Siddhartha Ahluwalia 1:04

Hi, this is Siddhartha Ahluwalia, your host at Neon Show and also Managing Partner at Neon Fund. A fund that invests in the best of enterprise software companies that start from India and build for the globe. Today I have with me Saurya, founder of Recko.

Saurya, you have a very interesting journey. Welcome to the podcast, first of all.

Saurya Prakash Sinha 1:24

Thanks Sid.

Siddhartha Ahluwalia 1:24

You built Recko into one of the leading financial reconciliation platforms from India, used by finance team at Deliveroo, Myntra, Meesho to track the revenue. And within three and a half years, I think this would be one of the first companies from India to get acquired for 150 million dollars and that too by a global giant like Stripe. So congratulations on the journey.

Saurya Prakash Sinha 1:44

Thanks, Sid. Thank You

Siddhartha Ahluwalia 1:45

Such a fantastic example for founders from India. So I want to start in reverse.

How did the acquisition with Stripe happen?

Saurya Prakash Sinha 1:57

I think during that time, we were actually in the process of raising a series B round. And we were having, I think, conversations with a bunch of VC firms. Right.

So during that time, I think on one of the weekends, me and Prashant were just doing our regular things. And all of a sudden I received an email from Patrick where…

Siddhartha Ahluwalia 2:24

Patrick Collison, founder of Stripe.

Saurya Prakash Sinha 2:26

Patrick Collison where…

Yes. And I think initially I was a little bit confused. I think both me and Prashant were confused.

Siddhartha Ahluwalia 2:33

Did you check the email was genuine?

Saurya Prakash Sinha 2:34

Oh, yes, we did. And I think both of us were very confused because we were like, I mean, we have never interacted with Stripe. We possibly don’t know anybody from Stripe.

We’ve never worked with Stripe. So why would Patrick Collison send an email to two random dudes sitting out of Bangalore?

Siddhartha Ahluwalia 2:55

Yeah.

Saurya Prakash Sinha 2:56

But then I think we responded to it. And then things moved really fast. So immediately, I think Patrick introduced us to John.

And next day, we were on a call with him. So they quickly, I think, moved fast and essentially came back to us that they would be keen on, say, investing in a round. So that is how it kind of happened.

But how they got to know about us and what was the thing which triggered the reach out. So that is still something which is mystery for us.

Siddhartha Ahluwalia 3:31

You have never asked Patrick on.

Saurya Prakash Sinha 3:33

I mean, we have never asked them. But I’m sure. I mean, I’m a little bit unsure how it happened, but I’m glad it happened.

And I think, I mean, then after a couple of conversations. So we went ahead with our Series B round where Stripe was leading it. But during that time, we started engaging more with the Stripe team.

And I think after close about, say, a month of deliberation. So the Stripe team came back and the Stripe team said that, look, I mean, we would be very interested in working very closely with you guys. And I think at that point of time, I was like, I mean, you guys are already equity investors.

So how much more closer do you want? But I think then the team said that at that point of time, it makes a lot of sense for essentially us and Stripe to work together. And they are keen on acquiring the whole company.

Siddhartha Ahluwalia 4:34

Got it. And now I want to come back to the journey, because this is a very important milestone, right? In your journey, in Recko’s journey. And obviously, right?

This is the largest acquisition and the only acquisition for Stripe in India till now. So you guys have really put like, for example, India on the map, like one of our portfolio founders, Kumar, he started Slang Labs. So his first company was Facebook or Meta’s first acquisition.

Little Eye Labs was the first acquisition by Facebook and Meta. Right. So I think these incidences, these acquisitions put India on the global map.

The quality of software that we produce can be better than anybody else globally. Right. So coming back to the point, how did Recko get started? Right. All the things around your thesis, building the team.

Saurya Prakash Sinha 5:29

Right. Right. Understood Sid. Sid I think, I mean, that’s a really important question, because I think there are generally multiple ways.

I feel like, I mean, there are possibly two ways in which people try to start a company. So I think the first way is where people try out multiple things. And I think the second way is where generally you have some kind of an opinion on a domain.

And then you just want to go a little bit all out on that. So in case of me and Prashant, both of us were part of some very fast-growing B2C companies in India. And primarily we were working on the post-checkout side.

So that is a place where you see a lot of complexity. So one of the things which I was seeing during my time at Flipkart, on the consumer side, we had so many payment gateways which were being used for processing the payments. And then we had a lot of merchants on the other side of the marketplace where you deduct the fees and then essentially you do the payouts.

But at any point of time, if you have to ask this question, what is my cash position? It’s very, very difficult to figure it out. The other thing is that payments are also becoming complex at that point of time.

So where a consumer can actually pay for a card using, say, a debit card, credit card, loyalty points. And then this part can be exchanged over a period of, say, 30 days. And this 30-day window can fall over two months.

So things are becoming extremely challenging and complex for the finance team. And all they had at their disposal was an Excel sheet. So I was seeing a lot of time when something like this was breaking apart.

