COVID world, we feel there will be a renewed figure to focus on the sector. So Edtech is something we are certainly bullish about health tech is another one. While we have two investments there, we want to broad-base our focus there. And third is Agri tech, that’s a sector where, you know, it’s one large sector that is getting disrupted by technology. And we’ve looked at most of the companies we bullish on a few we’re tracking them. So that’s another sector where we want to take some bets. In addition, SaaS and enterprise software are areas where we will continue to focus on. What we didn’t talk about is that four of our portfolio companies or three are in the enterprise software space, we have a company called Uniphore which is an AI company that has solutions for Call Center Operations. It’s started off Chennai now is pretty much a global company doing very well. We have Seclore and we have Mobicon as to other SaaS companies. So domestic SAS is something we are increasingly getting bullish on. So that’s an area we’ll look at. So those were the sectors of focus, I think, where we will be, you know, cautious about our e-commerce or vertical commerce. Maybe we’ll cautiously look at that sector. And, you know, more of lending will be, again, something we look at carefully. We have a fairly exposed portfolio in terms of lending. So pure lending, maybe not but other areas and FinTech is something we’d look at.


Siddhartha 39:50

So, continue to shed more light on the enterprise companies of yours, especially Uniphore because that has recently raised a very large round from March capital in the US and been expanding very quickly.


Dhruv 40:07

Yeah. So, as I said, Uniphore is a company that started off Chennai. It’s a fairly old company founded by Chiratae ventures, and we came in again, in this recent round that March capital led. It was a 50 million round, and we came in with five bucks. This is a company that is a pioneer in using artificial intelligence for Call Center Operations globally. So, it’s a $300 billion market that they’re targeting. They managed to actually get John Chambers, Ex CEO of Cisco on their cap table. He personally invested in that company. And he was on the board and he’s guiding the company pretty much on a regular basis. The company is now transitioned to the US ie the founder sits in the US. And he’s built a strong leadership team with him in the US. So, now they are targeting global markets sitting out of the US. Chennai continues to be their tech center. As I said, they’re scaling very well. We’re fairly bullish on this company, we would double down in the next rounds. So, these are opportunities, you know, that we will continue to look at companies emerging out of India, but targeting either global markets, ie US for that matter, or Europe in Southeast Asia. The stage that we like to come in is where a company has proven some international revenue stream, ie 20-30% of the revenues are coming from the US and with our capital, they can actually expand that further in these markets, so that’s the position that we like and, and we’ll continue to look for more companies in that area.


Siddhartha 42:07

And what about Seclore and Mobikon, what areas they are in, and what stage you can come in and how are they doing right now, once you partner with them?


Dhruv 42:15

Seclore was the first deal Sistema did. This is an information rights management product that was previously funded by Ventureast and Helion and this company again targets large government enterprises in India, large manufacturing setups in China, and in Europe. And they have an office in the US where they target US customers essentially what they do is provide you the ability to put a layer of security at the document level. So that you can only share it with the relevant persons, etc. And we came in at a Series B stage in this company and this was one of the early checks in the company. We’ve supported the company over time. They are probably at a double-digit ARR number at this moment. We continue to support its founder transitions back and forth between the US and India. This is a Mumbai based company. So, so yeah, so that’s on Seclore and Mobikon is our first Southeast Asian investment. This is a company that provides a CRM solution for F&B outlets in India and six countries of Southeast Asia. What we liked, was that you know, while the technology people are based in India. A lot of the revenues coming from Southeast Asia, and this is a founder who had been operating in the F&B space for all his life. We did a series B in this company along with a bunch of Singapore investors and then they managed to raise a round from B2B Ventures which is Binny Bansal’s fund and they continue to focus on the sort of broader Southeast Asia plus India market.


Siddhartha 44:26

and having such a diverse portfolio, right, you mentioned Edtech is one sector you are looking at. So, can you share some of your deep theories on what kind of models do you think will work in India? Till now there have been only a handful of companies like Byju’s, Unacademy, Vedantu, Topper that have been able to scale. I would say, some of them are near billion-dollar valuations. Some of them have crossed 100 million-dollar valuations and are monetizing. Well, what’s your deep thesis? What will work in India and what will work for you?


