Deepak Shenoy 00:00

Bankers selling bad financial products to old people, even if you speak to most of the financial influencer’s (Speaks in Hindi)

Siddhartha Ahluwalia 00:08

Ulip’s?

Deepak Shenoy 00:08

Ulips and all the stuff that is toxic and sold on by old people that should require a jail term. The real thing that changed for a day and not just trading pretty much everything was one company. Its Reliance Jio India has the cheapest stock trading in the world and the cheapest payments systems in the world. public markets people keep thinking that if they get listed in the Public market, they can sell their shares (Speaks in Hindi). Nobody says that if you have lisiting in Public company’s then your company would grow (Speaks in Hindi). look at all the VC’s the first in order to sell every of these New Age companies that have come the first after six months of locking whatever they do they come to sell (Speaks in Hindi), much better perhaps meeting customers then I am meeting investors because I’m very straightforward.

Siddhartha Ahluwalia 00:57

Hi, this is Siddhartha Ahluwalia and welcome to the neon show. Can you imagine firing yourself from your own company? That’s exactly what a guest did over a decade ago. questioning his decision making skills and value he added to the company he decided to take a step back. Today he the finance portfolio manager that manages over 500 crores in the Indian markets, making his second appearance on the neon show of warm welcome to the capital Mind founder Deepak Shenoy. I would also like to thank the sponsors Prime Venture partners for sponsoring the neon show. Hope you enjoyed

Deepak Welcome back to the neon show. We did the first episode with you online during the COVID tank. And this is the second one,

Deepak Shenoy 01:42

firstly, thanks for inviting me that will great it’s I think the last episode was was fun and interesting. And and I was in a different phase in my own life in markets and all that stuff.

Siddhartha Ahluwalia 01:53

It’s been 20 years for you are managing people’s money, right?

Deepak Shenoy 01:56

Not 20 years, we are managing money extra money since 2017.

Siddhartha Ahluwalia 02:02

And before that?

Deepak Shenoy 02:03

Before that, I wasn’t managing other people, I was managing my own money.

Siddhartha Ahluwalia 02:06

OKay. And how did you make your own money?

Deepak Shenoy 02:09

Till now there’s combination? A lot of things I guess I ran my first company 90, I started my company 1998. Yeah. So we were bootstrap what they call revenue positive. Yeah. Which was pretty much table stakes in the time.

Siddhartha Ahluwalia 02:26

But yeah, the now it has to be called out!

Deepak Shenoy 02:29

Now to call out each hire making revenue was that time, the only question was whether you’d make profit now or two years down the line. But we were revenue positive through for a long time. So by the time I left that night, another company and then we sold that company. So bunch of liquidity events. And nowadays, it doesn’t take much if you’re knowledgeable about something, somebody’s willing to pay for that, for that knowledge, even if you don’t have a job. So entrepreneurship is actually it’s no longer as much about risk, because people say that you are taking a lot of risk if your startup Yeah, my experience, it’s not because yes, you lose some income during the startup. But if the startup fails, then you get a better job than if you’re if you were in on one of those IBM type companies for that much time, right. So you, your profile is in a much better place and you are able to, so I don’t think it’s as risky as it used to be earlier. If you fail as an entrepreneur, Nobody will give you a job now, if you fail as a entreprenuer, you’re more likely to get a better job than otherwise. So in that context, capital came over time I started capital Mind in 2014 was off shilling then the company came about, which would have been nine, nine years this month. In fact, this week, I’ve got I mean relatively small amounts of money but managing that now we’re we’re about to 1003crores from 2017. When we started oh, you’re only allowed to manage external money if your SEBI registered, so we got our registration in 2017.

Siddhartha Ahluwalia 04:04

So, it took three years to get the license?

Deepak Shenoy 04:06

We are we we didn’t intend to start off managing money. It was not an intention. We will try to build a tech company in the finance space. So the FinTech, the Puranas why not? FinTech years. And so we weren’t we weren’t venture funded. So it was really what you want to build.

Siddhartha Ahluwalia 04:25

And you always chose not to be take take any external funding, right?

Deepak Shenoy 04:28

I didn’t chose that’s a little arrogant of me to say so but because we did try and meet set to

Siddhartha Ahluwalia 04:35

You had met VCs during the first interval a second time.

Deepak Shenoy 04:39

I have met VCs in 1999 and met VCs in 2007. I met VCs in 2014 and 15. They weren’t interested or maybe we were not the right fit and all that stuff. So it was it’s okay. It’s not like, you know, it’s turned out okay. And a lot of people tell me now that maybe It’s not as bad to have not taken. So because they like we struggled with the expectations and the growth challenges and, and honors because you put a certain picture in there. So I have certain internal target when we started off, he said, We should be 100 crores in the first year, 1000 crores in 5 years. So now we’re about five and a half and in 1300. So more or less those internal goals have been met. But those are internal, right. But if I did those things to an external party and said we didn’t do the in here, then the challenge would be altogether different. Because there’d be mapping your thing, almost like everyone that said, I Oh, not going there. Not hundreds 1000 posts too conservative, why should you be 10,000?

Siddhartha Ahluwalia 05:41

Then why not thinking big?

Deepak Shenoy 05:43

They will give you 15-16 to 20% IRR?

Deepak Shenoy 05:43

Why not thinking big and we didn’t spend we we wanted to be profitable. So we’ve been profitable every year since 2017. To that extent, expectation beating has been complicated, but it’s not also a No, I already told them the lack of tryings, we trained to meet a bunch of people, they told me no lot of things. Good things are not that bad people, but it’s just that we weren’t exciting here. But I’ve noticed this, okay, it’s, it’s a face and you sometimes it’s the personality, I can sell to customers, I can based on zero growth of customers giving me their money to man or organic period of time where we have delivered results. But if I tried to go and raise, so maybe now it will change because now we have some achievements to acquire. And now I can go and say, Listen, I need some money in the show, we may need some money to raise some money, we will return some money soon because we’re applying to a mutual fund. And the requirements have just gone up from 50 crores to 150. So we would have met the 50 Crore limit, but we won’t meet the 150. So we’ll have to raise external capital but that raising I don’t know how difficult it’s gonna be like I only keep my partner it’s very it’s much, much better, perhaps meeting customers then I am meeting investors. Because I’m very straightforward. Maybe customers find that pleasing, but investors don’t

Deepak Shenoy 06:46

Yeah, I mean, so I can promise that right. So I want to Why would you do this business and I’m not doing for 15-16% of IRR, instead i will take my money, and I’ll put in the market i will earn more than that. But my net worth is all in capital Mind. And if I only 50% i Everyone promised this for anybody else. We have gone 100% Almost every year except for last year we grew 50%. But my deal is we’re not growing like that why are we doing business. Yeah, I have to grow. And I know that when I get to mature stages, I won’t grow at that speed. I am no where near mature, so that we can grow, the speed at which we grow will not be 1,000%. And 1000 I wont grow 10x in an Year. I don’t perhaps want to also because in this field growing too fast has has repercussions. You are in a regulated industry. If you grow too fast. There are doubts on whether we’ll be able to meet all the regulatory concession whether you will make some regulatory concessions which will then hurt you in the future. But beyond that, to a certain extent it is just the cycle of the markets

Siddhartha Ahluwalia 08:14

and you would have given your customers a 20% IRR. I believe on a six year hold some business.

Deepak Shenoy 08:18

20 well depends on which strategy of course right now I have personally invested in the PMs myself. So my own IRR is 19.85% as of..

Siddhartha Ahluwalia 08:31

Net of everything?

Deepak Shenoy 08:33

This is net of fees. Not net of Taxes. So Net of fees and net of all that.

Siddhartha Ahluwalia 08:21

Deepak, I wanted to ask another question regarding Indian investing habits. Right. India, the nation is just picking up right now on stocks right. And last two three years have been good for India. We had the founder of one of the large online brokerages on and so it completely changed after UPI pre UPI. It was very different post UPI. The investing has moved in such a way online that large companies like Zerodha couldn’t have been created

Siddhartha Ahluwalia 09:06

Without UPI, yes

Deepak Shenoy 09:06

without UPI?