But it was more like just an observation that something is breaking. It’s not working. People are actually staying up till, say, 5 a.m. or 6 a.m. And still it’s very difficult to answer this question that have we received the right money? Have we received it at the right time? And whether the money which we have received, is it with the right charges or not? So just three questions were extremely difficult to answer.

When I moved to my next company, Blinkit, I was again working very closely with the finance team. And we had a very similar kind of problem where tracking cash was extremely difficult. So I feel a bunch of these experiences gave me some kind of intuition.

It looks like there’s something which is broken. There could be some value in it. But how to build a product, how to monetize it, how to sell these things.

Those were some things which were very unclear. But with this intuition and with this single thought that there could be some value over here, I was just ready to go and explore this field a bit more further. My co-founder, Prashant, was with Jio.

And I think he was also facing some very similar challenges over there. Because they had to provide settlement data to a lot of their merchants. And just making sense out of that settlement data was extremely challenging and very, very difficult.

So both of us started contemplating on some solutions. Initially, I think it was very unclear. I think our initial thought was to build maybe a cheaper version of Oracle.

Because we thought that maybe that is the right shape of solution. But then I think very quickly we realized over, say, 2 or 3 months, that you need at least 50 engineers working in a cave for next 2 or 3 years to build something even very close to it right over there. And we did not have any capital.

We did not have also the expertise.

Siddhartha Ahluwalia 9:34

And this is which year?

Saurya Prakash Sinha 9:35

This is actually 2017.

Siddhartha Ahluwalia 9:37

Got it. So 2017 is when you quit your job.

Saurya Prakash Sinha 9:41

Yeah, yeah. So in 2017 I quit my job. And then essentially we started the company around some of these ideas.

So initially it was more playing around and figuring out what is it that we should build. And that was also the time where I think generally people were also trying to go more into spaces which were existing categories. And I think the general approach was to introduce some kind of a cost arbitrage and play into those categories.

In case of us, it was slightly different. So we did not have, I think, any example in the market. So it was very difficult to figure out what could be your base product shape or what could be the first starting point.

And I think the most funny thing which I remember from that day, I think those times was that, product discovery was extremely difficult. Because when we used to go to the customers, our customers would right away say on our face that this is something which they don’t want. And when I used to go to investors, they would be like, this is probably one of the most stupid thing which you have ever heard.

So maybe you guys should go and do something useful with our life. And both me and Prashant were scratching our head. Because I think in hindsight, it’s a little bit more easier to say that you were contrarian and essentially you went down a certain path with a lot of conviction.

Siddhartha Ahluwalia 11:17

When you are living it, it sucks to be a contrarian in that time.

Saurya Prakash Sinha 11:20

Yeah, that’s actually true. Because you really don’t know whether you are hallucinating or there is some value in that. So it’s only in hindsight when you try to rationalize it.

But I think at that point of time, it’s very confusing. But I think you start to hold on to some threads where you feel that it looks like it’s not totally worthless. But it looks like there are some things which are making sense.

And then I think it also becomes a little bit more about how much you are ready to bet on yourself. So I think for us, the breaking point was that either if we are totally out of cash, so we’ll have to stop because we can’t pay for the servers. And so I think that was the only end point which we had kept.

I think worst case, you go back to your friends with zero savings and crash on a couch and then probably figure out something else to do. But I think that was the worst case scenario which we had.

Siddhartha Ahluwalia 12:33

What was the first validation for your idea that somebody wants this?

Saurya Prakash Sinha 12:37

So I think in our case, there was very less validation. There was very, very less validation over there. Because sometimes you hear some good things from your customer and that keeps you going.

But in our case, our customer was directly telling on our face that we don’t need it. Just don’t show your face again over here. And especially I think when you’re trying to sell to finance, you also get very small windows.

Because they have closing cycles, they have taxation deadlines, etc. So they have a lot going on at their side. So you’ll have a very small window.

But very quickly the months will pass by. And you realize whether I should keep going or whether I should stop. So we almost had very less validation.

But in general, I think we came across one or two finance controllers who were just very encouraging. And I was like, you know, there’s some hope. Let’s just keep doing what we are doing right over there.

And like this, we almost ran for a year. And then I think it was December of 2017. So we were almost out of cash.

So we probably had, you know, last $500 with us. Prashant was already out of cash. So I think I was like, I mean, this is the last $500 which we have.

And if we are out of it, I mean, we have to just go back and probably do something else. But at that point of time, Myntra reached out to us.

Siddhartha Ahluwalia 14:24

Inbound? It was an inbound.

Saurya Prakash Sinha 14:26

Yeah. Yeah. So Myntra reached out to us. And Myntra, they told us that, look, guys, we have some problem on the reconciliation side.

We have tried almost every consultant, every engineer, every Big four. And nobody has been able to solve our problem. Me and Prashant were so low on confidence at that point of time.

We were like, you know, what gives you the confidence that we can solve your problem? We haven’t done anything worthwhile during our last one year. And it doesn’t look like I think the future is bright for us.

