Siddhartha Ahluwalia 1:00

Hi, this is Siddhartha Ahluwalia, your host today at Neon Show and Managing Partner of Neon Fund, where we invest in the best of enterprise software companies built from India for the globe. I have a very interesting conversation today. We are getting together in a single room some of the best emerging managers from India in the VC world.

I have today with me Karthik, founder of PeerCapital, Rajan founder of Upekkha and Kushal, founder of All In. Welcome folks to the Neon Show. And in today’s conversation, you know, want to keep it fun and make it insightful for the audience also.

What goes behind the life of an emerging manager? Like people see glory that you are writing checks day in day out. But what’s what is the real grunt world required to make a fund successful and known?

So I get a lot of inbound. I think you all would get right now, people directly from either IITs or engineering colleges or B schools, they want to come into VC. So in your opinion, who should not become a VC?

Kushal, let’s start with you.

Kushal Bagia 2:07

Sure. So I feel like you’re bang on, right? Like many people, like we get like three, four cold mails a day saying, I want to join VC.

Will you give me a chance? I’ll work for free, right? So who should not work for VC?

I think if you’re too attracted, like if you do this as a glamorous job or something where the socials, like it looks cool that I’m handing out checks to people. Right. But if that is what is attracting you to the profession, then it’s definitely not for you.

Second, I think the, you, you, you need to have a, a large, like a long timeframe. You need to be very patient because VC the feedback cycles are very long. You only know if you are right, wrong after a few years.

So that is very different. Three, I think there are people who genuinely just enjoy building products and they get joy from people using stuff that they build. That is something you will definitely not get in VC.

And there are many people who are confused, like they like tech and products, so they think they should do VC, but they should not, because if they really like tech product, you should just build products. Right. So I think that’s probably the third person I would say shouldn’t get into VC.

Siddhartha Ahluwalia 3:13

And then who, which kind of traits are good that you would look for to build your team? Right. Can you identify there is zero background for a VC, but I’ll still take a bet on that person.

Kushal Bagia 3:24

So I know what I, what convinced me I should be a VC is that I felt I’m great at two things, sales and intellectual curiosity. So VC, I think I feel half of it is a sales job. You’re selling yourself to the founder when you’re selling yourself to LPs. That’s, that’s a large part of your job. So being persuasive, having the hustle to land up in front of the right people, creating opportunities where none exists. Right.

So pure hustle quotient, I think is, needs to be extremely high. How do you get a founder to talk to you? Not raising around, right.

Or how do you get, how do you make a customer intro for them? All this is basically extended sales skills. Second, I think to be a genuine partner to the founder, you have to have a genuine interest in what they’re doing.

Like the difference between a VC and a banker is, I think that’s what comes in for banking. It’s mostly transactional, right? You need money.

I’ll get you money. I’m done. I’ll move on.

You will move on for VC. You’re going to be a partner, that person for the next few years. So you really need, really need to be curious about what they’re doing.

Why is it working? Why is it not working? What else has worked, right?

So there are people who we meet who I know after that, let’s say they work for 13, 14 hours a day. Also at 16th hour at night, also they will be reading about this only because this is what they love. So I was like that, right.

And that’s kind of what I look for. Like, do you genuinely have a curiosity for this startup product tech world? Where yeah, like, because now information is free.

You can find anything online with ChatGPT, that’s even more super chat. So generally we meet young people who sometimes know more than I do in like, they’ll tell me an anecdote or they’ll tell me what a company, which I am in order. So that’s, that’s a great sign that this person is truly crazy about this world. And so, yeah, one is this intellectual curiosity. Second, I would say sales skills is what we look for.

Siddhartha Ahluwalia 5:12

Rajan, what about you?

Thiyagarajan Maruthavanan (Rajan) 5:14

So what I would say that people who should not become VC, I would say that those who are looking for quicker ROIs. So if your time horizon is that you’re looking for returns in like three years, five years, then you should be day trading, public market, and things like that. Right.

So one of the things that people don’t understand is that the VC business is extremely long horizon. They only see the shine. I actually liken it to saying it’s like a pilot’s job.

A pilot’s job looks very, very sexy from the outside. But if you really think about a pilot’s job, he’s someone who’s actually following checklist and you know, people still don’t trust him. So there is a co-pilot who’s actually double checking the checklist.

Right. And then, you know, he’s just following checklist from the outside. It looks very cool.

But the training of the pilot is, is for that one moment where you’ll have to land the plane on the Hudson river. Right. Where, like, you know, when that opportunity comes, that’s when you have to shine.

So, so a VC is more like that, where they have to actually be very, very calm, like, you know, patient. And then, you know, when a deal comes through, then they have to actually pounce on it and go forward, go for it. Right.

So that requires a kind of a skill where you have to be patient, but also impatient at the same time at the right time. So those who are looking for quicker returns, smaller time horizon, don’t have patience, looking for glam, you know, wrong place to look at. Now, what do I look for?

Like what type of traits? But I’ll also add another element, like one of the person who actually mentored me about VC, he said, you know, the best VC that he knows, does not even know how to read a term sheet. Right.

But then he said, you know, this is the person that, you know, the top founders in the world will go and talk to him. So I actually look for a criteria of saying, is this guy a founder magnet? That doesn’t matter whether you’re 24 years old, or 54 years old, or 84 years old.

For different reasons, people will come and talk to someone and then say, Hey, I want to spend time with you. I’ve seen 24 year old, their founder go and talk to them because of the energy that they bring in. And then you know, the specific tactical help that they can give.

So even if somebody is coming out of a college, but you know, a founder feels a very experienced founder feels like, look, I need to spend time with him, because he can give me some help. And he comes to him and talks to him. And if that happens, I know that this guy is a good guy to actually be in the VC ecosystem, because if because of him, and like, you know, some founders will come that maybe I myself may not be able to sort of bring together.

The second thing that I would say is high agency, because you know, while this is like a patient game, but when something happens, you need to be that, you know, lion work ethic, where you like, you know, lie down for a long period of time, but when you’re hunting, you have to go after. So that kind of agency should be there. I would say like anybody who has these two traits are like a good fit for coming into the VC business.