Deepak Shenoy 09:08

I don’t think that’s true. I don’t think that’s true because of

Siddhartha Ahluwalia 09:12

UPI without online KYC with KYC

Deepak Shenoy 09:14

without online KYC I admit.

Siddhartha Ahluwalia 09:16

Because there were 30 pages that were required, I think.

Deepak Shenoy 09:19

Yes. And I agree with that part, but they’re online KYC would have come anyways. It’s not like zero. But I think a lot of factors. So I’ll give you the first example. India’s first set of companies was there was a company called fab Sr. They were the first online brokerage all brokerages are offline.

Siddhartha Ahluwalia 09:40

ShareKhan used to be there

Deepak Shenoy 09:41

ShareKhan was the second, I think a second or third. There was another company called GEOJIT securities still listed and available. It’s it was also one of those things because ShareKhan was a puzzle traditional broker called SSKI. Kanthi Laal, Eshwar Laal They all created an offshoot called sharekhan and a bunch of investors Got and all that. Few other companies also came up. And this was in 1999. They were offering much lower cost per trade 1%. Can you imagine 1% was low. Today people were flat 20 rupees per day at that time, it was No. So then as the Zerodha started in 2009, by that time, there are a bunch of others. So,

Siddhartha Ahluwalia 10:23

And you were actively investing flash trading back then,

Deepak Shenoy 10:26

from 2003 onwards, I think I’ve been more or less active to hold this up. And I didn’t know what stocks were really so I mean, a little bit here and there, but nothing more. The smart thing that was happening over the next few years 2006. If you believe it as a percentage of GDP, more stocks were traded in 2007. And they are now. So we think stocks are popular. But they’re not. That time, the amount of popularity of the stock market was much bigger as a percentage of GDP. To give you an example, that time you should trade maybe 30-35,000 crores per day. Today, we trade about 80,000 crores a day 2007 To now is about four to sixteen years, in 16 years, the economy has more than tripled. Yet, stock trading is just about a little bit more than doubled. So in effect, the stock markets today are less popular with just that we feel that way. UPI I’ll tell you a lot of the technological changes came NSE itself was a completely online brokers there was no flow, online trading exchange, brokers that embrace that eventually figured out that you don’t need to be in Bombay. That’s when IFL, ShareKhan all became popular. When it got around to the rest of India, you still need a terminal.

Deepak Shenoy 11:31

The real thing that changed for India and not just trading pretty much everything was one company. And when I own it, it’s Reliance jio they brought cheap and very, very quick big bandwidth to India at a relatively easy availability and easy low price. This change the game, because earlier you couldn’t stream data because people does not even have speed to stream it(Speaks in Hindi). And then the cost of trading was falling every year because what was happening was with electronic stuff, you needed much lesser everything, infrastructure this and that all this stuff. So people like Zerodha and not just Zerodha, but a bunch of others when I know Zerodha I know Nithin from before he started Zerodha and I know how you know, I remember he is passionate about starting something with this fixed amount per order not per trade, not per share concept. This was something that he had thought about in 2006 itself, boss this will happen, I met. You know at that time he was working for another brokerage called Reliance Sigrid, he had his own sub brokerage of Lance securities, and Reliance was charging per lot of options. Now, he said per lot doesn’t make sense, people have to make a lot of money before they get profitable. So he was like, if we charge it per per order, then they can get profitable at a lesser fee. So to his credit, that thing changed industry and the industry in the options industry today is at least 500 times what it was in 2006 Undoubtedly, but the share trading thing over time because of lack of reduced reduction of leverage. And a lot of other aspects. People don’t Trade stocks as much as they used to. I think

Siddhartha Ahluwalia 13:40

what about investing in stocks?

Deepak Shenoy 13:43

People say, so people invest more in mutual funds now than they used to earlier. But you see even mutual funds, the SIPs are up to about 16,000 crores a month, that’s $200 billion investors take out $100 billion. So the total net investment is 8000 crores This is nothing. To give you an example of how crazy it was in 1997. In the US. They were talking of US investors investing $500 of billion dollars a month into stocks. This is 25 years back, we have not yet reached those errands in mutual funds. So I think you know, that is that is 1, 1, 1 Interesting. You know (Inaudible) maybe, of course, people investing in stocks, and we will invest in mutual funds are a separate, so you should consider the capital separately, but I was just telling you what I’m talking about the final billion dollars in US mutual funds and ETFs. We’re still nascent in that in that context, but I think a lot of the small small things going COVID They said complete online KYC digital onboarding. Fantastic help the brokerages who are online, hate the brokers that are offline or destroyed before that UPI came in and said payment Instant Payment. But it wasn’t there, It wasn’t there in 2011. And I had brought Zerodha account from one of the early days, we were getting, we were able to do any FD transfers and any of the transfers to Zerodha would get reflected very fast. So earlier just we take one day and then now it was out almost instantaneous. As soon as you do a transfer, if you’re in HDFC, you will, but what changed about that any of these completely free. NEFT’s available? 24/7 Yeah, this was not true earlier. This was changed by RBI very recently. In fact, the fact that NEFT is free is a isn’t RBA making. Otherwise banks were charging five rupees, 10 rupees per NEFT. Now they don’t, they’re not allowed to NEFT’s free RTGS is free. Both are 24/7. Of course, UPI is free so far. And that’s also the thing. So yes, these I think innovations help.

Deepak Shenoy 15:38

But it was not just that there’s a bunch of things and I think incredibly leapfrogging things compared to the US, which is why India has the cheapest stock trading in the world, and the cheapest payments systems in the world period. And the bigger responsible player for these I think is the telecom industry Reliance and Jio in particular who came and slashed rates. I mean, like, even I go back now, one hour screw an hours drive, I don’t worry that I will not be I just have to connect my laptop to my phone. And I will work as if I could watch a Netflix movie. And I know that it will not glitch it will. If you lived in 2012 This would be like a dream, your child will know streaming beyond streaming. I mean, we’re the into the 1999 there was no 2001 there were there was this company called the it’s what is what a Vodafone was called Hutch. And when there’s a cricket 6, 4 They would send you 10 frames, grainy image frames of this person hitting a six. So it was just 10 frames, you had to play them one after the other to play as an MMS. It was that bad. You couldn’t imagine working out of this, this this setup. Now it’s seamless. So trading working people are doing this, even if you’re a security guard at an airport, you’re doing trading. So, you know,

Siddhartha Ahluwalia 17:17

you think of the major factor was Jio a lot of small factors combined.