But I think at some point of time, in the hindsight, I feel, I mean, they actually gave us our first chance where I think they still trusted a two-member team. And gave us this chance that guys, at least give it a shot and let’s see how it goes. For us, it was our best case because we were like, that in case if we are able to solve this problem for them and make this one customer happy, everything is going to fall in place right over there.

And then we worked with Myntra for almost like three, four years, very intensely. Three, four months, sorry. Three, four months, very intensely.

We used to probably start at 8AM and it used to go till I think 2AM. Continuously for I think four, five months. Both me and Prashant lost a lot of weight during that time.

But we were able to solve that problem to a very, very large extent. And I think, I mean, that let us earn our right to essentially build this product for the finance team. And once I think that happened, during that time I was meeting Sanjay.

And Sanjay was still, I think, scratching his head. He was like, I mean, it looks like there’s something interesting which you guys are doing. And since this customer is there.

So probably I think, let me invest in this round and see how this thing goes. So that is how I see it happened at that point of time. And for next one year, I mean, we were just running Myntra.

Because the loads were just so high that no matter how much you build, everything will just break down.

Siddhartha Ahluwalia 17:02

And when you started with Myntra, how much they were paying annually? And after one year, how much they were paying annually?

Saurya Prakash Sinha 17:09

Sure. So this was more of a usage based pricing, which we had. And it was slightly north of, say, 200k, which we had as our initial contract.

And then it just went beyond it because the company was scaling and it was on the usage basis. But it was also very challenging to service them because the scale was extremely high.

Siddhartha Ahluwalia 17:37

How much orders would they be serving per month that you would reconcile?

Saurya Prakash Sinha 17:42

I mean, I can’t exactly talk about the orders part, but essentially.

Siddhartha Ahluwalia 17:46

Or transactions.

Saurya Prakash Sinha 17:47

Yeah, but essentially at a row item level.

So because the amount in a cart also gets distributed to individual items, which are there. So at a row item level, it was a few hundreds of millions of rows, which we’re trying to reconcile.

Siddhartha Ahluwalia 18:00

Okay. All in Excel sheets?

Saurya Prakash Sinha 18:04

No, I mean, this was something, I mean, which was now inside the system.

But the challenge is generally, you know, working with finance teams is that sometimes, you know, the data will come to you on T equals to zero. And you have to give out the results on T plus two. But you also have to ingest that data.

You also have to process that data. You also have to compare that data. It takes time.

Right. And when you’re trying to do, I think, some of these things in memory, it also takes a very massive amount of RAMs. So I think I remember one instance where essentially we were looking for one terabyte machines.

And I don’t think, I mean, anybody uses it. Nobody uses it. There was once, I think, when Ola was using it for their peaks.

If I remember, if I remember right. But nobody uses, you know, those machines. Those machines were extremely costly.

So I think, I mean, we went to, I think, Microsoft and these guys were like, okay, we don’t have, you know, those machines. Right. But somehow I think we were able to, you know, manage it out.

But I think the load profile was just something which was very difficult to manage right over there. And then I think, but it also gave us a lot of inputs that looks like this is the kind of load profile which you can expect from finance teams at multiple places. So somehow your system should be able to support that right over there.

And maybe over the period of time you start, you know, modifying the behavior. But this could be the starting point.

Siddhartha Ahluwalia 19:47

So for Stripe, it was a product acquisition, a scale acquisition or a team acquisition.

Saurya Prakash Sinha 19:55

It was a combination of product and team and business, I guess. Because over here, essentially, if you look at Stripe, right. So Stripe was a very large payments business.

But very adjacent to payments, you also finance. Because finance is constantly using the data which is being generated by payments to do their reporting, to do their tax calculation, to do multiple financial operations things. So it’s generally one of the adjacencies.

And constantly, I believe, Stripe was getting a lot of feedback from their payment users, sorry, from their finance users that can you do something for us right over there. So at a broad level, I think Stripe really understood that looks like there’s a lot of value which exists over here. So essentially, what we had built and the kind of say, domain, very specific domain knowledge, which the team was bringing in, it was extremely valuable for Stripe right over there.

And I think at that point of time, both of us, you know, saw the value in essentially working together where we get access to a very large customer base, where there is a high amount of trust which exists with the customer. And where you can, you know, build and sell these products by combining it with the payment offering. So that is where it just became, you know, something which is very complimentary.

And I think, I mean, that is a reason where you know I feel Stripe.

Siddhartha Ahluwalia 21:37

What I also observed from this conversation is that maybe because you are processing just 100 million rows for Myntra, for across all your customers, by the time you know, you got an offer from Stripe, there might be billions of.

Saurya Prakash Sinha 21:49

Yeah, so scale was pretty high. And, but somehow I felt, I mean, the thing which resonated most with the Stripe team was around how the product was built. And, and I think the thoughts which were around say, product building, and we’re a lot more mature.