Siddhartha Ahluwalia 7:49

Karthik?

Karthik Prabhakar 7:49

Yeah, I think they’ve covered many of those. But let me let me try to kind of summarize one or two points. I think it’s more introspection for myself also.

And as a VC, you keep questioning many times, you know, am I cut out for this? Because like, I think Kushal said, it’s a long game, you keep questioning, hey, did I do the right thing or not? So I think for me, if somebody is thinking about being in VC, I think the introspection that they need to do from a trait perspective, the way I qualify is, do you have a parental instinct?

And I’ll tell you what I mean by that. See as a VC, we are enablers. We are not the ones who are actually going and doing the stuff.

You’re kind of sought out for when you need help. And you are expected to be on the sideline when they don’t need help. So very, very important aspects from a parental instinct perspective.

Are you more of that sort as a person, as an individual? Now, you got to introspect for yourself. Do you have those traits or are you the person where you’re basically more of a credit seeker?

Because if you’re looking at enabling a founder, making sure that the founder is actually winning that, and if you’re comfortable to say, okay, I’m not looking for credit there, as long as you have succeeded, it’s fine. Let me now pull back, my job is done. And in the longer term, as founders keep winning, that does come back where that word of mouth does help you to get those deals.

I think that parental instinct and empathy is very important. The second part is, you got to have the ability to connect the dots in some way. And you’re trying to look at how are you inferring from very limited information that you get and trying to put out a point or a thought process.

Are you a person who has the perspective to say, look, this is very limited information, but I’m still going to build a point of view. So you got to be very opinionated about your thought process. And a related point to being opinionated is, are you risk-taking?

Because there are so many reasons why you should not be investing in something. And there are very few reasons why you should invest in something. Are you able to do that investment for that one or two reasons and back it until the right time?

And at the same time, are you able to kind of just pull back and be dispassionate and say that, hey, this is not going anywhere. You got to just call the shots. I think those three in my mind are important traits.

And you got to look out for, do you have those traits as an individual before you even jump into it.

Thiyagarajan Maruthavanan (Rajan) 10:29

Yeah, both of them said, well, it’s a it’s not a player role. It’s a coach role. So it’s not about like, you know, where like light can be shown on you.

And it is about like, you know, working with founders where the light is shown on them. That’s what Karthik and Kapil said.

Siddhartha Ahluwalia 10:42

You all are, you know, have done fundraising and are fundraising. So I feel that this for VCs and I think would similarly would apply to the founders. There has never been as tough time to fundraise.

Maybe your seed fund as a founder would become easy, but your series A would be very tough. What’s your take on that, Karthik?

Karthik Prabhakar 11:02

No, definitely. I think fundraising is always extremely hard. And there’s no two ways about it.

Like you kind of said, you know, for a, if you’re building a business, you need one or two believers at max, maybe three or four years. And as you have that, you have a runway and you have to maybe go back to them in a year or two years time frame. In our business, you may have to go back to them in a three year time frame, but you need many, many, many more believers.

And many a time, it’s the external factors why they don’t invest, nothing to do with you. So I think short answer fundraising is extremely hard. So there is no two doubts about it.

How do you go about it? You got to have a long, long term horizon about these things. Whenever you’re talking to anybody, in my own mind, I’m thinking that I’m pitching to this person, not for the next fund, but for the next to next fund.

And if something converts in this fund, great, because you’re not, you’re not selling a product, you’re actually selling an idea. And you’re also looking for a partner, because the one of the things that you also don’t want is somebody who’s coming in and can be a partner in one fund. Now, obviously, all of us do need that in our early days.

And it is very, very valued. But what you’re also looking for is that over a period of time, can you build a set of trusted partners who can cut a check for you not in this fund, but in the subsequent funds as well. So you need to kind of evolve to that.

So I think it’s just a very methodical, structured approach that you need to take. I have my notes from many, many years back as well on what I told this person, what this person told me, what their interest is, what my interest is, and it keeps evolving as well.

Siddhartha Ahluwalia 13:00

You are right. At least in the first or second conversation, are there any common ground on which we can align and have more conversations?

Karthik Prabhakar 13:08

Absolutely.

Siddhartha Ahluwalia 13:08

There is no point in even engaging.

Karthik Prabhakar 13:11

Correct. You’re looking at a partner. Can you, can that person stand you and can you stand that person over a sustained period of time is a very important thing.

Otherwise, you don’t want a large pool of capital, where they’re asking you, where is my NAV every month? Just like a founder also doesn’t want a VC like that. It’s the same thing that kind of carries on.

Siddhartha Ahluwalia 13:34

Rajan, what’s your experience?

Thiyagarajan Maruthavanan (Rajan) 13:36

As Karthik was speaking, I was thinking about what I would say. See, in this table, I’m probably the youngest from a fund perspective.

We’ve been trying a few things. It is hard, but one of the things that I would say is that I find it very fascinating that it is both hard and easy. When you look at it from a fundraising perspective, you’ll see that there are people who raise $100, $200 million.

Maybe they came from a previous fund. They had track record that they were borrowing from or they had brand. And then emerging managers have this challenge all the time.

So I find that very fascinating. So I don’t have anything more than that to add at the point.

Kushal Bagia 14:12

I think I have a very similar journey to you, Siddhartha. We started all around the same time you launched your second fund at Neon. So we did a $11 million on our first fund.

Now we are on a $30 million second fund. I like what Karthik said a lot. I think it’s definitely a lot about long-term games with long-term people.

Most of the people who backed us in the first fund would have known me for two, three years or who, who were referred by somebody who knew me for two, three years, right? People don’t just meet you and cut you a check. I think also a large common ground was people who had invested in companies that I’d invested in, right?

That also is something which helps people build confidence a lot. Like if you pick the company, which one, and they also had exposure there through either another fund or directly, or they know about the company that, that matters a lot. And I think we’ve also been learning, like our first fund was mostly family offices, HNIs.

