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Episode 57 / March 22, 2020

Vaibhav Domkundwar, Better Capital

hr min

Episode 57 / March 22, 2020

Vaibhav Domkundwar, Better Capital

hr min
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“Do Zero Paid Marketing – To Understand What’s Working And What’s Not”

Vaibhav has founded successful companies like Roamware (acquired by Audax Group) and Better Inc.

As a VC & a founder, he’s a core believer in implementing & experimenting with organic growth hacks to grow a company, this reflects in most of his portfolio companies as well.

Some of his Portfolio Companies are – Khatabook, OPEN Bank, Gramophone, and ShopKirana.

In this podcast, Vaibhav shares his experiences & learnings of investing in Startups which provide a simple but complete solution to a consumer problem.

Notes –
00:35 – His Journey from Founding Two Companies to Becoming a VC
05:20 – Investing in 45 Companies in Last 2 Years
07:02 – While making an Investment Decision it’s important not to Templatize a Founder’s Idea
09:30 – Investing in Asia’s first Neobank – OPEN
14:29 – Creating a product which completely solves a problem rather than offering a better way of dealing with it – Khatabook
16:05 – Agritech Portfolio Companies – Gramophone, Jai Kisan, BharatAgri
18:49 – Investing in a Truly AI-first company
30:57 – How does Better helps its Portfolio Companies?

Read the full transcript here:

Siddhartha 0:00

This is Siddhartha Ahluwalia, welcome to the 100x Entrepreneur podcast. This episode is brought to you by Prime Venture Partners. An early-stage VC fund led by Amit Somani, Shripati Acharya, and Sanjay Swamy. Prime is often the first institutional investor in category-creating tech startups in fintech, SaaS, healthcare, and education such as Ezetap, MyGate, and Mfine. To know more about prime visit prime.vp.in Today I have with me, Vaibhav Domkundwar, Founder of Better Capital. Vaibhav, welcome to the podcast.

Vaibhav 0:36

Thank you, Siddhartha, it’s great to be here.

Siddhartha 0:38

Vaibhav, Tell us about your journey and about Better Capital.

Vaibhav 0:42

Yeah, so let me give you a quick sense of what’s happened so far. I actually went to UC Berkeley in the late 90s, 1996 to 1998 graduated and the late 90s was a time in Silicon Valley where everybody with a heartbeat had an idea and too I had mine. So I think after working for a year or so, I started my first company called Roamware with about four other co-founders, classic Silicon Valley formula, five founders raised a bunch of capital who are selling to mobile carriers worldwide, sort of platform that helped them increase their average revenue per user. That is my first experience. I think coming out of Berkeley, you feel you can conquer the world, but then you hit the ground and you understand how hard it is to build a business, make revenue, sell and whatnot. So I think Roamware was a brilliant experience for me, after which I started my next company Better, exactly the opposite, wherein I was a single founder, self-funded entirely, and it’s been a great journey. Roamware went on to become the largest company in the space, was eventually acquired by Audax, which is a PE firm in the US that has a bunch of mobile portfolio companies. And Better’s journey really started with one product that we called Ready, which is a marketing data intelligence company. Soon we morphed into more of a studio that built multiple products over a course of about 10 years, we built 10 products, killed six, kept four, that are still some of the best in the space. After which we kind of said, How do we scale these learnings? And I think my experience over those 10 years was, you can’t really hire founders as such, though we could build a lot of products in different markets. So that’s when we started investing. So we did personal cheques for a while, about the few in the valley last decade and then few in India, after which we sort of formalized in 2018 to start Better Capital as an early-stage fund, really focused on pre-seed and seed-stage opportunities. And that’s what we are.

Siddhartha 3:08

What are your key learnings which you are trying to imbibe into Better Capital?