Deepak Shenoy 17:21

A lot of small, small, small small factor I couldn’t even enumerate them. So trading itself I don’t know if you’re familiar with the brokerage industry, but the brokerage industry itself has gone through a lot of changes. There’s something about T plus two settlement you know in 90 before 1984 It was a t plus 14 settlement. That means if you bought something today you would get the shares in your hand 14 days later in t plus two it is if you pay today, you will get your money two days later because you could place a trade today pay tomorrow and get the shares day after tomorrow. That was the idea. Then there is a there is now just become a t plus one and a T plus zero. A t plus zero means the same damn I am paying, Yeah. And currently you get the shares in the next day, but there’s no reason why you can’t get it on sundays. So these this has changed margins earlier margins had to be posted much later so the system was at risk at some point. So now margins will have to be posted much earlier helps the online brokerages because in the online brokerage if you don’t have the money in your account, you can’t even trade so they can post the margins instantly and the exchange now more than happy he has margins then do the trade( Speaks in Hindi). I don’t know trust you this earlier funder who I trust him Kanthi Laal, Eshwar Laal He’ll be fine. When you have a system like this, it is much more reliable a lot of other advancements in the technology itself. One interesting thing was a fight between NSE and a company called FT, FT is financial technologies they built the core software for brokers it was called Odin or some other Odin i think and if you had an Odin license then a brokerage would typically take an Odin backend license you know front end license and give. Now what happened was NSE had a fight because ft wanted to create its own stock exchange okay called MCX SX. So, NSE said all our brokers are using this FT thing we need to have some kind of alternative. So what do you do? So you go and finance a company called Omnisis and say keep up FDA competitive we will give you money, you just make our software make please make more popular. Zerodha was born right when this mess was happening. NSE decided to take Omnisis make it free for all workers. So for the first four years, Zerodha did not need to build front end software at all because they got it free from the exchange not for three years. Then in the end NSE Belike your getting it for free, we are paying around 500 per month, this thing. So then they move to an Omnisis module called Nest then they build something called KITE by this time there. I think K had joined them and they built it out. So this was Series of providence and what also happened in this process SEBI was like you wanna do online trading then do it, wanna set password do it, wanna set fingerprint do it. So you don’t have to remember usernames, passwords you could do online could do this, you could do that. All these rules relaxations and changes happened over the process tiny diamonds and things they kept on Increasing . Today, by the way, where’s all the volume or it’s all in options, earlier options to trade once they still have an expiry once a month, last Thursday of every month. Today, there’s an expiry every Monday, Tuesday, Wednesday, Thursday, Friday, you can play options like you play in a gambling casino. And it’s traded like casino, unfortunately. But because the rules allow these new products to come and everybody wants to play them. Even the exchanges love it. So they keep Duhh. Creating more such products and they want more such product for trade in the Indian market. So there are people who just took today for instance, raise Tuesday Tuesday’s I think some people are Fin nifty, financial, nifty, expired, it doesn’t matter. It could be potatoes will people will trade it if you’re if it has options. And if the options are against potatoes or peanuts or onions, people will do it. That also helped. Because you had the proliferation of new kinds of products, which anybody could access for as little as 1000, 2000 rupees as well. You don’t need a license to trade in the AMA. In America, if you want to trade options, like the way you trade in India, you can buy options, but you can’t sell options unless you either pass a test or have $25,000 that those set of rules don’t apply in India

Siddhartha Ahluwalia 21:35

In the last two years. Right. Since we recorded the first one, what has changed in India 2021 to 2033.

Deepak Shenoy 21:42

Since then, a lot of things have changed in India itself. Of course, you’ve seen Ukraine war India benefiting relative to other countries, relatively speaking, or inflation, or macro or government finances, a lot of the macro economic stuff has changed in our favor. And I think also you’ve had a right day of reckoning, perhaps of the whole, say the startup industry in terms of funding, availability.

Siddhartha Ahluwalia 22:09

Large of exit, right? There was a one Flipkart and now Caratlane.

Deepak Shenoy 22:13

Now Caratlane was fantastic. In fact, I think I was reading about it today. And I was very impressed with I mean, he stuck to his guns, he, when he sold it, I think it was a fraction of what he eventually..

Siddhartha Ahluwalia 22:26

Tell you an interesting story right before he dive. So we interviewed within three, four months back, we went to Chennai interviewed him on the podcast, he told us that when caratlane, you know, was acquired, he was thinking of maybe quitting caratlane At that point in time, you can imagine right? The 20 to 7% that he sold for 4500 Yes, Crores right wouldn’t have happened. And then he went to Rakesh Jhunjhunwala. Rakesh Jhunjhunwala, is mama and uncle. Rakesh told him if you can compound it 40 to 50% year on year that’s like you have been doing believe me seven to 10 years, you would be a different person, but just stick to it.

Deepak Shenoy 23:10

And Rakesh is a big, big fan of Titan as well. So I think what also I think one of the things that Mithun did was he made Caratlane in such an interesting part of Titan that people are valuing Caratlane independently from Titan at least in the public markets saying that yeah, this is a brand. So that doing that from the point of view of saying you because now you don’t have any other exit,

Deepak Shenoy 23:22

The only exit is that Tata buys you out or Titan Titan buy’s you out the end, you know, traditional Indian businesses, they don’t tend to give you a great valuation.

Siddhartha Ahluwalia 23:47

I think Tata has created a different playbook for Tata has acquired four to five companies, majority, one MG, bigbasket, correct. Few others. And they have this model, they own 60 to 70% of each company. And they want founder to run it for some point in time. Your fit, right, right. So Mukesh is now in New for coming out of your foot, but it’s a well oiled machine. So the aim is to take each of those units public, I don’t know whether this unit will go independently.

Deepak Shenoy 24:13

No, no, no, it won’t. Because nowadays it absorb the chain of Titan, which makes sense. But I think, also even this, this has been a weird ish kind of things. What happens? Let’s say you’re a startup and you get 20% investment from a company, but 20% is okay because 20% May you you don’t have to say that, the person will not have too much of a say, if you get 50% investment from a company, that company becomes your exit, unless that company is in investment. I’ll give an example. Zomato had an Naukri as an investor Naukri was to the extent that when Naukri’s conference calls were on people were looking at Zomato and saying we need your (Speaks in Hindi) conference calls so Zomato was like we are not public so we don’t care you know, Naukri owns more than 50% in you effectively a subsidiary and there For we should, we should know. So there was a bunch of phone calls and conference calls on screen at that time, eventually now Chris, holding fell because Naukri isn’t an investment company, it’s not really an operating company. In caratlane Titans case, there was no other suitor available for so it had to be absorbed by Titan the smart thing that they had done. And I don’t know whether it was Mithun to the bankers, but they carved out clauses on valuation that when you do buy us out, this is the valuation at which this is the way to calculate the valuation, they did come in with a really lousy valuation earlier. And apparently we didn’t I mean, I don’t know, this is very good news article that said, this is too less. And then they went back, they did a bunch of calculations. And I think 70. 17,000 rows is a good valuation, but it is less than what Titan is getting on sales right now. Yeah. So they are Tritons getting about 10 times sales

Siddhartha Ahluwalia 25:55

This is Caratlanes sale are in 2500 crores and 27

Deepak Shenoy 25:59

Exactly. So if you’re given a 10 time sales, you should have added the company 25,000 crores 25,000 to 27% is what 8000 crores sales so 7000 something 7000. So, you got 4500. So obviously they valued at lesser than they they were valued in the market. But he Yeah, people are paying for TATA brand ths that, and all that. So you’ve got pretty world better valuation. And I think had he waited more the earnings would have actually gone to 3100. But you know, I think then it will be difficult for Tata to have explained but I’m I’m honestly thankful ever seen Tata and Reliance. Earlier were known to be brands that didn’t pay. Now both of them are paying

Deepak Shenoy 26:41

Reliance, stilll have doubt about whether they pay or not.

Deepak Shenoy 26:44

No Reliance I mean, I know people who’ve got money from it. So for instance, there been at least I think 10 or 15 companies that have been acquired on the JIO end Reliance retail has invested in a bunch of companies where they own 40 50% 50% of Manish Malhotra 50% of a bunch of fashion brands. They always end up paying. Now what the what they’ve done is also done a lot of distress by slack, Uber LADAR, their Milk basket, the issue there has been you know, they make an offer, and then the whole give you the opportunity, when you’re in distress, you don’t have too much of a position to stand on. Now, unfortunately in India, what happens is there’s a little bit of ego goes on also. So everybody’s like, yeah, if I select this valuation, what will happen to the startup ecosystem and all that. So people keep telling me this about say Byju’s bad news, Indian ecosystem what will happen. But I think that doesn’t matter Byjus is an independent company. If they have done something bad, then they have done something bad. Why should we blame the Indian Startup Ecosystem? So but that is that that ego problem thing has an issue, because what happens is then VCs also will prefer to merge their companies rather than sell a distress valuation.Better valuation than this is that you bring it here, I will convince my LPS we’ll give them stock in this fund and all that. And we’ll do a cross buyout just happened two or three times in some cases it failed. When when when similar VCs have tried to bring down bring a company into the same problem, they do the same business. That also I find surprising those VC investing in two companies were competing in the same business is a conflict at some level. But you know, it happens. So it happens very often in public markets were in public markets if your , if your investing in me (Speaks Hindi) public company, I have no reason to tell you everything that I know, your board seat, or ask you for permission what should i do or something unless

Siddhartha Ahluwalia 28:45

Unless you own the majority of that company.