And second one also largely be that maybe some institutions. And we are also learning how to, you know, treat the two differently. We did meet some institutions in the first fund, but with the same outlook that Karthik said, right, that they’re likely not coming now, but maybe at some point in the future.

So keeping them warm, keeping them interested in your story, especially with people moving around, right? Like that becomes very challenging. And then I think the, in India, we also have the additional, you can say, curse of public markets, because you keep getting benchmarked to how well the public markets have done and that is liquid and you can take money out anytime.

I think probably in the last couple of years, there has been some change because now people have seen these companies that went public at 5, 10, 15 billion valuations. Some VC backed them at like a 5 million valuation, right? So now people know that most of the juice is gone by the time these companies come to the public market.

So there is some change I’m seeing in sentiment, but otherwise that becomes your biggest score sort of a comparable to that you’re kind of getting benchmarked to every time that why should I put money in a, and it’s not about you that you’re kind of bearing the cross of managers who came before you and didn’t perform or didn’t give returns, right? So you keep getting benchmarked to past performance of other fund managers, which, which is like a tough thing to debate on because you didn’t run those funds. You were not there in that era.

Um, but yeah, I think the positive is the, the IPOs that has definitely changed the narrative on money can be made in India and big money can be made. Uh, but yeah, as an emerging manager, it’s tough. I would say, uh, uh, treated as enterprise sales plus, plus, right.

Do it over many years. Uh, and, uh, really again, love what Karthik said about meeting the person and for the person, don’t even pitch the fund in the first meeting. All of that is true.

I think building relationships and getting them interested in you and your idea, keeping that engagement going for many years before it converts is very tough.

Siddhartha Ahluwalia 17:08

I think though we are sitting at a fortunate time that India has exits, right? But similarly, the, the global competition among venture is huge, right? Most of, even if you see the larger fund in India, like Blume, Stellaris or Accels of the world, 90% of their money comes from outside India, mostly US, right?

Uh, I don’t know about Chiratae, but, and in US also now they have so many options. And the other trend that I’m seeing is the larger institutions are getting more larger. Like for example, Thrive today, $3 billion fund does every state. General Catalyst, right?

So, so the biggers are becoming more bigger. So when you are approaching somebody, for, for money. So I think that the one point that we discussed earlier about differentiation is the, is the only thing that can get you a check.

Kushal Bagia 18:02

Yeah.

Karthik Prabhakar 18:02

And also just one point on the family offices as well. I think they’re also kind of maturing from the sense and one trade I’ve at least noticed, or it’s more of a learning point is see family officers also in my mind have to go through a certain learning curve.

The first phase is always to say that, Hey, there are two options. One, Hey, I’ll do it myself because I know I’ve, I’ve built a business. I know how to do this and I will do this myself.

Or it’s the complete denial to say that, look, nothing will happen in this. I will not do anything. The next phase is where they see some successes either because market may success for us.

And then they have not participated or they made those investments. And then there are successes happening. Then they start seeing that, Hey, there are successes there.

I need to be participating there. And you go through two cycles there. Also, you’re either saying that, Hey, look, I’m investing.

I’m seeing successes. Now I need to scale at that time. There is a bit of a realization that I can’t scale this.

And therefore I need to have a team. Then you start realizing that it’s extremely hard to get that team is when they start saying, okay, let me put money behind people who are building this as an institution. The other extreme is that where they say that, look, I, I made losses.

Nobody will make successes here until some of these big success happens. You will always be in denial. So to also kind of assess during those early conversations, where are they in their learning curve?

Are they at that denial point or are they at that point where they say, look, I know this works. I have tried my hand myself, but I think it’s best done by somebody who’s doing it as an institution. Only then you can actually maybe raise capital.

So one of the assessments in my own mind is that where are they in that evolution journey? And I think that is clearly evolving with many family offices. And today when you get an exit, the first thing that they do is sit on it and not be in a rush to say, okay, let me just deploy, which is a good sign.

And hopefully it evolves because for many of us who are raising small funds, for international funds, it just doesn’t make sense. But they say, I need to be 10% of your fund and I need to deploy $25 million. That will not happen if you’re a sub $200 million fund, so then you’ll have to keep looking for those sources who are comfortable doing those small checks.

Siddhartha Ahluwalia 20:33

Yeah. And another area that India gets contested on and widely discussed is, why isn’t India able to produce something like YC?

Thiyagarajan Maruthavanan (Rajan) 20:45

I can take that first. So because like I ran an accelerator, see, Gary Dan actually tweeted this a few days ago. He said, YC for India is YC.

In that sense, if you actually go and look at the data, the number of seed checks that has been written by YC is the highest. But then the thing about YC is that they ask founders to build for India. And we are someone who actually say that, Indian founders building for the globe.

So that way, at 150 investments, we are probably the largest pre-seed check. And we tell the reverse when we work with founders that from India, build for the globe. See, the whole YC thing, you have to actually put that also into perspective.

YC started a startup school in 2005. VC business is a 15 years minimum. And people that ask me about VC business and brand, I say the most important thing in VC is brand, but it is a slow cooking brand.

You cannot pour billion dollars to actually fast track that process. You have to spend that 1, 2, 3, 5 years, build that relationship. There’s just absolutely no other way.

Then after that, you have to actually make sure that brand is established. It has taken 20 years. There are some few potential, like a friend started Morpheus, then they gave up in year 7 and year 8, and then they changed.

So you need to actually have the success, but you have to wait and then build the brand. So the YC brand is YC. So we are in year 6, year 7.

So it will take at least another 15 years to actually build that particular brand. Sure, some successes will come, the fund will become success, but the YC brand is going to take time. The other thing that has to be kept in mind, this is the difference between the US market and India market.

See, in US market, now the timelines are different, but you can expect to go public in less than 10 years. But if you’re building category creating markets, the category opens up year 6, 7, 8. So the founder that is building has to build for not a 10 year horizon, for a 20 year horizon.

It doesn’t work with a lot of the funds in their horizon cycle and therefore they give up whereas like you were actually referring to that, right? So it will take a long time to build a brand like that. At least that’s my take.