Dhruv 45:13

Yeah, so, as I said, we have been tracking the sector for a while and for the right reasons that you mentioned, we’ve also stayed away because we worried about monetization, we also worried about the fact that this is a fairly regulated sector. So higher ed is regulated, k12 is regulated, the opportunities lie within you know, coaching for test prep for the entrance examination, which is a fairly competitive industry or market and then tutoring for K12 which is an emerging area and then the other sector is preschool which is largely franchisee driven model, etc. So I think the engagement levels and the scale that companies Like Vedantu, Unacademy, Topper, etc are seeing, give us the encouragement that you know during these times if you can build the right technology and link students on one side and delivery individuals on the other side, there is value to be created in the chain and then you can think of monetizing this through parents, etc or through educational institutions. So, what we like is the K12 tutoring space, which is still nascent, but you know, it is getting competitive. We like the coaching for the entrance examination, potentially not IIT JEE because that is fairly crowded, but other examinations, BankPO, IAS etc. So there is a bunch of examinations for which you can build and then you know after school concept building based models, so focused on building foundations in mathematics or science, etc. So those are areas that we potentially like. But like I said, we are still evaluating this deeply. I think this sector has got a lot of renewed focus because of COVID. Physical institutions are shut down. And the only way to impart education is through digital. So those are at least high-level areas where we will focus on in Edtech.


Siddhartha 47:38

Thanks, Dhruv for sharing your insights. Now, coming to some personal side of yours, you have been a venture capitalist for quite a long time. What hobbies do you attribute to your success seeing your very high success ratio?


Dhruv 47:52

So you know, success is a relative term I think venture is a long gestation profession. And success in this is fairly back-ended. So, I would say that you know, success for me would is still five years away when I actually see hard cash exit for the companies that I’ve invested in. But I think one of the attributes, you know that at least I focus on is just fairly disciplined investing and that has potentially held us in good stead even at this time. So for example, when we started Sistema I think our investment philosophy that we chalked out was that we will not invest in the flavor of the seasoned business. We will not invest in high burn businesses. We will like to invest in high gross margin businesses where the margin of safety is fairly significant. So thin margin businesses which depend on volumes is something we will not be able to support. And, our capital should help the company get to break even or at least there should be a path to break even where we can achieve the company level breakeven with our capital. So these four or five trades is something we have deployed across our portfolio. And we looked at all the companies through this lens. And, you know, I think that has held us as a fund in good stead. So our portfolio is fairly robust. Except for FinTech, where, structurally, there are some headwinds, most of the other companies have actually seen tailwinds, even during COVID time, so we feel very good about that, that we’ve stuck to our knitting. What we said early on as part of the fund charter, we have stuck to that so if it boils down to one thing I would just say that you know, just discipline investing is really what has helped us build this portfolio.


Siddhartha 50:17

But there would have been some misses also you with companies which you have tracked closely, both at Helion and there was an opportunity at Sistema to participate in them because you were close to them. And you missed. could you like to share you know, some of these companies?


Dhruv 50:34

No, absolutely. I think two companies that come to mind that we really liked but for whatever reason ended up missing them at Sistema. One is NinjaCart I think they are doing something exceptional in the Agritech space, the supply chain that they have built really is disrupting the way fruits and vegetables reached retailers I think we looked at them in multiple stages but felt the operational intensity of that business was fairly high. And for whatever reason, we could not pull the trigger. So, that one we feel like we let it pass for the wrong reason perhaps. And the other one again is in the lending space a company called Rupeek. This is a gold loan company, a very strong model, very unique in their value proposition. Very solid founder. We missed it the first time around, it came back to us but by then we felt it was a little bit too expensive for us to participate in. So, this is the nature of the business, you prioritize some deals and some will slip through the cracks. We’ll see how these play out. Yeah, at this point, these two certainly do strike as something which we were close to investing, but we ended up missing at that stage.


Siddhartha 52:12

Thank you so much, Dhruv. It’s been wonderful to have this conversation with you. Thank you for sharing your experiences and insights.


Dhruv 52:18

Siddhartha, thank you so much. I had a great time chatting with you.


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