Deepak Shenoy 28:46

And which case its not my company. It’s like, you know, it’s very clear that control is control management is management. But if you want 20%, I may give you a board seat I may choose not to because of the relatively public nature of markets, I have even more information now that it’s actually surprising to me why most startups don’t go public at an earlier stage. But that’s also because of the valuations. Nobody in the public market will pay those valuations only

Siddhartha Ahluwalia 29:13

Take for example Traxon we talked about right 60-65 crores of revenue 800 crores they listed, and they have oscillated between 600 to 900 crores of valuation, which is decent right and as the company grows, the market will value the more

Deepak Shenoy 29:28

I would say using a revenue metric alone is not very useful at some point the company is profitable. So, a photo 65 crores the guy earns a profit after tax of say five or six years, then 800 crores a little rich unless you have a way to compound that 65 crores of revenue into say 400 crores of revenue. And because of economies of scale, you’re able to increase your margins net after tax to say 25% which means you get 125 Crores and profits. I’m willing to pay Say 30 times for that. So that’s 3700 crores. So I don’t mean paying read 800 crore valuation today, if I can get a 3700 crore valuation, say four or five years. Yeah. So if there is that as a hope, then I can do this. But if there is no way to demonstrably increase that 65 crore revenue to 500. And that could be because he starts and for instance of the startup ecosystem, because yeah, and it also VCs, serves PEs, they, that market has an inherent limitation in size in India, per se. Yeah. Perhaps in the US also, I mean, unless they’re doing well, right, this thing. But there’s also the fact that this is an inherently cyclical business, you reach an upcycled in VC investments, you get a certain amount of business, when the down cycle starts, your customers will start telling you that they do not need a license (Speaks in Hindi). I heard this recently, a company that I know was selling SaaS software to a bunch of Ed tech companies. Because Byjus acquired a bunch of edtech companies, byjus effectively had eight license, okay. For two years, they didn’t care. Like now, when there’s a funding crunch, somebody’s gone into numbers, and why do we need 8 license we need one license for our company. Yeah, you pay per seat anyway. So why do you need to pay eight license renewal fees? So this company saw my 80% loss in revenue from Byjus? Simply because they figured out that they don’t need eight licenses, right. So it’s a very interesting change of scene. So this kind of stuff does weird things to revenue, so for attracts and also where there was a VC fund that would automatically around say, buy maybe three, four. Now, they’ll be like lets take one license and start doing it (Speaks in Hindi). And it’s not cheap. So we pay for Bloomberg in the office, for instance, we have like we need one license .

Siddhartha Ahluwalia 31:51

will be between 10-15 lakh rupees?

Deepak Shenoy 31:53

It’s two lakhs per month or three lakhs per month. That’s, that’s the going rate. But I do know, people who used to have one Bloomberg terminal for every fund manager and analyst and all that stuff. Now, because when this round done, they will automatically be calling of this. So the same company, which had five licenses will come down to three. This is a problem for Bloomberg. But they know that it’s a cyclical business, or is it Bloomberg is near private business, so it’s not. So it’s very interesting. So So a company like Traxon, will be valued according to these parameters. The problem is, the private world doesn’t take it that way. Yeah. The private world tends to value a lot of different things compared to the public world. Like I was in ,we were in Goa together and I was on the panel and I was trying to talk about, you know, when when one company acquires another company. In the private markets, it’s usually a structured thing that people talk about Synology and Deal, In public they ask if its a fraud or something, so because lot of fraud happened in acquisitions and mergers. So first thing is to identify whether it’s a fraud, but then second one is to identify a key who’s selling to whom, now in the public market, it’s very easy to say Zomato will invest in or even the private market. Zomato will invest in Blinkit. Public Market that fellows wife is working as this thing this is a conflict of interest.

Siddhartha Ahluwalia 33:19

You were also an Angel investor for Blinkit.

Deepak Shenoy 33:20

So yeah, how was this conflict resolved, as a public investor, I have every right to ask questions. And we ask we, we, we will go crazy or asking some of these questions, and you are directly to the management. So yeah, of course, he goes, Well, how is this so for instance, one company in which the promoter was merging all his private companies into the public company, okay. The first sign is that, what is he doing?(Speaks in Hindi), then we saw the valuation wasn’t very high. Why is he doing this? So, two things came out first, that this company had this promoter created a bunch of companies, one of them was public, or two of them were public, but the rest of them are all private. Yeah, they all worked in the same kind of sector. The impression for this could be that whatever income is coming hes diverting it in to business (Speaks in Hindi), you could do that. But this guy wasn’t doing it with a really small companies in comparison. So the question then was, can all these questions with companies be eliminated? Here I can’t eliminate them, whatever income comes (Speaks in Hindi) I’ll bring it to the main company. we’ll merge it in a company. We’ll get small but nice valuation. but won’t be meaningful valuation, so by getting our 1% extra off the company by doing something like this is fair. So you realize thing on those perspectives can say, promoter is saying that I don’t have any more distractions. I don’t need any of those things. Now I’m bringing it together. This is rare, but less rare is that. He’s buying a company just there was a company I won’t name it but They got a they were bought out by Schneider not borrowed recently, there was a division of this which was borrowed for by Schneider for 500 crores, company’s market cap is 300 crores its a very good share has market cap of 300 and cash is 500 and if you give a tax 500 rest 350 and 350 is more than market cap and business is also left( Speaks in Hindi), this company decided that it will merge with its founder co promoter guy company, that promoter company has nothing but they merged it they want to merge it 50-50 valuation that means half half giving the same valuation is so people went and said What is wrong with you guys? How can you value a company 300 crores when he doesn’t have any business. So then eventually, some people had to threaten that we will sell the share this and that (Speaks Hindi) and other for that company to reverse it. Because that is what happens in the so in a private market transaction, you may not look at things in the same angle, you don’t look at conflict of interest in the same way public markets to which is sometimes unfortunate, because private markets that same and now we’re seeing even worse forms of corporate governance. Blatant PF wasn’t given they kept it to themselves, GST is the company who, you know, they have given some if your Hiring directly hiring but our own(Speaks Hindi between). Your wife runs this thing company, recruiting company over his brother on the recruiting company, and you redirect revenues. This kind of stuff is it’s just ugly it when it happens in public companies with pure distasteful It grounds it hasn’t happened. We have seen HR scams in the biggest variety, Satyam was a companies was not what was was a straightforward fraud. ( Inaudible) he falsified Yeah, but there are lots of small small things purchasing managers will go and you know, ask for a bribe to get equipment. The question then, is the question isn’t that if it happens because it happens everywhere (Speaks in Hindi) . But what happened with management finds out what do they fire the people involved to keep? So a lot of the good IT companies will have no room. Which means the minute you find out you’re fired, Intel was very one famous Intel is insane about this stuff. So they conduct investigations on their own employees. When they disk when they find that something’s happening in, Somebody was in US , I think they they found that this guy was stealing gold

Siddhartha Ahluwalia 37:18

Before we dive deep into this right? I want to ask what financial influence is ?or see, you are SEBI registered PMS?

Deepak Shenoy 37:40

Yes,

Siddhartha Ahluwalia 37:41

I’m a SEC registered in the US venture capital fund. Now there are these financial influencers who used to sell protein shakes on YouTube, right? And how they call themselves finance influencers. They were selling protein shakes two to three years ago, like how do you build muscle mass of 9% 10% kind of stuff, right? And now they’re selling by the stock buy that stock by Vauld. So this is very strange thing that is happening in India. And one person commented on Twitter that financial influence financial influencers will make their followers bankrupt

Deepak Shenoy 38:17

it’s entirely possible people who have suggested by Vauld for instance and Vauld has gone bankrupt effectively you made your customers go bankrupt if they’ve invested all their money in one thing. It is a problem in the sense that we have a freedom of opinion freedom of this thing. So nobody can say that if i say,(Speaks in Hindi) on that I use Ponds and my skin got better. You should also use bots that seems to be fair, because you have the knowledge and the ability to understand to say he used wants his whatever but if I use it may not be and I will test and blindly they will not follow Deepak Shenoy, for some reason this twist to the financial world where trust is almost given so

Siddhartha Ahluwalia 39:03

the whole side is so much right, if the ponds cream doesn’t work no issue(Speaks in Hindi), worst cases I’ll show to a dermatologist financing

Deepak Shenoy 39:11

financing but finance influences also my my go to is 2 things. I mean, of course I agree that people should be careful when giving such advice and we should you should call out people when they’re giving bad advice. It’s perfectly fair. Anyone who says today that buy this share( Speaks in Hindi) you will become rich that for be banned or not banned, but there should be investigative action like what are you doing? (Speaks in Hindi) Are you just saying this because you want to dump the stock on somebody else. But I think that the action post should determine whether you are being malicious or not. Which means if I am telling you to buys this stock and you buy it and also it goes up , but iam not selling it then(Speaks in H)indi. I’m not profited from it meaningfully or whatever. Then what is the problem?