Siddhartha Ahluwalia 22:55

Kushal?

Kushal Bagia 22:55

I think it’s a lot of it is being in the right place at the right time. YC started at a time when there was basically no competition. Like for someone to start doing 10-20k angel checks was crazy.

Like if you read Paul Graham’s early blogs and it was basically their money. There was no fund. He and Jessica and

Thiyagarajan Maruthavanan (Rajan) 23:13

25k checks.

Kushal Bagia 23:14

Yeah. Two other partners, they were, which is insane in hindsight because they kept all the upside, right? There was no carry.

The whole thing is theirs. But to do it at that time was definitely visionary, right? There was nobody, there was no concept of an angel itself.

Forget about like an institution investing at that angel stage. So they really ran with it. And for I think 10 years, there was basically no competition.

Then Tech Stars came and bunch of other accelerators that I’ve not tried. Now it’s become a lot more competitive, but I feel that time for that has now gone. Like startups back then were not cool.

Startups were something weirdos do, right? Like these computer science nerds were coding and don’t ever switch. That was a stereotype of a startup founder.

Now it has shifted to the jock who can like, who can sell, who’s aggressive, who’s, you know, like basically between Zuckerberg and Travis Kalanick, right? That’s the change that the startup world saw in 10 years. So YC was built for that audience.

And, I think, like there’s, there’s the amount of competition that exists in the market now is too much. So I don’t think you will have something. I think every new idea, right?

Like for example, even in the tech world, there’s no, you don’t ask questions like, who’s the Google of today? Like the new Google of today is Open AI. So the new version of what will be the next new thing will be an entirely new thing.

I don’t think it’ll be the same thing as what YC did 20 years back. So whoever wants to compete with them has to come up with a better new model, which does stuff, which they can’t do. That’s, I think the way to approach the question, rather than saying, can we recreate YC today?

Siddhartha Ahluwalia 24:47

Karthik?

Karthik Prabhakar 24:48

Yeah, I think in addition to what Kushal and Rajan said, I think it’s also to do with the evolution of the market itself and the capital markets, as well as the market. The problems that we were solving in India historically has been more basic.

And only now we’re kind of emerging away from that. And, and the velocity of the growth in companies is also coming in now, public markets are opening now. And I do, I’m kind of an optimist, I do feel that, you know, maybe a different variant of the YC model is definitely out there.

And you guys are already kind of building that. But it will be something which is very, very unique to India. It’s the capital flow, ultimately, you have more capital coming back in the hands of people, because you’re seeing successes, more risk taking ability comes in.

And you’re also seeing that company can actually go public in a sub 10 year time frame. When, at least when I entered the VC ecosystem, the standard way and answer was that if you imagine that your company will go public, and therefore you’re investing in early stage, people would say, what are you smoking? Right?

But today, you can actually think that I’m an early stage VC, but I can see this company going public in, in the tenure of my fund. I think it’s a factor of that. And I’m pretty optimistic that I think that model will also kind of show success.

And some of them are probably already building that.

Thiyagarajan Maruthavanan (Rajan) 26:25

Yeah, I like what Kushal said, right? I think we should ask the question as like, what is the equivalent of YC? Right?

Rather than saying, like, you know, what is the YC? Right. And, like, you know, he also touched upon it, I think our markets are very unique.

I wrote this, I have this fascination for breaking down topics into small things, in something that kids can understand. So I wrote a, like, a small, like a booklet called VC for kids after reading AVC for 20 years. And I mean, that’s where I learned a lot about VC.

I shared it with a lot of Indian VCs, I learned more about VC after sharing and talking to Indian VCs, than, you know, learning across those 20 years. The reason is that I spoke to like, you know, the partner at Trifecta, and he said, Look, we came into VC, we thought this is going to work like how it is in the US. And then we had to practically unlearn everything.

Right? So the models that are built here in India are something that we learned through the hard knocks of what the Indian markets actually tells us. So therefore, we had to restructure ourselves, like how we think about like, you know, exits, how we think about liquidity, how we think about horizons of the fund.

So therefore, like, you know, when you just take a US lens, and then say, okay, you know, like, does it work in India? It doesn’t. And all the people that are, whether it is founders or as emerging managers, they’re all laying the foundation of the first innings, right, or first or second innings at this point in time.

So if I really love what Kushal said, we should ask the question of like, what is the YC equivalent based on today’s market? And then how, like, you know, how it should shape up in that first principle thinking is needed.

Siddhartha Ahluwalia 28:01

I have a thought process around what does, you know, equivalent of YC look like in India, and it requires a lot of capital. So first of all, it requires a bigger check than YC. So what I’m trying to replace is how Aadit Palicha of Zepto should not apply to YC in the US, but to an Indian accelerator, right?

So first is that accelerator should outcompete YC with money, versus that it gives a mill check for hypothetically, a 10 mil valuation, then you need to do or a 500k at 5 least, right? Then you need to do 100 those checks in a year, because for founder in an ecosystem, it means that if I go to a VC fund, they’ll do four checks in a year. But if I apply to YC, my chances are higher because YC accept 250 companies in a year, right?

So at least it gets me started. But then you need to do 50 to 100 checks in a year. So let’s say on lowercase, if you’re doing 500k, 50 checks in a year, you’re deploying 25 million in a year, right?

Or on the higher end, if you want to really outcompete YC, you’re deploying 1 million, 100 checks a year, you need 100 million. So a lot of capital is required. I think once somebody starts doing that, and founders like Aadit come out of it, then you will attract the quality of the mentors that YC have.

Then I think the Deepinder Goyal of the world will start giving those founders the time, right?

Thiyagarajan Maruthavanan (Rajan) 29:26

See the LPs will push back and say call it spray and pray, right? That would be the pushback.

Siddhartha Ahluwalia 29:31

It’s like a very bold bet.

Kushal Bagia 29:34

I agree. So I had the same idea, but I felt like 50 is too much. It dilutes your brand over time.

YC does 50 across the world, 50, no they do I think about 200 in a year, right?