Vaibhav 3:14

So, I am a founder investor. So I think I came into this wanting to apply 15-20 years of building products, selling. I’m very hands-on, I can write my own sequence emails, SEO and things like that. So I think the reason we started Better capital was really to get these learnings in the hands of early-stage founders, where we could dramatically improve their time to market, help them not make mistakes that we’ve made in the past and things like that. So that’s really the gist of what Better capital is. It’s very founder focused, early-stage, idea stage, sort of investor, where we are bringing all that experience trying to understand how we can best support in the earliest days. And the best way to put it is this. I mean, a lot of times venture capital is about making returns. It’s about making sure that you’re making the right bets. And a lot of times you end up wanting to minimize risk. In which I think the common thing is everything is perceived as Hey what can go wrong, right? So, you’re optimizing for risk. We’re the exact opposite, honestly. So if you talk to any of our founders, we’ve never asked that question. Instead, we’ve asked the exact opposite, which is, hey, what could go right? Right. I really love what Siddhartha is doing. I really understand the key nuances of this market. So what could go right here and how could we support this company from the get-go, right. So I think that’s the essence of Better Capital, we’re sitting on the same side of the founder, trying to understand the market and instead of poking holes in it, we’re trying to understand what the gaps are. Are the gaps interesting enough to be addressed to build a venture scale business? And I think that’s, that’s probably central to how we operate.

Siddhartha 5:24

You have invested in 45 companies in the last two years. How did this much pace happen?

Vaibhav 5:31

I think the best way to explain is that it’s the market that was running at that pace when we started in January 2018. I thought we will do about six deals in that year, we ended up with 15. And 2019, I think was just a crazy pace for everybody. So I think some of it is market-driven. I actually am very sensitive to thinking about the number because I think a large number of deals for at least age for the form can feel like a spray and pray which is something that all of us have to be very cautious about. And especially for us when we are very conviction driven. That can feel a little scary. But I think we’ve seen some of the best founders coming out of the downturn that we saw in 2016. So I think it felt like 2018 and 19 were times when we had a phenomenal number of companies, amazing founders who had built over those two years and that’s what we ended up investing in.

Siddhartha 6:35

Well, what’s your average ticket size when you invest in these companies?

Vaibhav 6:40

So I think you know, we invest about between 50 lakhs to two crores as our first check, depending on the size of the round and stage of the company. My guess is an average is about a crore plus or minus, will consistently see that going up, but that’s kind of where we land right now.

Siddhartha 6:57

And what’s your evaluation criteria for companies?

Vaibhav 7:01

Yeah, so that’s that’s actually a very hard question to answer. Let me tell you how we just think about investing in the first place, right? Like I said, I’m a, I’m a founder investor. So I’m actually I have been through the journey of a founder, I see the ups and downs and I see how hard it is. So what we are really looking at is first understanding the market because I am an engineer who then became a product person who then became a salesperson. Right. And I think, the way I have learned in my entrepreneurial career, I think sales matters the most right which is all about saying hey, is there a market that I can make happen right, so we are a very market, first investor. And that’s not to say that I think we are not team-first investors. I think that teams have to all clear a certain bar before you know they qualify for for for something that would be interesting for us. But we are a very market-first investor. So we are looking at trying to understand what is the market gap that somebody’s solving, right? And the number of ways of looking at it, I think we try not to template eyes, anything. But let’s say in FinTech. We saw the first generation of companies in India that were largely doing sort of digital transformation, right digital lending, digital payments and things like that. But I think we are now going to see a new generation of companies which are actually creating a new generation of products and we’ll have let’s say, FinTech in front of it will separate out from FinTech distribution and brands, for example, right. So in each of the segments, whether it’s FinTech or ad tech, accurate tags, SAS and others, we have some of these ideas that we’re trying to build around and try to find founders who are building around that So a lot of it is about, you know, understanding what the, what the market dynamics are, what the gaps are the way we look at it and see companies that kind of fit that criteria.

Siddhartha 9:14

So, let’s go deep into FinTech in 2018 when you started investing, what was your insight into FinTech? That this is about to change very soon that, you know, you started investing in a lot of FinTech companies, especially Neo banks.