I also feel, I mean, we were never, you know, very amazing prod builders. But I feel, I mean, once we went through, I think, five or six iterations, I mean, you learn a lot of things right over there. So I think that experience was extremely valuable, which Stripe recognized at that point of time.

So, and then I also feel in each and every of our fundraising, our customers were extremely happy with, you know, what we were doing right over there. So they supported us, you know, throughout our fundraisers, our acquisition, because one part of your, you know, acquisition diligence is also speaking to customers. And I think I still feel a lot of gratitude towards my customers where they were just kind enough to talk about us in a very excited, excited way.

Siddhartha Ahluwalia 23:00

Yeah, usually enterprises are not open to talk about.

Saurya Prakash Sinha 23:02

Yeah. Yeah. So, but I think they were just very kind enough. And, and I think, I mean, in all the conversation, I feel, you know, customer voice is the loudest voice in the room.

So, so I think, I mean, that was something which resonated a lot with Stripe. Yeah. And then I think essentially, yeah.

Siddhartha Ahluwalia 23:22

So, so it was essentially you were at 2 million kind of revenue when Stripe offered the acquisition, and it was like a 75X revenue multiple. And what I understand from you is that, you know, it was a product built with right abstractions, right conceptual model. You had a unique point of view on the domain, which was, I think, not available anywhere else.

And customers who are very gung-ho about you.

Saurya Prakash Sinha 23:45

Yeah.

Siddhartha Ahluwalia 23:46

So these were all the ingredients for Stripe to make that step.

Saurya Prakash Sinha 23:52

That is true. I think, I mean, we also felt that, I mean, somehow, I think there was a lot of resoluteness and, and trust, which we had built with the customer. So generally, when you look at a reconciliation problem, right, it’s generally a very tough problem to solve.

Because, I mean, you have to very quickly understand whole companies, you know, systems. And sometimes these payment flows could be extremely, extremely complex. Right.

But I think we had built a reputation that somehow, I think, I mean, if you’re working with these guys, they will figure things out over there. And over the period of time, I mean, this reputation also gets, I think, gets known more in the market. So sometimes you’re, you know, you’re, I think one of your customer might be moving from one org to another org, right.

And they bring you in the new org right over there. So I feel, I mean, that message in the market, and that essentially, they can solve your problem right over there. I think it resonated, you know, just very well, I think with a lot of customers.

I think at some point of time, I think as the market warmed up, I remember, I think there was just so much of inbound, which was coming in. But we were just not able to, you know,

Siddhartha Ahluwalia 25:18

From customers

Saurya Prakash Sinha 25:19

From customers, right. And we had to just turn down so many of them.

Because we were just not onboarding any new customers.

Siddhartha Ahluwalia 25:29

So why would you say that, you know, that Stripe was able to understand the scale, the magnitude and the product complexity that you were solving, but none of the VCs were like.

Saurya Prakash Sinha 25:41

Yeah, I mean, yeah, I think it was, it was a bit challenging, I think, at that point of time, right. So I remember, I think when we were fundraising, it was extremely difficult for us to, you know, probably make a case that why this company should get funded. But, but essentially, I also realized, I mean, at that point of time in 2017, 2018, right.

So we did not have a lot of people who were, I think, investing in B2B site. So we had, I mean, we did have, you know, some people, but I still feel I think the number of people was less. I think that was the first thing.

The second thing which I also feel was that back office was unsexy. It was still very unsexy. But, but essentially, I think generally people, you know, get attracted more towards things which they can see.

But I think something, but the thing which you’re doing, it was just so much in the back office, where probably you would have never gone into these dungeons, right. So I think that was the second reason why people were just not very, people just could not relate to it. I think the third one was also around that there was in general, an idea which people had that, that company should very quickly go into a hockey stick kind of a growth path. But I think now in the hindsight, I feel when you’re building an enterprise company, there’s generally a gestation period. There’s generally a period which is required to build the product in the right way.

And, and essentially, and essentially, I mean, some domains can have a longer gestation cycle, right. So, but that was something which was, I think, which was something which people were not resonating with at that point of time. Right.

So, so I felt, I mean, these are some of the things which were, which essentially making it very difficult for us to, you know, raise any fund at that point of time. And I think the other thing is that, I mean, in some cases where customer, where I think a few VCs also tried speaking to the customer, but the customer would be like, hey, I mean, we don’t have this problem. So, and maybe I think what these guys are doing, it’s stupid.

Right. So, which is where I think there was not a lot of excitement at that point of time. I think there’s probably I think one more thing which I would also add is that majority of the companies which are getting funded right, so these were also operating in an existing categories where you had some benchmarks and you had in some reference points. But in our case, it was a new category, which we’re opening.

There’s nothing which exists in the financial operations. And, and we did not have any examples of that over there. So, so I think that was the place where, where I think, you know, it was just becoming very uncomfortable for anyone to come and invest their money.

Siddhartha Ahluwalia 29:08

Yeah. Also see that, you know, because we haven’t seen many successes in the B2B space in India. Right.