Siddhartha Ahluwalia 39:42

There is a problem, Mr. Beast, right? He’s the largest influencer on YouTube. Yes. With 100 million followers. Yes. Tomorrow he says this is XYZ company, or XYZ token of crypto. I’m investing in it 100,000 People will blindly..

Deepak Shenoy 40:14

That is there problem. Why is it Mr. Beast problem? Why should he be responsible for say telling everybody what they should be investing in versus telling that? Look, I invested in it, you’re watching my video I am not forcing you to(Speaks in Hindi) Right? And I mean, at what point do we say that? Yeah. Okay. So if so, for instance, the Prime Minister of the country says, I am buying Indian goods. I’m not buying foreign goods. Does that mean ?. Yeah, that(Speaks in Hindi) now all foreign companies should complain.

Siddhartha Ahluwalia 40:44

My point is, is Mr. Beast, you know, when delivering a financial advice, right? In, in a sector, for example, what is he qualified? Or is he licensed to do that?

Deepak Shenoy 40:56

Siddhartha Ahluwalia 40:00

There is a problem, Mr. Beast, right? He’s the largest influencer on YouTube. Yes. With 100 million followers. Yes. Tomorrow he says this is XYZ company, or XYZ token of crypto. I’m investing in it 100,000 People will blindly..

Deepak Shenoy 40:14

That is there problem. Why is it Mr. Beast problem? Why should he be responsible for say telling everybody what they should be investing in versus telling that? Look, I invested in it, you’re watching my video I am not forcing you to(Speaks in Hindi) Right? And I mean, at what point do we say that? Yeah. Okay. So if so, for instance, the Prime Minister of the country says, I am buying Indian goods. I’m not buying foreign goods. Does that mean ?. Yeah, that(Speaks in Hindi) now all foreign companies should complain.

Siddhartha Ahluwalia 40:44

My point is, is Mr. Beast, you know, when delivering a financial advice, right? In, in a sector, for example, what is he qualified? Or is he licensed to do that?

Deepak Shenoy 40:56

Does he need to be on are on the kind of thing that says I am telling my world I have bought X? Yeah. You may consider your advice. I don’t care. My point of view here is I don’t condone this. I mean, you can, if his plan was to mislead investors, I agree. If his plan is to say this and when they buy it i will sell it (Speaks in Hindi), and then that way, I have managed to manufacture an exit for myself. I am okay, that. So the action that succeeds the statement determines whether you’re a guilty party, I’ll put this statement on its own just because Mr. Beast said it you bought it what does that mean (Speaks Hindi). Now, otherwise, you’d say that no celebrity should ever be asked allowed to talk about any stock. So if I go and ask an Amitabh Bachchan, sir have you ever bought reliance stock ? yes then(Speaks in Hindi) immediate? Well, okay. So you can see that I think the action needs to be justifiable, justifiably malicious, or provably malicious. To the extent that it causes the Constitution market, the view of a regulator to say key, everything you say is illegal. The thing is,

Siddhartha Ahluwalia 42:13

regulators are clamping down on all the

Deepak Shenoy 42:15

regulator cannot even the US clamp down is a statement, because the SEC rules will, they may be hard or tough, but I don’t think they can go beyond freedom of opinion.

Deepak Shenoy 42:08

For instance, there was a I know about two years ago, maybe probably a little bit afterwards, or before when we discussed the last time there was this massive scene around this Gamestop, Gamestop was a bunch of people on a Reddit thread, buying up that stock buying up buying it up like crazy, and telling each other that to buy more the short one (Speaks in Hindi) the people who are gone short will die. And yet, people who are in this Reddit group were called to Congress to give testimony, and the guy who gave it gave testimony at least it’s like no, I have I never told people and he didn’t of course he is he was always raving about the fundamentals. But he would always put key I put on $1,000 Now it’s become 400000$ and tells me I’ve got 300,000 Now I sold $50,000 He would look put every of his statements, but he would back it up with I like this company. This is what’s happening. So when they went when he went on stage, they they asked him to grill them. And there it’s not the SEC. It’s it was the part of the Congress, members of Congress that were asking questions, one of the questions was, did you actively people tell people that short people will die therefore said No, I never said that. I don’t care about the short. The people who did make those statements. None of them want to restrict maybe some we have this thing. But the point is, this is free speech. Right? You can’t go beyond that free speech. If your speech is followed by a form of malicious action, then that malicious malicious action can be question question. But I think just the speech part, just to be able to say key, Mr. Beast said, but I think it’s a problem when we create a trust deficit. So one of the things that I do have a problem with is bankers, selling bad financial products to old people even if you speak to most of the financial influencer’s (Speaks in Hindi) . Is you Ulips and all that shit the stuff that is toxic and sold on by old people. That should require a jail term? Yeah. Because now you’re acting maliciously because for our own commision your spoiling somebody else’s retirement (Speaking in Hindi)and that is a bad thing. But that is because the action is malicious. If my banker tells my mother, you should buy this product, whether you buy it here or you might somewhere else it’s doesn’t matter but you should buy this product. I don’t consider that a malicious action if she’s she’s inky you Oh, you you’ve, I can go to any other online site and buy it out here you buy it, because I’m telling you that it’s worth buying for you, then I don’t think that is malicious, even if, you know, if my mom is old, whatever, because she can make that decision, she will call me saying this thing and all that stuff. It’s when the abuser tries to say from me only you buy right now you buy, don’t talk to anybody. So my mom used to call me, and then I give one hearing to the bank, then they never talked to my mom once again—

Siddhartha Ahluwalia 45:14

Coming to this incident, right? You mentioned a lot to it sometime back that your mom had few rent, like real estate investments. And in one of those properties, the tenant refused to pay after first month. And then it took you two to three years to evict that tenant. And it’s been crazy, right, right. investing in real estate and you stopped investing in real estate. Also.

Deepak Shenoy 45:54

Yes, I’ll buy a house for my own living. But that’s like buying a car. It has nothing to do with investment, but allows me to invest in real estate I won’t do it. So I won’t buy a house to rent it out and all that stuff. That stuff is just I mean, we went through this whole thing where

Siddhartha Ahluwalia 46:13

Can you tell us more about it?

Deepak Shenoy 46:15

The I mean, the person rented it was not I mean, he was he was relatively old person. And relatively old means he was maybe about 55-56. Yeah. And after the first month, he refused to pay rent, I called him up. I said, you’re not paying any rent. He said Don’t talk to me talk to my lawyer. So then we should, then I had to call a lawyer. Friend. It took us a long time because everybody who’s in this gets, there’s a there’s a sequence of events that happens. You have to file a case it has to be accepted. First of all, once it is accepted, there are lots of things about acceptance. Also that is this agreement. Even valid is this was a rental agreement. Now luckily for us, there was one room that was paid. If that person or not even paid a single rent, it would be difficult for us to establish that there was a rental agreement between the two. There was a there was a rent that was paid, and then a bunch of things. Then you go through a hearing and then you go through cross questioning and a bunch of things. Each of these things, requires physical visits. If one party doesn’t show up, there’s an adjournment

Siddhartha Ahluwalia 47:21

That guy showed up for any of it?