Vaibhav 9:29

Yeah. Yeah. That’s an interesting question. So, you know, I actually think that innovation in most spaces comes from innovators who are from outside those segments, right. And I think we’ve seen this happen in multiple scenarios. Most of the ad businesses were created by tech founders who are not from the media spaces. Tesla was created by an outsider who has nothing to do with auto. So similarly, in FinTech, I believe that a good amount of innovation, not all, a good amount of innovation will come from founders who are looking at that space and that problem from outside in, right. And I’m actually that kind of an investor where I actually may not be the best at understanding the nitty-gritty of banking and numbers and FinTech. But I’m a Product first founder who’s saying, Hey, you know, small businesses have a major problem, because the banks are really not serving, what they’re really looking for cash flows are getting affected because distributed payments coming from distributed places and whatnot, right? So what does that lead us to? That leads us to a problem that can be solved by somebody who’s not sitting inside a bank because he or she may not understand the gravity of the problem living in that space every day. Maybe an outsider sees that, hey, there is an opportunity. And I think that’s what we saw with the open founders, where they said, we actually want to build an accounting and cash flow engine on top of a bank. So that small businesses can optimize cash flow and actually run their businesses much better. Right? So when I first talked to Anish, this was actually a Saturday afternoon two-hour call. I think his insights were completely aligned with the way I look at the space. And I actually had the advantage of knowing the story of a company that we started 10 years ago, in the US called Simple which kind of took a very similar sort of we want, we’re going to create a new bank that is very business-focused, let’s say. So that’s where I think our journey started with open and I think we took that call not based on our knowledge of FinTech, but more our knowledge of product and gaps that can be addressed by-products in this segment. And, I think that’s where we learned and I think all our bets whether it’s Open or Khatabook or Bijak, they’re all based on kind of product first founders kind of building around the money flow and building a workflow that actually enabled something that never existed before and created tremendous value for everybody. But the way I mean, the way I look at Open is that it’s almost like Intuit with a bank under it. Correct. And that could be a large company. Considering we don’t have an Intuit and we have a banking system that is great but it could be better. I think Open is really targeting that opportunity for small businesses. So I think that’s where our learning started. And I think we view all of FinTech from that angle. And obviously, I think we probably were one of the earliest investors in Neo banks. And we probably have a whole bunch of them now. So we’ll either be really right or dead wrong. We’ll see what happens.

Siddhartha 13:20

And what about the companies which are building FinTech or product-focused businesses, for the masses, the next 500 million Indians? You have taken a bet on that?

Vaibhav 13:33

Yes. So, I think that’s another market that in theory looks amazing, right? Because we say, Hey, you know, we’ve got about 500 million Indians who have a geo data connection on their smartphones, and then they have a lot of problems. Right. And that’s what I think the thesis is around building for that market. But I think what has been really Challenging I have seen is, you know, how do you create a product that truly solves a problem for that market instead of presenting them a better way of doing something, right. So there is a big difference between Wow, this is amazing, or? Yeah, this could be interesting. Correct. So I think when you look at that 500 million, let’s call it the parrot opportunity. I think the best example that I like is that of kata book because I think it’s probably the first product first company that created something for that market opportunity and got it right because if that product was not right, they would not have scaled from a million downloads to 10 million within a matter of a few months. And I think last time I know, they had about 5 million monthly active users, which is Think unbelievable, right? Now granted, I think there’s a lot to do there, they still have to figure out a lot of problems and opportunities and monetization and things like that. But I think that’s kind of a team that we would back any time of the day. That’s kind of the opportunity we will continue to try and solve. Another example is a Neo bank focused on the blue-collar workers, which is also targeting that 500 million opportunities about how do we create a bank that is focused on the needs of these people, right? We were sort of pretty much in the ground zero for the very first round of Yulu as well. And I think Nilesh Agarwal who came out of Omidyar doing FinTech investing, had some great insights on how he’s going to build that whole thing. Very, very, very hard problems but I think we have better than some of the best founders. So I think it’s a great learning and hopefully, we’ll see you Value created from these companies.

Siddhartha 16:02

So for example, other sectors you have ShopKirana, Gramophone, what’s your insight on the farm produce market?