Thiyagarajan Maruthavanan (Rajan) 29:43

They do 200 to 500 a year, depending on which year you count.

Kushal Bagia 29:46

Okay, then I was wrong. So they did 60 from India in one year, 2021. After that, they’ve fallen off. At least India, they’re not doing as much.

Thiyagarajan Maruthavanan (Rajan) 29:53

Now they’re doing four batches, three or four.

Kushal Bagia 29:55

Yeah, correct. But I feel like they’ve built a brand and then scale the number of companies.

If you start with a large number of companies, then you have no brand because you’re backing anyone who comes to you. So you need to set a high bar and be selective, prove some success. Once you have a brand, then I think you can start scaling on number of companies, but agree on the check size for sure.

I think the many attempts have been made in India. And I think that’s the, the out of the door, they get that wrong. Where if you just like the number one thing for founders, right?

No matter what your brand is, how much value you are, whatever you do, the valuation matters, what price you’re giving them money at, how much ownership you’re taking, that is a first priority for them. Everything else comes second, third, fourth, right? So if you’re just, if your deal is three times worse than YC, then this is not going to come to you.

YC is today giving 500K on a blended valuation of adding 7 or 10 million, depending on your next round. People are starting accelerators. If you’re doing 1 million, 2 million entry price for 100K, 200K check, then I feel people will come to you, but they will go to YC first.

Karthik Prabhakar 30:55

And also there is another factor in my mind, at least that see YC what is the value of that, what I understand is at the end of it, there are some of the credible names who are going to take those companies very seriously and double down and put more capital. That has happened over a period of time, that credibility building. And like Kushal kind of said, if you kind of put the cart before the horse, you run a big risk of being called a spray and pray, where the big boys will always say that, hey, look, okay, everywhere this XYZ is there.

So I’m discount that and then look at it. So I think it requires a bit of maybe a different approach in India at least.

Thiyagarajan Maruthavanan (Rajan) 31:35

You have to show the proof that you have caught the power law before you can scale.

Unless you show that there is like one or two like Heroku’s or you have shown that you have put in a Dropbox and you’ve seen a few companies public, if you scale that, then you won’t build a brand. So I completely agree with what he said. To the point about what YC brings, I think, I love what Mark Anderson said, the job of a VC, we will do a JTBD statement for VC.

The JTBD for VC is to lend his credibility till the founder finds his own credibility. So which is what I think YC does in a great way, whether it is like making customer intros, whether it is making any partner intros, whether it is working with other investors, etc. So that is what YC does really well.

The approach that we have taken is that we will do it, narrow it, that’s the area that you’re working on, and saying that, look, we’ll do this on cross-border. Now, you start with a smaller segment, you establish, then you build the brand, and then you scale. So therefore, I am with both of them in terms of saying that if you scale first, then it is bold that you need, but you need to, I mean, when I was at Intuit, we used to say that first deliver awesome, then deliver awesome at scale.

I mean, you can’t scale and then deliver awesome. So that’s what I would say about this.

Karthik Prabhakar 32:54

Unless that whoever is taking that bold bet has a lot of money, then I would say invest in our funds.

Thiyagarajan Maruthavanan (Rajan) 33:01

Exactly, right?

Siddhartha Ahluwalia 33:03

So David versus Goliath definitely applies to startups, right? Where a startup is attacking a large increment and like David, it needs a single slingshot to hit it right. Does it applies to like emerging managers versus larger funds?

Kushal Bagia 33:19

I think a hundred percent. We obviously play with a much, much smaller checkbook. So on check size and all, we can’t compete, right?

So the way I would think of it is like my job is to find the non-obvious funders today or other superstars of tomorrow I have to find today, and then I have to reshuffle the networks, put them in front of the people who can change their lives, right? That’s the only way I can win. So another way to put it is, am I fishing in the right pool?

Like if a company is ready for Accel, Sequoia, Blume today, then likely I’m already late. I should have done that deal two years back or one year back, right? So but a hundred percent, yes, it is very much a David versus Goliath framing.

Siddhartha Ahluwalia 33:02

What about you Rajan?

Thiyagarajan Maruthavanan (Rajan) 34:03

I have a slightly different view. To me, like the whole David versus Goliath is a little bit of lazy thinking. See, I mean, as investors, we can never get caught in simple binaries.

I mean, investors, like you said initially, need to have two contrarian thoughts and just looking at saying this versus that is, like I said, simple thinking, right? In the VC world, they say stage is the strategy. And one of the things I feel is that practically in every stage, there are going to be winners.

Now, whether it is in pre-seed, seed, series A, public market, the question really to ask is in that particular stage if you’re staying. I mean, generally the consensus in the world has come today. Definitely in the valley is that everybody needs to do pre-seed.

I mean, the alpha has been taken out in every other stage because capital is abundant, the flush, etc. But I still feel that practically in every stage, the key question to be asking is in that stage, how do you capture the top 3 percent? So therefore, I would say that if you consider yourself as a David versus a Goliath, then are you clear about your stage?

Are you clear about your strategy? That’s my take on this.

Siddhartha Ahluwalia 35:09

Karthik?

Karthik Prabhakar 35:10

Yeah, I kind of subscribe to the David versus Goliath and it’s true for startups as well, right? So, when you’re starting something, in 99 percent of the cases, you’re solving for an existing problem. There is a one percent where you are kind of innovating a new problem.

You’re actually changing consumer behavior. So, as long as a thriving startup ecosystem is there, there is a thriving space for emerging managers. Even if it is stage specific, assume 10 years down the line, there are brands which have been established saying this is a brand for seed and so on.

Even then, there is a space for one more emerging manager. And the reason why I believe this is the same reason why startups thrive. You’re always working in the blind spots of the big guy.

There are certain blind spots and there is a certain pace at which a big one works versus your pace. There is a certain focus with which you’re working. There is a certain elevated risk appetite that you carry compared to a larger one.

There is a reputation risk or concern that’s also a hindrance to how a larger firm plays. Whereas, as an emerging manager, you’re basically building your reputation. So, you’re actually that much more risk taking.