Deepak Shenoy 47:22

They showed up for the first hearing, and maybe one more hearing the middle. But never after that. Their lawyers to come and say My party is not here. We’ll find for Adjournments, so that you can get up to three adjournments each time. So every time the adjournment happens, then the next sequence of things happens, which also gets three adjournments. But at the end of it, it’s like, it was two years and luckily for my mother, and we’re lucky because it was two years. But luckily for my mother, she would go and visit on every single hearing. Typically people don’t go.

Deepak Shenoy 47:25

What a torment.

Deepak Shenoy 47:56

Yeah, it was it was a pain, but she was very frustrated. She was like, I’m not going to give this up just because. So when she finally the time came for the order, the judge actually said listen, this is my last order because I’m retiring or not retiring, I’m being transferred. So but I will give this order before I leave, I think you have been oppressed and therefore my order will come the she gave the order. But after the order then another judges to sign us different something that you are afraid that judge will say No no order is fine but(Speaks in Hindi), I want to hear the whole case again. Luckily, that also didn’t happen. We got a whatever that was thinking. And then we went and we by the time we reached the house, this person had scooted the day before. He obviously this is a known offence, there were three other people who had done it too. And each of those cases similar things happen. Then we tracked him down. It spent a year trying to figure out where he is because he owed us rent. The deposit was not enough to cover obviously. So we had a court order we had a this thing what do you call that thing. And you so you don’t get to get arrested for something like this. It’s apparently something else where you can call the person to the police station, but you have to take the cops there. And the police are like you’ve seen all this before you’ll never catch the guy whatever you do than when we found that he living here. They were also surprised their daily is not reflected the coolest thing though. So we went there we saw the cops given a you know, a written letter notice on them. So it was messy. It’s just that you’re dealing with stuff you don’t want to deal with the stock we go over dividend didn’t come then later email them and dividend will come (Speaks In Hindi). Well yeah, at best, maybe they’ll send to send photo of Pancard okay. But here You’re dealing with like going to a court sitting in a bench, which is, you know, the criminal cases happening next to you this that all that. It’s not that it’s not very pleasant. And I mean, it’s like, in a way, you know, sometimes if you’re if that is your business, that’s what you have to do. Business has good and not so good elements. But Real estate is not our business. If anybody wants to do it, do it( Speaks in Hindi). You can do anything and make money in the country. But it’s not for us. I will not go into real estate, for making money. I’ll go to Russia for living, go on buy a House (Speaks in Hindi), find nice walls, it’s your own house, you can do what you want. If you’re in a rented house, it’s more difficult to do things with as much feeling of impunity that if I want to break the wall, but in rented house you can’t in your house you can. Most rented house you can, but still (Speaks in Hindi) but for the most part, you get a little more freedom and that freedom is worth paying for. It’s like having your own car Verses an Uber night 12 O clock I wanna eat an ice cream but there’s no Uber(Speaks in Hindi), you know, I just want to go on a drive just I love driving. So I would always buy and own a car. In same was I will own, I’ll always have one house to live in. But having multiple houses and people do it they have fun but not me.

Siddhartha Ahluwalia 51:27

Whereas India market is compared to global stock markets, if you have to say

Deepak Shenoy 51:30

So, we are the largest single stock futures market in the world. We probably the second or third largest options market in the index options market in the world in terms of number of contracts, not in terms of market size volume, but the whole of India, stocks, trade roughly 80,000 crores so anything less than about $10 billion a day. $10 billion is what Microsoft trades in three hours. So in that context, we are really small and many of our companies are really small to give an example. largest companies Reliance, Reliance about $250 billion, $250 billion is smaller than just add Amazon and Apple. The market caps are greater than all of Indian listed companies combined. We are small when it comes to that perspective. But they’re not very small in terms of like, okay, we could compare us to say, I guess some of the smaller stock exchanges in Belgium Stock Exchange you know, something we may we

Siddhartha Ahluwalia 52:26

I’ve never heard of Belgium stock Exchange (Chuckles).

Deepak Shenoy 52:28

So none of the big ones so we are smaller than the DAX, the footsie the the French stock exchange the it’s called CAX I think they’re smaller than Well, Singapore is very complicated things will not always go

Siddhartha Ahluwalia 52:40

People don’t go to Singapore but the popular stock exchanges in the world are like New York Stock Exchange and after that London Stock Exchange after it is Hong Kong…

Deepak Shenoy 52:47

So New York Stock Exchange, the NASDAQ and the Chicago Board of options. CBOE. These are three of the most popular ones. Then there’s the UK one when the footsie trades, the DAX in Germany, there is Nikkei in Japan. Then there is the smaller ones like there is KOSPI in Korea there is a STX in Singapore—

Siddhartha Ahluwalia 52:57

But is there a possibility that global companies would one day list in India because of the work like Indian entrepreneur aspire to list in the US on NASDAQ. MakeMyTrip listed on the NASDAQ and it was such a proud moment. Freshworks listed on NASDAQ. But do you see at some point in time, the Indian markets can offer so much depth that—

Deepak Shenoy 53:35

So I think even Rediff listed in the US but I think that’s because liquidity was there. Wherever there is liquidity there’s demand to list. And some of the liquidity reasons were MakeMyTrip was non-profitable. At the time MakeMyTrip listed non-profitable companies were not allowed. Now they’re allowed. Zomato, Naukri… Sorry not Naukri but Paytm. At the time that they were listed, FreshWorks chose to list in the US because customers were there. And the customers were the ones that matter right. In India, who knew about Freshworks? If Flipkart chooses to list, will it list in India or the US—

Siddhartha Ahluwalia 54:08

I think it’s very rare because it’s $40 billion dollar Indian Titans over 70 billion. HUL is worth 70 billion. How can a Flipkart worth 40 billion list in India? (chuckles)

Deepak Shenoy 54:18

Let’s put it this way. The 40 billion is a figment of someone’s imagination.

Siddhartha Ahluwalia 54:22

Because it’s getting reinforced again and again right after Walmart bought it right?

Deepak Shenoy 54:27

So Walmart bought more of it at 40 billion. So Walmart values it at 40 billion. But that doesn’t mean Indian market values it. So it’s like, you know, a lot of startups have this problem because one guy comes in buys 10% of this company.

Siddhartha Ahluwalia 54:42

It’s not a VC right? You have to remember Walmart is one of the largest public companies in the US. And they can’t play with their money to markup their investment.

Deepak Shenoy 54:54

That’s a good point. But it doesn’t mean still that the company is valued at that much because they valued it

Siddhartha Ahluwalia 55:01

And Flipkart is still… PhonePe became an Indian holding company. Flipkart is still a Singapore HQ company. So I don’t see a possibility Flipkart listing at least in India.

Deepak Shenoy 55:12

So the problem with Flipkart listing not listing in India is nobody knows Flipkart outside India.

Siddhartha Ahluwalia 55:17

Yeah. That’s the challenge.

Deepak Shenoy 55:18

If Flipkart goes and lists in the US. You will find some people who know, but you’re effectively your suppliers, your customers, your market is… Everybody’s in India. So the chances of you… I feel that’s one thing that happens, but I think also the foreign companies listing in India, they already do well. Honeywell US has a Honeywell India subsidiary—

Siddhartha Ahluwalia 55:38

No but they do an Indian subsidiary listing right? Unilever at HUL, but I’m saying like the Alibaba from China did the listing in the US.

Deepak Shenoy 55:50

In the U.S. Oh, that’s different. I think that’s also because the US market offers liquidity. India does not offer liquidity. India does not offer… See the problem with this is if you list in the US, you can get dollars and you can bring them to India. If they list in India they can raise rupees and they can’t take the rupees, so what’s the benefit? Who is going to list in it then? So unless you have an Indian arm that needs to be listed I don’t think we’re getting listed. That is my view. So there was a company Standard Chartered had Indian Depository Receipts against its UK shares but over time they kind of removed it off.

Siddhartha Ahluwalia 56:14

Where I’m heading is can Indian liquidity market in the public stock market can be rich enough, right? Everybody like for example startups right, are incentivized to list earlier in their journey.

Deepak Shenoy 56:44

They can list even now. There are five crore companies with 5 crore revenues who are listing.