Vaibhav 16:10

So, you know, it’s funny. there’s a good group of friends of mine, very accomplished guys. And one of them once said, “Oh, Agri is dead. India should just stop agriculture.” And I know where it’s coming from. Because if you ask a whole bunch of people who own farmland, they’ve all stopped farming because they can’t even find labor who is interested in kind of coming to the farms and doing something. So, I think we are in a bit of a situation that needs to be addressed. And again, I believe that this problem is going to be addressed by founders who are going to be looking at it from an outside-in perspective. So, Tauseef at Gramophone is doing that, Siddharth and Sai at BharatAgri are doing that, where I think, Agriculture needs to be a very large segment in India. It needs to be such that we have a new generation of companies that empower our farmers because it is not about subsidies and giving money away to them. It’s about helping make farming profitable. And I think that so that’s my entire Agri thesis because I believe Agri is very important to India, it has to be the core fabric. And we need a completely new generation of entrepreneurs who target that opportunity. And the good news is that we have them. We have a whole bunch of agri-focused founders who are really accomplished guys who are saying, I want to go and solve this problem. So our investment in Jai Kisan which is kind of FinTech for Agri deck, which bar at agri, which is helping farmers do better yields and better quality produce Gramophone, which is kind of hand-holding. And then shop Kerala, which is, you know, one of the brands that they have launched Kisan Kirana is about kind of really, you know, helping farmers on the output side as well. And recently, we’ve also invested in a company called Bijak, which is essentially kind of building digitizing the output supply chain, also a phenomenal company great founders and I think it was pretty much on the first call where it was very clear that that’s kind of the company that I was looking on the output side of Agri at that I had not seen before.

Siddhartha 17:59

Vaibhav, can you share your insights and interesting learnings from your portfolio’s companies till now?

Vaibhav 18:49

So lots of them honestly. We’ve learned a lot about FinTech from our investment in Open, our investment in YeLo, and this whole Bharat opportunity where we said, what kind of companies can be built and what are the challenges in the early days and what can be solved. So, for example, Open we invested before they had all the bank partnerships figured out, right? So we are investing in an idea and an early product. And through the journey that they had with ICICI, we really learned how powerful symbiotic partnerships with the banks can be right. So I think that is something that learning is something that we’re taking to all our other founders across the FinTech portfolio. We’re also learning a lot from our SaaS portfolio. That is a more early stage right now. So a few companies that are in the early millions of dollars of ARR and a few that are much earlier, but we’re seeing a single great trend there wherein we believe it is going to be really, really hard for Indian founders who build SaaS companies that are pure workflow, web-based application kind of companies to scale to be 10 million 20 million 30 million ARR, right? Because the market is extremely competitive. So our bet is that we are actually going and investing in AI-first companies. So, you almost have to say that it’s going to be very hard for me to create another sales loft, like a company or a gong-like company. But if I actually create something that is truly AI-first, when there’s no interface, I’m taking a system of record that could be your CRM, it could be anything, but I am creating a knowledge-driven and AI-driven workflow that can interact with you on your cell phone, via notification, a Chrome extension or anything. So there’s a bunch of companies in that segment that we’re focusing on and learning a lot from them in terms of what AI-first truly means, right. So, just tons of learning especially because we are in the early stages because we are getting the earliest signals from the customers, whether they are India focused or global. And that is helping our other portfolio companies as well as they go through the same phase.

Siddhartha 21:36

Vaibhav, you’re a product-focused founder and then now an investor. India has been a market where the distribution has been a challenge for many early-stage companies. How do you help your portfolio companies solve for it, like going from zero to 100,000 is easy but for going from 100,000 to 10 million, What are the challenges? What is the mindset that the founders need beyond the paid marketing which now everybody’s missing out?