So, I think that space is there and I think like they pointed out also, it’s very important to identify what is your call to win in that and what is that blind spot that you will go after and try to really go deeper. I think that’s most important. And like I said, I started my career at Intel, right?

The mandate was very clear for that startup within there also. Unless your initiative is able to sell a million chips, whatever you’re doing is meaningless. So, there were one or two initiatives where it was phenomenal and it was a separate startup.

I think it would have got funded. But here, unless you’re making that big dent, it will be just a skunkworks project. So, I think it’s the same thing that will apply as well.

So, there is definitely scope.

Siddhartha Ahluwalia 37:27

I also believe in David versus Goliath, especially emerging managers versus large establishments. There are a few reasons. As you observe, the fund gets keeps on getting larger and larger.

They want to be more sure about a company. So, that’s why you see larger funds gravitating more towards the best of second time founders, trying to give them whatever money they need at whatever valuation. And I think the most value universally that has been created in startups has been created from non-obvious bets.

So, you need to back Airbnb, like something like Airbnb of today to create immense value. And for that, are you the first person willing to put your credibility on the line? I think emerging managers have that kind of an advantage.

Kushal Bagia 38:25

I think one big disadvantage for the larger funds also that the bigger you become, right? Your fund status becomes a deployment problem. Because how many, if you run a $500 million fund, even if I give somebody $5 million, it’s like 1% of my fund.

So, how many of those checks are you going to write, right? You finally have to be able to do 20-30 million checks to actually deploy or just deploy a fund, right?

Siddhartha Ahluwalia 38:46

Or their mandate is very high ownership. Then a 600 million fund overall in a life of their winner would look to take 20-25% ownership. So, I think in today’s world, a large ownership also starts acting against you.

But I’ll take example of Zepto again, right? Zepto, the first backer was YC and the second backer was Nexus.

Kushal Bagia 39:10

So, first YC was not YC. There was a guy from US who put 50K in Zepto at a 1 million valuation.

Siddhartha Ahluwalia 39:15

Who was that?

Kushal Bagia 39:16

Contrary Capital is the name of the fund. So, yeah, he backed them as, I think they were just students that time. Aadit came to me also back then, right?

He said, I’m in Stanford. If you give me money, I’ll quit. I said like, I’ve just not heard of pitch like that. Show me something at least, right? And that time he was doing the Kirana Cart model. So, it’s just very hard to back someone where you know that the idea that pitching was just can’t work, right?

And it didn’t work. He changed it to Zepto and then that worked. Aadit’s case is great, right?

Like somebody coming and pitching me an idea, which you know can’t work and it didn’t work, right? But the founder himself just changed and did something else later. So, how do you ever underwrite a pitch like that, where you kind of predict this person will grow and do a different idea and that idea will work.

And so, I should back him today. That’s what that US guy did, right? And he put 50K.

So, it’s a pool approach. I’m sure he would have done 50, 100 checks like that of 50K each.

Siddhartha Ahluwalia 40:04

That guy would have done 100 checks.

Kushal Bagia 40:05

And it would have worked possibly.

Karthik Prabhakar 40:07

And there would have been maybe some sort of a connect to say that, okay, Stanford, somebody said, this is an interesting guy. So there has to be some factors.

Kushal Bagia 40:18

So, there has to be some something we should have got him on the line, over the line with the person. Yeah.

Thiyagarajan Maruthavanan (Rajan) 40:23

Many of these bets are only right in retrospect, right?

Siddhartha Ahluwalia 40:26

It is a graveyard bias.

Kushal Bagia 40:26

Even for us Giva was like that at first check, we had done Giva. It was a very, very embarrassingly low valuation. And now it’s a 2000 crore company, right?

So, everybody that time thought jewelry is not a VC business. Funnily, because there are multiple listed jewelry companies.

Siddhartha Ahluwalia 40:43

Actually, it was not yet an example.

Kushal Bagia 40:44

Because they’re not seen, but if you had seen the listed space, there were many listed jewelers back then also. But maybe it was a men’s bias because most VCs are men, or I don’t know what it was.

But for two, three years, everybody would pass on the company saying this is DTC brands. People themselves, that itself became a more conventional thesis after Mamaearth. And second within brands, jewelry, everybody like this is not a job.

We have tech VCs and like a very few people looking at it, the company at all. Right. So, yeah, I think the non-consensus could be either the space or the founder.

Sometimes a person whom you feel is not backable ends up building a large business. Sometimes there’s a space which everybody thinks is just not a VC space ends up like Airbnb also was like that. And Paul Graham’s emails he had shared with other VCs.

They were saying who will share their couch with a stranger and stuff like that. So yeah, it could be either the person.

Siddhartha Ahluwalia 41:36

So we at Neon, we are looking for founders, which again, who can sell a hundred thousand dollar ACV deal to customer, but are poor to selling to VCs.

Kushal Bagia 41:48

Yeah, that’s a great framing.

Siddhartha Ahluwalia 41:50

Like VC would tell them they’re not good storytellers, but they’ll not be able to raise money.

But the same guy or girl are able to sell to customers. If, and I think we have been able to find like the 10th of them at Neon. Ultimately we have seen when these companies hit 10 mil or 20 mil revenue, they would be passed by every tier one VC, but then your revenue speaks for itself at the scale of 10 or 20 million ARR.

We have a portfolio companies like that.

Kushal Bagia 42:22

We’ve seen the same. And in fact, I’ve seen fundraisers out of two types. One is a story fundraiser and one is a number fundraiser.

There are, there’s a type of founder who’s great at talking the VC language. They know what the VC wants to hear and they’ll, they’ll say it bang on point, right. And they’ll raise a lot of money.

Sometimes these founders are able to also execute and the business numbers also catch up to the money that they’ve raised, but often not also. Right. And the other cases where the founders struggle that fundraising, but somehow, you know, pieces together raise round after this round, and then Slice is, I think example that they had like a bunch of rounds, small rounds that led up to a large outcome.