Siddhartha Ahluwalia 56:48

That is in the SME Exchange. (chuckles)

Deepak Shenoy 56:51

That’s fine . I’ll give you an example. There’s a company called E2E. E2E networks. It’s a startup. It listed on the SME exchange and now it’s a 400 Crore company on the main board—

Siddhartha Ahluwalia 56:59

But when they listed on the SME exchange, what was the revenue and valuation? Do you remember—

Deepak Shenoy 57:05

It was 80 rupees a share. It was less than 100 crores—

Siddhartha Ahluwalia 57:09

Of revenue?

Deepak Shenoy 57:10

No, no 100 crores was the market cap. Now they are a 400 crore market cap company. I don’t know how much market cap there was there… Maybe 60 crores and they listed. I’m not sure but they were very small, Bloom funded it. So, in fact, Tarun is a friend. So in that sense, I’m biased, but I think very interesting company that serves the Indian market and tries to give Amazon competition effectively. But not just that, it’s a bunch of other things as well. But there is, the interesting part about this is they chose to list on the SME Exchange. Anybody can.

Deepak Shenoy 57:28

The problem really is valuations. At some point, you’re not going to get the valuations the private market is giving you in the public markets, and unless at some point that bridges together, and I’ll tell you it’s happening in the US right now, almost like a slap in the face. The public markets have valued a lot of startups at 1/10 what their private valuations were. Byju’s today in India, has already seen its own valuation slashed, maybe 50, 70-80% by US companies who hold it. Who need to to value it and who’ve decided that when they go IPO, it wouldn’t go to the level they are thinking. So given that, you are going to have a problem because now you go to a situation where let’s say you have your Dunzo. Dunzo needs to raise more capital. The problem is it has ratchet clauses in the cap table. If it raises more capital at a lower valuation, the ratchet clauses kick in, and then the founders are left with nothing. Who’s gonna run that company if the founders are gonna be left with nothing? We have seen this happen in—

Siddhartha Ahluwalia 58:46

PharmEasy recently, right? The valuation went from 5 billion to 500 mil.

Deepak Shenoy 58:50

Yes. And they had to do a second issue at 500 million and now I don’t know what the ratchet clauses—

Siddhartha Ahluwalia 58:55

Yeah the founders are getting stocks

Deepak Shenoy 58:58

Because the valuations have fallen, which is like I don’t understand it because why do you have ratchet clause if you want to compensate the founder anyway? First you were trying to dilute them that, if It’s not me then it would be you, and now they are like if it’s not you then why. So yea will give you the SOP,just remove your Ratchet clause (Speaks in Hindi)everybody remove your ratchets and you’re fine. But that doesn’t happen. And because of that, I’ll give you one thing if you value a company with a ratchet new investment in let’s say $10 million in a company and you take a ratchet clause and you take a board seat and you say I have preferential access to the next round or any of those on(Speaks in Hindi) my whatever these are all rights you get right as an investor is your rights has a value. So if your investing 10 million in a company(Speaks in Hindi), you’re getting let us say 10% of the company roughly 2% Out of the 10 business for these rights that you will not get it if you have common preference equity, right. So if you give me those shares as common preference equity. I will say this, valuation is 100 million is 80 million. That 20 million you have invested extra in it, your not getting rights for it(Speaks in Hindi) as a as a public investor? Why am I going to pay for it? So public market valuations will always be lower just to compensate for that effect. Unless your company is so good that they’re saying, you know, I love it. It will just keep going up. Google had trouble with it listed. Because Google, although I don’t know if it was profitable,

Siddhartha Ahluwalia 1:00:33

Was profitable!

Deepak Shenoy 1:00:34

Okay. So when it listed, I think it was $80 a share. They want to do a reverse auction, Reverse that auction, and people didn’t like it and all that. They barely managed to slip through in the IPO. But now of course, it is history. It’s fantastic.

Deepak Shenoy 1:00:32

And also, Amazon went down 90% In year two, but luckily, you didn’t have to raise in much capital or any capital for that matter. So he wasn’t too worried. You have companies today who basically have another six months to 10 months of runway in cash

Siddhartha Ahluwalia 1:01:06

In private or public market?

Deepak Shenoy 1:01:07

Privat. Public was okay so, In private markets, you have let’s say 10 months of runway, at the end of that runway or when we come close the end of that runway. Let’s see that you choose to leave it (Speaks in Hindi)forget the runway now. let’s go race from the public markets to public markets. People keep thinking keep public Market so, people think that, if they get listed in public market then they can sell their shares(Speaks in Hindi). Nobody says that if you have listing in Public company’s then your company would grow (Speaks in Hindi). Look at all the VCs the first thing they want do is sell every of these New Age companies that have come the first after six months of locking whatever they do they want to sell(Speaks in Hindi).

Siddhartha Ahluwalia 1:01:44

Imagined right if Tiger hadn’t sold it. Sharon Caratlane we discussed character in earlier the full 62% if they would have even kept the 10% where it value increase better about 30x in seven years.

Deepak Shenoy 1:01:57

WhatsApp, WhatsApp sold to Facebook, everybody, all the investors in WhatsApp. They cashed out shares, they were given shares of Facebook, they sold the shares. The shares were given at I think $57 or $37 per share of Facebook he lost the 10x value just by not. Yeah. So I think that is a one VC actually told me this yaar, we are VCs, we’re not supposed to invest in public markets. So when exit is done the we have to return the money. It by, by definition of my existence. And my contract with my customers, my LPs I have to return them the funds as soon as I’m able to exit. So if I’m able to exit and have got my return, I don’t care what the return is I have to give it now you’ve seen it and..

Siddhartha Ahluwalia 1:02:49

We hosted Sanjeev Bikhchandani on the podcast, just as podcast got published on neon show four weeks back. That was the first show after rebranding from 110x Entrepreneur on Neon show. He told one thing right and he anecdotes again, Rakesh Jhunjhunwala that once went to meet Rakesh Jhunjhunwala and said to him, Sanjeev if you own a very good company, never sell it. And he follows that today he hadn’t sold a single share of Zomato he hadn’t sold a single share of Policybazaar he said I’ll keep on holding them Nobody can stop me from this.

Deepak Shenoy 1:03:19

See this is the power of permanent capital. If it’s your capital, how much you want (Speaks in Hindi)you can keep it for a long time and permanent capital is what Warren Buffett has. Yeah, you can tell Warren Buffett that I have this much share of your company, you have to sell this share and then give it back( Speaks in Hindi) He will say dude, you have my shares go sell it in the market. I don’t care Yeah, I am keeping my coke shares I’m gonna sell it. Sanjeev Bikhchandani can tell, that who’s gonna force me to sell the share’s of Zomato(Speaks in Hindi) nobody can force me. Now look at us we are a PMS if my customer says give me more money back whatever shares he owns. He can instruct me to sell them. Yeah. So I have to sell if he instructs me to sell. So I am I do not have permanent capital I have temporary capital. VCs have temporary capital, you take capital from your customer from your LPs. And they give you the ability to this thing. So if you’ve said, You know what this company is listed, but I needed to I need you to stay invested for five more years. One VC can one of your LPS can say I’m not gonna wait for 5 years. Give me back my money now ( Speaks in Hindi). Why are you invested in some public company now? So given that that power of those the simplest see Raji sorry, Rakesh Jhunjhunwala had a very clear philosophy in mind. He said, I will not accept external capital, like he’s not gonna manage another’s money(Speaks in Hindi). He always says I manage my wife’s capital. My wife is my only customer. That is permanent capital. Because that is exactly telling you that Rakesh, could own shares could sell shares, he should tell them all the time. Why do you care that what shares I am gonna buy or sell(Speaks in Hindi). Why are you bothered about that? And I will do what I have to do. Because it’s my money. Why should I tell you What I’m doing, because people will say, Sir are you buying more of that? I will buy whatever i want, why do you care?(Speaks in Hindi) Which is, you know, why should I tell you it’s

Siddhartha Ahluwalia 1:05:09

A personal decision.