Vaibhav 22:02

That’s a great question as well. So I don’t think there is a right answer or if I wish I had the answer to the distribution problem of all my companies because then we will be golden. I think what needs to be understood is that what worked yesterday will not work tomorrow. That’s number one. So I completely am with you that pure paid acquisition is a recipe for limited success. Let’s put it that way. So we take a slightly different approach. I think, again, going back to KhataBook, I think it’s the product that’s working. And when the product works, you can market it better, and then it scales better, and so on and so forth. But without the product working, you can’t really force fate and you know, market the hell out of it even if I gave you $20 million to burn. So with a few of our other companies, what we are actually doing is we are saying do zero non-organic stuff, No Facebook, No, Google, just do pure organic reach out and product first tactics only. Because what that gives you is the truest understanding of your product working or not. Again, I’ll give you an example because I think examples are where the theory can be understood much better. So we are the earliest investor in a very interesting company called Fans Poll, where we’re basically saying that fantasy sports are really really large. I think we are at the tip of the iceberg in India. And my belief is that it will be a large space. Now with fans pool, the approach that we’ve taken is that, you know, let’s say if you’re talking of cricket and fantasy cricket, we basically are saying that you can come to fans poll and create your own sort of contests and invite your own group of people that you are already interacting with. So it’s almost like you know, what social media did to media was like, Hey, you know, you listen to what New York Times says. And as we unlocked that whole hold on, who says what, we gave the power back to the people. So what we are doing with Fans Poll is we’re saying this is not a fantasy sports platform that is that that is defining what you play. This is a fantasy sports platform where you define what you want to play and who you want to play with, right? So, if you’re doing cricket contests you could play with your society friends, your school, friends, your colleagues and things like that. And they can be public or private. You define your own rules, some are paid some unpaid, but we’re giving you that complete infrastructure to take the enthusiasts of the communities to kind of build their own ecosystem. So now in principle, what we’re doing is we’re actually doing zero marketing. And consistently week on week, we are seeing more and more engagement. And we continue to say that we still don’t want to do any marketing because we are getting the truest output of what is working and what is not working when we do that. So I think that is probably my only and the largest strategy with my early-stage product investments, where if we get the true understanding of what is working, who it is working for, and how do we find that sliver of product-market fit and scale that and I think the best example is what the superhuman founder wrote about this entire thing last year. So I think most far most founders have probably read it. But I recommend a rereading of that again, and again, because I think that also iterates this exact point that, that you really have to focus on what users your product is for, and go deep in that PMF before you market as such, right. So I think the answer to your question is, the best distribution strategy is no distribution strategy, which is, you know, let your users tell you what they love, and then build that product for that love.

Siddhartha 26:43

Any other companies besides Khatabook in your portfolio, which have scaled using that strategy?

Vaibhav 26:51

I think Open is a great example as well, I think after they went live with ICICI the numbers that we saw were just unbelievable. I think it would not have been that unless it was so valuable. So it is definitely not a push driven scale at all it is predominantly pull. And once that pull happens then you market and put money to work to scale that pull. So I think Open is that Khatabook is that. I believe Bijak will be that I think, YeLo when it launches, I think, we have fundamental virality that is built into the product. I think these are early companies so I’ll be able to answer that question next year. But I think there are some very community-focused companies that we are investing in where the community engagement is the truest early sign of a problem, product fit. I think we’re seeing some great sign with some of the earlier ones will just have more examples of true outcomes and numbers over the next couple of years.

Siddhartha 28:15

What are the trends in consumer, which you have observed and in businesses as well, that you think are still unexplored by founders?

Vaibhav 28:23

so there are a whole bunch of them. It just that I think what I have personally seen is that if I go into a new year of investing, saying that these are the themes that I want to invest in and find companies who are doing that, it is a little restrictive. So, I don’t try to form those teams. But having said that, I think, we have a big opportunity in sort of solving for the Bharat market wherein there are a whole bunch of disorganized segments. For example, let’s take the contract interior design market. I think live space has done a great job there. But I think the market is just insanely large. And there is an opportunity for somebody to create what I call as the Shopify for that market. But with a core DNA that is very, Bharat focused, so it is built for that market, whether it’s usability, language, workflow, naming everything. There is that big opportunity. There is also an opportunity for a Shopify for the restaurants. So let’s say Amazon aggregated all the smaller product sellers and Shopify said, Well, if you wanted to really stand out and have your own brand, then you come to me and we all know what phenomenal story that has been. So similarly, I feel there is potential to explore a Shopify for restaurants because restaurants are saying, Hey, Swiggys of the world have aggregated us. But what if I want my own brand to stand out? So I think there is an opportunity there as well. So I think we go in with a lot of these ideas. But I think I want to truly be open to finding what the founders have come up with because I think founders have a much, much greater insight into the small niche that they are exploring, then I could have. So I think we marry our 30,000 feet perspective with their ground-level understanding to find opportunities that could be interesting.

Siddhartha 30:54

And how does Better help post-investment?