What usually happens is, because let’s say Freshworks, like Zoho was always the private company and never raised money. So people can’t, you know, relate to it very closely, but Freshworks, many investors were part of the journey, seen the company’s success. So, so people started replicating that playbook that, Hey, we want more companies, which can be like the Freshworks, the Nth Freshworks from, from India.

So it’s difficult for them to re-imagine any other category that succeeds.

Saurya Prakash Sinha 29:45

That is true.

That is true. And Sid I think, I mean, like, since we’re talking about, you know, I think a bit more on, say, how we look at the cost arbitrage existing categories. Right.

I feel, I feel the amount of over indexing, which, which I think the ecosystem has done on some of those models. Right. And I think it has, it has somehow been extremely detrimental because the challenge is that, I mean, when you start broadcasting a lot of those things out there, I think people start realizing that maybe this is the right way of, you know, building the company where we have to be go, we have to go really, really, you know, marketing first, right over there.

But in more cases than not, what we have seen is that essentially you need to start with a good product. You need to start with a good product, which is providing sufficient value to the customer. Right.

And then essentially figure out a way of distributing it to more and more number of people. But somehow I think the conversation was getting started, you know, how do we, you know build the distribution or how do we, you know, introduce a cost arbitrage, right? Because the thing is that, I mean, you will definitely have, you know, some customers, right? So which will be, buying you.

But the thing is that at some point of time, if, you have to go up market, or if you have to, you know, support say a breadth of customers, which are small, which are medium, which has a large size right over there. And where do you have to, where do you have to keep product superiority and essentially technological superiority, right? So you have to build parts in such a way.

And then the way your product is built and the way you’re getting to the market, it also starts getting reflected in your public company valuations over there. So there are some companies which have been run for, you know, multiple decades and are still at a single billion dollar kind of valuation. But I think, I mean, somehow when you’re competing globally, somehow when you’re competing globally, I feel the ambition should be a lot more.

And to essentially suffice that ambition, you have to build your product or think about product in such a way where, you’re competing with the best in the market, otherwise, I mean, you’re not going to command a very good public valuation.

Siddhartha Ahluwalia 32:21

Who are you competing against when you started globally? Any, any…

Saurya Prakash Sinha 32:26

Surprisingly, I mean, we were not competing against anyone. We were actually competing against Excel at that point of time, right? So they were only two companies which are talking about reconciliation in 2017.

I think there’s a company called Modern Treasury in US and, the other way were us right over there. But I remember, I think, I mean, post, Recko’s acquisition, I think there’s too many companies now over there. I still feel that the product shape and needs to be in a certain way in case if somebody wants to win this market. Currently we are seeing, seeing people building something in the silos here and there, right.

Which I just don’t think is the right product strategy.

Siddhartha Ahluwalia 33:13

And, and, you and Prashant were also early angels and mentors to Anand at PingSafe, right? And you played a key role in the acquisition of PingSafe by a public company, SentinelOne, which was again, like the PingSafe was a 2 million revenue and the company was acquired for a hundred million dollars. Right.

So what are the common themes that now you have been part of two major acquisitions, right? That you can say, because these two have been like, if not the largest, but some of the largest acquisitions from India.

Saurya Prakash Sinha 33:42

So I think, I mean, first of all, in case of, you know, PingSafe, Anand is a very amazing founder. And, and I think, the way, the way I think he ran the whole, I mean, process, right? So I think it was very mature, fair and thoughtful for, towards all the stakeholders.

So I think, I mean, full credits to him, you know, how he, you know, did that. Me and Prashant were, extremely lucky to be one of the earliest check in PingSafe, because we also happened to be the first customer of PingSafe. So before that, Anand was working on, you know, some of the…

Siddhartha Ahluwalia 34:33

And this was which year when you invested?

Saurya Prakash Sinha 34:35

This would be, I guess, 22, 22, right.

And then, during the course of, you know, company building, I think we had, you know, some of our learnings from, from Recko and Stripe days, because, somehow I think a lot of challenges are very similar, because it was a security company. A lot of, lot of people were able to, understand in what they were doing. And, and we were able to, you know, just sometimes, you know, pass on some of our learnings that, you know, we went through something similar.

So just keep going on this path and, and, till the time you have happy customers, I mean, that is the thing that you need to optimize for. So, I think when, when essentially there was, when the interest around acquisition came in, somehow it was a lot more, a very similar in nature. I mean, in terms of how it was for us.

And I think me and Prashant, both of us shared, a lot of, I think, learnings from our experience. And then, and then I think, I did feel, I mean, it really helped. I think Anand in essentially making sure that the process was a lot more mature and, and it was..

Siddhartha Ahluwalia 36:04

And what do you mean by mature, like, can you give some examples of it?

Saurya Prakash Sinha 36:07

So generally I feel when I say mature, I’m also trying to find, say some right words to characterize it is that, you know, acquisitions are also a little bit more, challenging, because, because as a founder, I mean, you are at a point where, you have very, very less number of people from home. You can, borrow their learnings. Like in case of us, I mean, we had, a friend who gave us, you know, some advice, but apart from that, we did not have anyone.