Deepak Shenoy 1:05:10

Is a personal decision. Whereas if a customer asked me Deepak, what are you buying? I have to tell him what you’re accountable. I’m accountable to because It’s his money, it’s not my money. It really it’s, it’s fair also. So to that extent, permanent capital gives you freedom (Inaudible) permanent permanent capital gives you in fact, this is one of the reasons why Michael Burry was the big shot. He said that, I will, he returned all his customers money, literally with a letter that said, none of you guys deserve this money, but I’m giving it to you because you you have it, because they tried to pull it out from him a few months before the actual short worked out and they made 10x on their money. Yeah. So he was so disillusioned with that, that he said, I’m not gonna manage anybody else I just want to mine. So, in a way, his mental tension that he had to undergo at that time probably forced him to say something like this, I think very interesting. Plus, see Sanjeev Bikhchandani has now what is called effectively permanent capital. Yeah. Because he has the ability to say I will raise money as Naukri and give you shares of Naukri, I will take that money and do something with it. If you don’t like what I do with it, you can sell your Naukri shares in the market. I don’t have to give you back your money. Beautiful, isn’t it? I mean, I think that’s the perfect form of permanent capital, which allows him to be a lot more patient as an investor, and a lot more targeted. So for instance, if he sees say that Zomato has not realised the value that it should be at, he can say forever. Yeah, and I don’t so you see the cap tables, what happens and financial sold a bunch of some stock. Why? Because they’re like, you know, what, we are a financial company we invested financially now what to do (Speaks in Hindi). Or,

Siddhartha Ahluwalia 1:07:00

Zomato you’re talking of?

Deepak Shenoy 1:07:01

I think this order of PDM. I’m not sure of your Zomato also. Zomato also a bunch of other people sold it on the.

Siddhartha Ahluwalia 1:07:06

Paytm or the exchange?

Deepak Shenoy 1:07:08

We did all of this on the exchange.

Siddhartha Ahluwalia 1:07:10

no paytm exchange like Vijay, build a holding company in some needle.

Deepak Shenoy 1:07:14

And that was different one before that, they’re already sold a bunch of shares on the exchange, and I think a lot of the others also Alibaba, Softbank, and a bunch of other companies, they all had

Siddhartha Ahluwalia 1:07:28

Contractual obligations.

Deepak Shenoy 1:07:30

One of them are contractual and other one is though and is not really contractual

Deepak Shenoy 1:07:17

India has a problem right now with Chinese founders or Chinese owners of, of companies. And therefore, it’s it’s not new to India. China also has a problem with Indian owners of metrics. So I won’t say that anything wrong with it because there was a company called Apollo tires is a company called Apollo does apologize by a company called Cooper tires. In 2015. Cooper tires biggest plant was in China. They said up if you bring an Indian(Speaks in Hindi). Okay. was not in Hindi, but if you bring an Indian I will not let you into my factory they refuse to enter allow Cooper tire themselves to enter their own factory Okay. Saying you cannot do cannot sell to an Indian. Now if you ask that will will also have no. Was oh, what’s the big deal in that? But I feel here that that is more a driving force the political arguments of of some of these things to sell but it doesn’t matter. The point is, this is forsling. Right now, there’s a company called Jio financials that listed a few yesterday morning Jio financials is a demerger from Reliance Industries, Reliance Industries is 10% of India’s index. Index funds that hold Reliance Industries got free shares of Jio financial, Jio financials will not be in the index. So all these index funds have to sell the index funds own two lakh crores worth of AUM in which 10% is of Reliance which 20 thousand crores in that 10%(Speaks in Hindi) 2000 to 3000 crores of worth of just Jio financials that is out there. What is the index funds do they can love Jio financials all they want they can they can say that this company will become the top, but I wanna follow the Index. But in Index Jio financial is not there, I have and i wanna sell it( Speaks in Hindi), there is no way to say I can keep the share.I will not say that i have it, and this dosen’t work (Speaks in Hindi). So, once you’re transparent when you have that level of disclosure, your only choice is to sell. So guess what happens three days or two days consecutively, the stocks have a lower circuit. You can do whatever you want (Speaks in Hindi), given that I think you know, permanent capital is probably a nice thing to have.

Siddhartha Ahluwalia 1:09:45

And do you think the liquidity for Indian startups we both an SME like India till now, in the last seven eight months 72 companies have listed on SME Exchange, which is the highest India has ever seen. Right and so, startups are going towards more SME Exchange, would you yourself as part of your PMS dip into the SME exchange?

Deepak Shenoy 1:10:05

No, because SME doesn’t have liquidity it doesn’t make sense for a company like ours, where we offer liquidity to our customers. That you can sell it one day(Speaks in Hindi). I can’t offer them and then have companies which I can’t sell them in a day, but I think it makes sense for a lot of closed ended funds. A lot of in fact VC funds themselves you could actually finance companies on an SME exchange you could the minimum per share is one lakh rupees I think that means you can buy in multiples of one lakh rupees. So, which is easily possible for VC funds, you could actually finance companies on an SMA extend until they become big enough may not work out for us particularly, but I know PMS is that some PMS who have restrictive conditions who say up to 4 years you cant get your cash(Speaks in Hindi)and there’s an exit load of X percent. So, they use that to buy the SME stocks

Siddhartha Ahluwalia 1:10:52

SME Exchange is not immediately liquid able to say I buy a share on this.

Deepak Shenoy 1:10:56

I don’t think they are that in to player’s, they’re not that much liquidity over there compared to the main board. So, if I have 20 crores worth of shares, it may take me three four days to exit and that too, I hope,

Siddhartha Ahluwalia 1:11:08

Somebody will buy it.(Chuckles)

Deepak Shenoy 1:11:09

Somebody will buy it. So..

Siddhartha Ahluwalia 1:11:11

And nothing, nothing will happen to the share price?

Deepak Shenoy 1:11:13

Oh share price will fall I mean, we we’ve seen share price fall for like 80 lakh rupees also. So, you know, that is guaranteed but the problem is 80 lakh rupees will go after going 3%down it would go (Speaks in Hindi), here it will fall 40% Also, you won’t get the shares out. So that that happens sometimes when there’s no liquidity in the Share, share prices fall 50-60-70.

Siddhartha Ahluwalia 1:11:36

That’s not a very attractive proposition for startups and SMEs. The price is so volatile and there’s not enough buyers.

Deepak Shenoy 1:11:44

Okay, the private markets are exactly the same. There is no liquidity. Yeah, and there is there is no volatility of course, there’s no liquidity at all. But

Siddhartha Ahluwalia 1:11:55

I would have put an effort to list on the SME exchange even read, I might keep the company private and potentially list at the main exchange, make it like,

Deepak Shenoy 1:12:03

But if you need capital, what are you gonna do? So at some point, you’re gonna need capital. And if you’re, if the VCs don’t participate, then maybe you can go to the SME exchange and participate because even though we see it’s an excitable option here, you can clearly see cannot buy 10% of a company and then sell like half %. I want money after selling these shares(Speaks in Hindi).

Siddhartha Ahluwalia 1:12:24

We can make the 10 to 5 but not lesser than that(Speaks in Hindi), there is no partial liquidity.

Deepak Shenoy 1:12:29

There’s no partial liquidity event. And SME gives you that my thing is that in fact a VC should go and tell companies please list on the SME exchange, I will buy your shares and SME exchange after that if there is no liquidity then also it’s fine it will come one day(Speaks in Hindi), your Esop’s your company your employees can sell on the this thing exchange. Think about it. It’s a much it’s a much cleaner proposition. But the problem is valuations you can’t I mean if you value a company at some obscene price, it chances are that company will be brought down to size. Your next round will be listed based on your current list price. Yeah, so the current listed prices 150 rupees a share. You couldn’t raise it 5,000 rupees a share in private markets is still possible.

Siddhartha Ahluwalia 1:12:53

Thank you so much, Deepak. I think this calls for a third episode sometime in the future. loved it.

Deepak Shenoy 1:13:16

Had real fun. It was good to be here thanks Siddhartha. Thanks so much, and all the best to the neon fund and to the neon shows.

Siddhartha Ahluwalia 1:13:24

Thank you for watching