Vaibhav 30:56

So that’s a great question, and I think we all as investors want to be really very helpful to the founders. And the way I look at it is slightly different in the sense that I want to be helpful when they actually need help. Right? So I think Entrepreneur magazine was interviewing a bunch of us a few years ago, and they said, what kind of an investor you are? And I said, Wow, what kind of a question is that either? He said no, no. What do you do for your startups? And I said I’m a problem solver. So I think I usually do two things. One is, if they have a problem, I’m a call away or a WhatsApp message away. And I’m making introductions, giving them answers based on what we know and things like that. But it is very poll-driven. So all my founders are fairly active in terms of reaching out, but they’re reaching out with very specific requests, which always is very effective. The other thing is kind of giving them some level of input depending on the stage. So for example, When somebody goes to series A and beyond, I think their requirements reduced dramatically in terms of what I can really help with from an early stage perspective. But all the pre-seed to series A folks, there is a lot of cross-learning that we help them with in terms of whether it’s sales and marketing, product, global trends, and simple operational issues like you know, US flips. There are a bunch of companies that were stuck last year with extremely wrong setups, and we ended up helping to solve that problem where now we have a recipe for the US or Singapore flips and doing it right and doing it the fastest and the cheapest, right? Phenomenal helps because there are a lot of founders who are stuck because they’ve got it wrong. We recently figured out the number of Indian founders who are building global companies and moving to the US. Visa is a very systemic risk and we found a couple of firms recently who have been successful in terms of doing the visa, again very efficiently. So I think there are some of these repetitive sorts of requirements where we’ve gone in and kind of created a recipe. And we recommend and introduced it to the right folks as well. But I think the most important is, I think, the network that we bring. So, our LP as well as the founder network, and my past relationships, especially in the valley, have been really valuable to a bunch of founders. One example is founders who are building this ML company called Jovian. Last year when we were just investing, they were in the valley, kind of doing validations and meetings with some of the folks there. And we actually set up for meetings with sort of VPS of data science and ML at Facebook, Google, eBay, Charles Schwab, and others and if you ask them, I think we were all able to crunch 3,4,5,6 months of learning or feedback into four weeks between those meetings. So I think I believe that we will continue to have our network that is truly value add in terms of what they can bring to the table, in addition to what I personally can.

Siddhartha 34:25

So, you essentially started investing in India in 2018. But you have observed the market for a long period of time. Why was 2018 important? Or why was the timing important for you to start doing it.

Vaibhav 34:39

I think it was organic, honestly. I think I had made about 15 odd investments as personal cheques. And a few companies like Rupeek and Bon and Testbook had kind of emerged from that. And we knew that we were at a stage where we had enough of high-quality deal flow that we wanted to scale it to the next stage. iI turned out that 2018 is when I think the momentum picked up in the market. And we were able to kind of catch some of the early investments in Open, ShopKirana, Yulu, and others at the right stages. So I think it was more a function of where we were at that point. And, and I think the rest is really about market timing.

Siddhartha 35:27

entrepreneurs who are wanting to have you on their board, how should they approach you?

Vaibhav 35:32

So I think the best is to reach out to a founder that we funded. I know it’s a very cliched answer, but I think what happens is you get so flooded with, with the founders who are reaching out across channels. It’s, it’s physically hard to keep on top of everything. So I think the best founders would have Find portfolio founders to make introductions because that essentially gets the quickest attention. And it’s in it’s highly inefficient, I understand. But I think that that works the best in general. The other thing that I would say, which has also worked, because I try my best to pay attention to everything that comes in, not everything, but as much as I can. And I think what happens is when you have you do two things, the right one is you click on their LinkedIn profile when you click on the company’s website, and if those two things inspire confidence, then it’s very quick that that, you know, I’m able to respond. So I think I would highly encourage founders to make sure that their home pages and their LinkedIn profiles are optimized to, you know, suggest what they’re doing, which honestly, you know, I don’t see it being done as well as it could be. So I think that that’s something that I love because I think that helps them get through to tell their story much better. And the last thing that I would say is founders who are starting a new company should start talking about it sooner than later choose a platform of your liking. But when I as an investor, see you as a founder talking about something and writing really insightful content, I am definitely drawn to understanding to wanting to understand what you’re doing. Right. So that’s probably a very powerful way. In fact, that’s the way I first talked to teachers at ShopKirana I think ages is one of the most prolific content writers in the founder community and he writes with a lot of passion, which you know, you will pay attention to And that’s how I got introduced to shop guarana, honestly. So, so I think these are the three I would recommend. And this introduction process is highly inefficient. So founders really have to think about how they can optimize by doing either one of the three or all three of them.

Siddhartha 38:16

Thank you so much. It was wonderful to have you on the podcast.

Vaibhav 38:19

Thank you for having me, Siddhartha. Thank you.

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