And the second thing is that, it’s also a place where you have to manage a lot of expectations. You have investors, you have employees, and, and essentially at multiple places, the, the interest also diverge. The incentives also diverge for people, right?

But during that incentive still, I mean, you have to carry, or you have to bring together your employees. You have to bring together your, your lawyers. You have to bring together your investors and still, you know, take them in a certain direction along with the buyer right over there, the challenge is that, I mean, you have very limited communication to achieve that because you also can’t talk about it openly.

And, but still, I think somehow you have to assure people, keep the communication in silo that guys, you know, we are going through something.

Siddhartha Ahluwalia 37:51

The communication can only be between max four to five people.

It can’t go outside that small room.

Saurya Prakash Sinha 37:56

That’s true. Right. So, I mean, in case of us, like, I mean, in case of us, if you see, it was primarily between say us and two board members, just that, and I think I’d specifically requested them to, you know, keep it in a very, very close loop over there, but, but I think there are just so many things which are going in your head, and it’s very difficult to some, sometimes, you know, do something which in the spur of the moment, right. So which can, you know, just move things in a certain way.

Right. So, so you need, I think a lot of, I think personal balance and anchoring to keep moving things a little bit ahead, a little bit ahead and it’s massive amount of work. It’s massive amount of work.

For me, I think it was almost like six months of, you know, just sitting inside one room and I think my employees were like, where is this guy? I mean, we just, just can’t see him. Right.

And Prashant was running the show.

Siddhartha Ahluwalia 38:56

The acquisition process took six months. End to end.

Saurya Prakash Sinha 38:58

Yeah. So essentially, I mean, the diligence is almost a very, extreme.

Siddhartha Ahluwalia 39:04

Three months kind of diligence.

Saurya Prakash Sinha 39:05

I mean, it easily takes like a four months and it generally starts from the point where you have incorporated the company.

Siddhartha Ahluwalia 39:10

So where was your incorporation?

Saurya Prakash Sinha 39:12

So our incorporation was in US and we also had an Indian entity, but essentially you go through every single thing. I mean, which you have done over the period of, you know, your whole company. There are some buyers which are, even more diligent right over there.

So, so essentially it becomes, I think just a lot of work, just a lot of work. Right. And you know, I mean that, it’s a massive amount of work which you have to consume and I think the thing which you keep in your mind that there’s light at the end of the tunnel, I think this was a thing which I used to, and I just keep hearing, just, just keep going because there’s this light at the end of the tunnel, keep going, keep going over there.

Right. So, but I mean, as a founder, you haven’t been exposed to it. Right.

So, so generally I think during the process, then you build a lot more muscle. And I think once you have gone through it, you pass on some of these learnings where I think the most important point is how to keep everybody together. Because if acquisition is happening, your employees are leaving or say, you know, if interest, if say investor starts, you know, putting in some very unusual clauses, right.

Or et cetera, et cetera. I mean, all of those things can happen. Right.

And, and sometimes I think I also feel people become a little bit more, I think indexed on not leaving any money on the table right over there.

Siddhartha Ahluwalia 40:43

Yeah. I think this is very particular. So you want to squeeze the last drop from the acquisition.

Saurya Prakash Sinha 40:48

Yeah.

So, but sometimes I feel it’s much more important to, I think, trade some amount for relationships over there because it’s not the only time when you’re going to work with each other, but, but I think, there will be multiple occasions where you’re going to work with each other.

Siddhartha Ahluwalia 41:02

Can you also speak about pricing the acquisition? Like how, how, how did the pricing journey move?

Saurya Prakash Sinha 41:08

Oh, sure. Sure. So generally I think the way I think some of these things happen, right.

It’s a little bit like this, right? So the first offer, which you get would be around say three X or four X your last valuation, right? It was, so that is where it starts.

Right. So, but essentially, most of the acquirers, they have a certain budget, which they have, right. And there’s a upper cap, which, all the acquirers have that they can essentially go up to this level.

Right. So, so there’s a lot more room for negotiation from say three X, right. But it also depends a lot on say what you’re bringing to the table, right.

If it’s, if the product is not built in the right way. So, I mean, I have, you know, a lot of examples of companies where generally, I mean, they go at a, say three X or a four X kind of a revenue multiple, right, where essentially the, where essentially, I mean, the product did not have, you know, much strength, right over there. But essentially if you’re building, if you’re bringing say something, which is very specific, very unique and very condensed to the table and it’s reflected in your product, it’s reflected in say your hiring, it’s reflecting the human capital and it’s also coming from your customer side, right? So then you can go a lot more higher as compared to say three X or a four X.

Siddhartha Ahluwalia 42:35

You also mentioned in an offline conversation that the Collison brothers are some of the best communicators that you have seen, right? Can you share some, some stories, some examples on that and how it reflects in the entire company?