Even I think Meesho also had a bunch of small, small rounds and finally they got a elevation to come in at series A. So there are many companies like that, where the, where the business sort of catches up to the, sorry, the story catches up to the business. After a point, it’s just, you can’t ignore the numbers.

And then VC start coming into the company.

Siddhartha Ahluwalia 43:18

And even in categories, let’s say for example, we have a company called SpotDraft in Neon. Companies are 20 mil ARR. They recently raised 54 mil series B from Vertex Singapore.

None of the Indian tier one VCs are on the cap table. It’s not like they haven’t looked at, they would have looked at multiple rounds.

Another company CloudSek at 10 million revenue. They recently raised 20 mil at like a hundred mil plus valuation from a strategic in the US. None of the tier one VCs from India.

They looked at multiple rounds stating sometimes market is small. The founder is, but I think the founders surprise.

Kushal Bagia 43:54

For us, the best is not obvious versus obvious example in our current portfolio is NewMe. When they started, there was this company Virgio, which raised a ton of money because the founder was CEO of Myntra. There, I think 30 million pre-launch, pre-product based on the guy’s profile and the idea.

NewMe basically got passed by everybody for about a year.

Siddhartha Ahluwalia 44:13

Accel finally invested.

Kushal Bagia 44:14

Accel finally came in by the series A. So, but they raised from us, then they raised from some funds. I’d never heard of some US based funds came in, then Fireside came in, then Accel came in, but there was a 18 month period where he was just nonstop struggling to convince anyone to invest. So yeah, eventually the numbers caught up to the story.

Siddhartha Ahluwalia 44:36

I want to do a rapid fire before we proceed next and you would think of the answer within the first two seconds, right? So one company that you wish you have invested in. Karthik, first.

Karthik Prabhakar 44:49

Swiggy, I saw and dropped.

Siddhartha Ahluwalia 44:52

You saw it?

What about you, Rajan?

Thiyagarajan Maruthavanan (Rajan) 44:54

Postman, I saw it very early when they were in India. The founders were interesting.

Kushal Bagia 45:00

I already said mine’s Zepto.

Siddhartha Ahluwalia 45:03

And you saw Aadit, right?

Kushal Bagia 45:04

Yeah, he came and pissed me.

In fact, I had an intern who joined me. That day was his first day. First call was Aadit’s pitch call.

So whenever I catch up with that guy, he’ll always remind me, Aadit had pitched us and you didn’t invest. I am like, Yeah, man, thanks.

Karthik Prabhakar 45:17

Yeah. No, Swiggy was an interesting story. He’s my batch. So when he came back from London, so connected and then we actually sat and we had lunch and he also said, help me with the business plan and all. Worked on that and then took it back to my team.

And I was still kind of early then. And everyone said, Foodtech, what will happen? I said, okay, let me not waste my time here.

Siddhartha Ahluwalia 45:45

I think some of the legendary stories are like in Flipkart also the founders were like not VC favorites.

Karthik Prabhakar 45:54

Everyone had seen that.

Siddhartha Ahluwalia 45:55

Everyone in the market had seen that. It was like Abhishek from Tracxn and that took and he was an associate in Accel and that took a standing that I’m going to put my money in it. Finally Accel, he convinced Accel over a period of six months.

Because he was willing to put his saving of 10-20 lakhs in Flipkart.

The one investor from India and one globally that you admire the most.

Karthik Prabhakar 46:21

Investor from India, Accel. Investor from global, Benchmark.

Siddhartha Ahluwalia 46:25

And individual partners.

Karthik Prabhakar 46:29

Don’t have an individual partner favorite as such. But I guess the way they were built as an institution and not made it a person centric. I think that’s what I admire the most.

Siddhartha Ahluwalia 46:39

What about you Rajan?

Thiyagarajan Maruthavanan (Rajan) 46:39

For me, from India, he’s not in India anymore, Ashish Gupta , Helion one of the smartest man I’ve ever seen on earth. The second is, or the global one, I’d actually pick between Elad Gil and Gokul Rajaram. Gokul Rajaram would not look like a typical investor.

But if you look at the top unicorns, I think from an investor perspective, he’s in top five in terms of picking unicorns.

Kushal Bagia 47:05

I think India, I really like Elevation. I think Mukul’s track record even there is exceptionally good. I think he’s on the board of some seven or 10 unicorns.

Firstcry, Swiggy, Unacademy man on this, the whole list of them. And globally, I’ll probably still say YC. I’ve just seen nobody.

What I love about it is I think everybody else, how much of an institution you build, if the people change, the funds ranking changes, like Kleiner Perkins used to be one of the top funds. They then went down. That cycle keeps repeating in the valley as well.

YC is the one where I feel the founders are comfortably retired and the brand still continues to kill it as the one exception in the world where the, I feel the brand has gone way beyond the person.

Siddhartha Ahluwalia 47:50

So I think in India, I would rate funds that are accessible. So I would rate Karthik Reddy from Blume and Alok from Stellaris. They’re yet to be Shekhar Kirani’s of the world, but I think they have all the traits right now to be that in the next 10 years.

And globally, my favorite is Peter Thiel just because how non-contrarian he has been throughout his career on everything, not just investing or politics, everything.

What’s one thing you would like to change about Indian VC ecosystem?

Karthik Prabhakar 48:29

There’s so many things to change, but I think just taking high conviction bets.

Thiyagarajan Maruthavanan (Rajan) 48:36

I would actually say I don’t want to change anything. I mean, it may sound a little odd.

Yeah, like from a VC perspective, very new, but like I already shared about this experience that I had where I spoke to a lot more VC. I thought I had learned about VC from Fred Wilson. And then when I created that book and then I shared it with so many folks and I learn and then I understand that no one is doing wrong.

So you have to first understand the game before you change the game. I would still say I’m a very, very young student. I can’t think of anything to change because whatever is happening in India because it’s come through the school of hard knocks.

Kushal Bagia 49:11

I would say two things. One is most VCs in India still don’t honestly close the loop with a founder. There’s still a lot of ghosting and just like somebody comes and pours their life’s dream out to you and you just don’t reply after that.