Saurya Prakash Sinha 42:50

I mean, it’s a, it’s a little bit like, that there is, there’s a huge amount of, I think indexing, which is towards writing things. And, and I think, I mean, generally the writing culture is like extremely heavy inside Stripe, right? So, but it does two things, right?

First one is it, it, I think helps people think and helps collaborate async. The second thing is that, and I mean, if you have said something, which is verbal, right, it gets lost after that communication, right? But if you have written it down, it can be referred to by multiple people at a multiple point of time.

Right. So I feel, I mean, these are some things which really help, but I think apart from that, I feel, with Patrick and John, have built a culture where people are very detail oriented and, it gets reflected in the documents, it gets reflected around, say when people are thinking through problems and, and drafting out solutions, right? So, so I think that becomes a little bit, unique to the company.

Siddhartha Ahluwalia 44:08

One thing, you know, like how US technology companies look at product acquisition is very different than how products get acquired in India. Can you emphasize more on that?

Saurya Prakash Sinha 44:19

Oh, sure. Sure. Sure.

So generally I think, I mean, whenever you, you see, you know, some of these product acquisitions, right? So these are specifically looked at from a lens of something called as product acceleration, where you’re saying that, look, I mean, if I have to build something like this, it’s going to take me, you know, probably say three years, period of time. And then, do I have the right expertise for it?

Do I have the right domain knowledge for it? How many chances that I would be landing the right product shape, right? So you try to reduce a lot of these risks by acquiring a company, which has already gone through this phase.

And where do you, you are able to see, I think the initial spikes of product market fit, and then you go and essentially, you know, make a case to these companies that we should work together, right? So conceptually, I think that is where it starts with, right? Before that, the reason why I say this specific product becomes relevant is, is because I mean, generally larger companies, you’re not all, you’re not, you know, selling product in silo, but you’re selling a suite.

And when you’re selling a suite, you always have to make sure that your suite, in capability is essentially comparable to some other company suite also, right? In case if you’re not, then in a lot of cases, you’ll be losing on the sales side, right? Because somebody will be saying that, Hey, I have, you know, this, these five or six products, they work very tightly together.

They’re interoperable. And, and essentially, and essentially we would be able to take care of all of your things right over there. And then imagine say another competitor would say that I have, you know, two or three products essentially.

And, and I don’t have the remaining, say three or four, capability, right? So in most of the cases, I mean, they’re going to lose, right? So generally people try to compete a lot with each other on the product capability and product suite side.

So if they’re seeing a gap, they will start evaluating whether they should build it inside or outside. And, and in case of the evaluation is this, that, I mean, we need to, you know, get this thing from outside. Then they start scouting for companies, right.

And when they’re scouting for companies, right. So then there are a few things which becomes a critical one is, what is the valuation, which this company has in case of the valuation are very high. I mean, you might still not go for it.

How is the founder profile? Is the founder, lot more say marketing or say business indexed or say these are very technical product oriented founders generally I think technical and product oriented founders are more popular and say this, bracket of acquisition, which is a, which is say somewhere around say a 100 to 300 mil kind of a thing, right. Then, I mean, you look at say company culture. So if the company hiring culture, et cetera, are somehow matching, say the kind of company, or say the buyer right over there, so that becomes a little bit more easy to absorb the company at a later point, I think absorb the company human capital along with say the one which is currently existing, so probably I think these three or four things, I mean, which becomes a part of the evaluation.

Siddhartha Ahluwalia 47:57

So Stripe acquisition of Recko was a product suite completion in the CFO stack or a product acceleration.

Saurya Prakash Sinha 48:07

I mean, it, every, every acquisition is an acceleration, but essentially, the acceleration, the reason why it happens is because you want to complete a product suite, right. Or do you want to add one more thing in the product suite, I would say, right. And it’s something, I mean, which your customers are asking, but internally, if you try to build it, it might take you a long time, right.

And then similarly, in a lot of cases, I think it does not fly out in case of say larger companies to ship out, say some new product generally, because I mean, the domain expertise, is sometimes less or say, the minus one to zero journeys are also a little bit, difficult to, I think, pursue inside larger organizations because you have a lot of constraints under which you work, right.

So, so oftentimes, I mean, if you have to, you know, just, underwrite the technology risk or say remove the technology risk, it’s much more valid to an acquired company as compared to, you know, say, try to build it.

Siddhartha Ahluwalia 49:09

And one important factor that I want to discuss is like Indian companies are talking about ARR in B2B space. And even when Indian companies acquire other Indian companies, ARR becomes the, the bottom line, because essentially we are a very new ecosystem in B2B acquisition, even B2C nothing has happened except Flipkart, Myntra and a few like Flipkart PhonePe deals. And, so why ARR at early stages is not the right metric to measure the product or the company.

Saurya Prakash Sinha 49:41

Yeah. I think I’m going to get a lot of flake for this, but, but generally I feel, that it’s some, it’s something like this, right? So I’m going to reason it something like this, right?