That’s just bad. And second, I think is the paperwork also in India is insane. US sold it many years back and like here we take anywhere from two to six months to just close the deal.

And most VCs don’t think of it as their job. They just hand it off to the legal thing. This guy will do it.

And the founder struggles with that for the next four to six months. Those are two things I would love to change.

Siddhartha Ahluwalia 49:47

Founder that you would want to invest in but not work for.

That’s a hard question.

Karthik Prabhakar 49:51

That’s a very hard question. I don’t know much of those. Requires a lot of thought.

Siddhartha Ahluwalia 49:58

I can start with.

Bhavish.

Karthik Prabhakar 50:00

I was about to come to that only because I had evaluated. I have a very interesting experience of the first meeting back then. We were evaluating Taxi for sure.

And based on that, we felt that we should be putting money in Ola. And that was a very interesting conversation that we had when we went and said we want to evaluate. And then so I think Bhavish should be the one.

Siddhartha Ahluwalia 50:25

Rajan?

Thiyagarajan Maruthavanan (Rajan) 50:26

Since you and I know Vijay, I will say Vijay is someone that I’d like to invest in but not like sort of work for is because he’s like such a driven guy and you can see that he’ll carry the team with a certain velocity and things like that. So practically anybody that I would invest in, I would not want to work for them.

Kushal Bagia 50:41

Yeah, same thought. I was thinking of Deepinder all this while, great. I mean, if you bought the stock early on, good for you, right?

But I can’t imagine working for the guy, probably be 18 hour days every day for 20, whatever, 20, 25, 20 days, 30 days a month.

Siddhartha Ahluwalia 50:55

Yeah. In my case, it’s reverse, right? Though I’m invested in AtomicWork and Vijay, right?

I would love to have worked for him. And this is the reason I’m an investor because I thought I can never be co-founder to a person like Vijay because his bar is his co-founders are Freshworks’ co-founder. Being an investor is the only way that I can get to partner with him.

Thiyagarajan Maruthavanan (Rajan) 51:14

That’s a good way to think about it. But you should try, I know you should explore that with Vijay.

Siddhartha Ahluwalia 51:19

I’ll ask him for an internship.

What you have unlearned as an investor, especially after starting your own fund?

Karthik Prabhakar 51:30

Unlearned as an investor. So many things that I’m unlearning along the way. I think this whole bias of big brands and big people know a lot is something that I’ve kind of unlearned.

There’s a lot of high conviction that you can have independently.

Thiyagarajan Maruthavanan (Rajan) 51:50

Not say as an investor, a broader person, but it’ll apply as an investor. I unlearned that power laws matter, right?

You know, everywhere. I mean, there are a lot of areas in life that power laws apply. So if you’re someone who’s like working on an equity based business model, like power laws matter.

Siddhartha Ahluwalia 52:05

Kushal?

Kushal Bagia 52:08

Yeah, I think similar to what Karthik said, I think tier A brands, they are often wrong. Like, it takes time to accept that you can, maybe you’re right and maybe someone else and vice versa also, right? So you need a lot of humility in this business.

But yeah, often one big unlearning for me was as an outsider, I should think all these big brands or whether they’re big founders or they’re big VCs, they often make mistakes. So they’re on aggregate, they’ve done really well, but individual decisions you have to question every time. Are they seeing things the right way or not?

Siddhartha Ahluwalia 52:41

One memorable lesson as a founder has taught you.

Karthik Prabhakar 52:49

I think it’s humility only. In my very early days, I think the approach was always about more preachy. And this founder actually point blank in one meeting, after the meeting, he came and told me, hey, look, you are not adding any value in that discussion.

And you better think what you’re doing. I think that was a great learning for me to make sure that you’re kind of, if you’re talking, then better add value, otherwise keep quiet.

Thiyagarajan Maruthavanan (Rajan) 53:18

So this happened in a discussion, but then it came out of like, you know, because the founder repeated it in that discussion, stuck with me, he said, you know, use this code, he said, you know, I may be wrong, but I’m never confused.

So that particular line actually stuck in my head, because that’s like a great quality for like, you know, founders to have that like every day, they have to be 100% sure they may be questioning themselves. There are many ways to sort of state this strong opinion, weakly held intellectual certainty, emotional uncertainty, all of that. But the way the founder said that today, I’m very clear that this is what I’m doing.

I might be wrong, but I’m not confused. Because if you express that confusion, the team members get confused, your investors get confused, the broader public get confused. So you can actually be completely like, you know, opposite to what you believe yesterday.

But at that particular day, you have to be 100% sure, more than 100% sure. So that one thing like, you know, stuck in my mind from that founder for a very long period of time.

Siddhartha Ahluwalia 54:17

Kushal?

Karthik Prabhakar 54:19

I think it’s the, for me, it was probably Vidit that once told, like, before they went up competing against Flipkart and Amazon, he had told me, we’re going to do it. I was just like, this guy is crazy, man.

Like, it was at that time, Amazon, Flipkart were like these giants, right? Like, you couldn’t imagine that they are fallible, right? But Meesho went after them and they won.

So ambition, I think is one thing I learned from that chat that to do those things, you have to first dream of those things. Most people don’t dream only about, you know, that big, that itself is, I think, like the big gating criteria.

Siddhartha Ahluwalia 54:50

Yeah. It’s a self-realization, which, you know, Vijay told me once that Sid, being nice is your strength as an investor, as well as your weakness. So I accept that.

Thiyagarajan Maruthavanan (Rajan) 55:01

Good one.

Siddhartha Ahluwalia 55:02

Yeah. So thank you so much, Karthik. You know, I would love to have like 75% of my notes are still left.

I would have to have another conversation. Thank you, Rajan. Thank you, Kushal.

Kushal Bagia 55:11

Thank you.

Siddhartha Ahluwalia 55:11

Super fun.

Karthik Prabhakar 55:12

Thank you.

Thank you very much.

Siddhartha Ahluwalia 55:12

Learned a lot.

Karthik Prabhakar 55:14

Likewise.