In a venture, I mean, if you’re investing in a company, right? So somehow you’re investing in a company because you feel that it’s going to become say a hundred million dollar company right over there. Now, I mean, if you sit at a point of say a hundred mil, and if you look back, I mean, you will not find say a lot of meaning in say initial one or two mil.

So, at that point of time, I mean, what you’re essentially looking for that, what are the right signals which I can have and which can give me enough validation and comfort that this is going to be a hundred mil dollar company, right? Over there. And I think more than revenue, what I would more index on is product shape and product usage, because your revenue is your lagging metric.

Sometimes you can have a lot of revenue, right? But maybe you might, you know, just cap out at like five or six mil, right? Right over there.

And we have a lot of companies which are around that. So I think the place where I generally try to, I think now index more on is your product shape needs to resonate very well with the customer and essentially it’s business process. You should be able to fit in very, very well, right?

And that gets reflected in essentially your usage. So if the usage is high, if the usage is high, you can always put a price to it over there. So I think what I would index a lot more or what I would ask, an early stage company or a seed stage company is how’s the usage of the product, right?

How many people are using it? How many times are using it? How many times they’re downloading reports, right?

Right. So those are the things which will be more strong signals to me because your pricing can change. Right.

I remember at some point, point of time you were charging X pricing. Someone later point of time, you were also charging three X pricing right over there. In some cases you might also charge a lesser price right over there.

So, so I feel, I mean, it’s a lot more important to index this specifically on the usage part. And maybe I think, ARR question in the early stage might not be the right question. I mean, once you are confident on your product shape, right?

So then you can talk a little bit more about it. How do I accelerate the revenue where you work on your pricing, where you work on your packaging, right? But the initial days are more about, you know, how do I essentially, you know, figure out a product which, which is creating enough value for the customer, right.

And which is getting enough customer love, right. And I think we have a lot of stories where people have actually passed on companies because I mean, the ARR was low, right. But, but probably I think I will, I will just index a lot more on the usage part, right.

Siddhartha Ahluwalia 52:26

Any other metrics to measure the product except usage on the quality of the product?

Saurya Prakash Sinha 52:31

I think the second thing is that, I mean, you also evaluate how critical is the business workflow, right? Because sometimes, I mean, your sales might be difficult, right. And you might end up, you know, essentially passing on the company, right.

But you also realize sales is difficult, but even, you know, throwing these guys out of the company is also difficult, right? So it’s difficult for you to enter the organization, but it is almost impossible for you to get out of the organization, right? Like if you take a, take the case of say, ERP companies, they are probably, you know, those kinds of companies which run at say minus 99 NPS, right.

But nobody’s able to throw them out of the, of the organizations, right. And one of the reasons being is they are just responsible for such critical workflows and the whole cost of moving is, it just so much that nobody no touches it, right. So I feel, I mean, you have to evaluate like how critical it is for the organization, how high the usage is right over there.

And I think the most important part is how much customer love it’s getting right over there. I remember, I think sometimes, sometimes I think it does not become visible in the first conversation, but I think as people, as you have more conversation and people remove their guards right over there, I think they become much more open to the idea of sharing how actually things are. And, it happens a lot on, I think on the finance side where initially people would be telling you in the first conversation that everything is, you know, just absolutely kick ass and chakachak, right.

But I think by the third conversation, they would be like, you know, everything is in fire, can you, you know, solve these 200 more problems for us, right. And then, then somehow you have to, you know, build that trust, build that comfort level and reach up to that stage. And I think once you are at that stage, I think people start giving you actual feedback.

Right. I mean, one of the things which I saw during Recko time, right. So, because I think early on, we discussed that.

I mean, how do you essentially find out the sparks that you’re still going in the right direction? So one of the things which was there is when we were solving, this problem for Myntra, we used to be awake till 4am and it was just not us. I mean, their team was also awake, right.

And, me and Prashant, we’re like, I mean, we don’t have anything else to do in our life. So we are very fine with, you know, being awake at like 4am, but if these guys are also awake at 4am and they have families to go back to, right. Must be a really important problem for them.

Right. So, so that is how, I mean, you start learning more and more about them that why, you know, something is important. Right.

And, especially in the new markets, I also feel, where you don’t have, you know, benchmarks.

Siddhartha Ahluwalia 55:26

Yeah.

Saurya Prakash Sinha 55:26

Right. So, I mean, it also gives you a lot of pricing power right over there. Like in our case, I think, we were probably the only ones, I mean, who were able to, process such high amount of load and essentially work with our customers.

And, I think that also gives you a lot more leverage, I mean, in the, in the pricing conversations. Right. So at some places, I mean, we did not go ahead in a few, few places because, the customer was asking for a cheaper price, right.

But even knowing that, I mean, even if you, you know, try using Excel or something else that’s going to break. And, at least during that period of time, we did not have anyone who was able to, provide similar kind of service levels. Right.

So, so, but I think, you know, we digress a little bit, but essentially, the usage and how critical that thing is…

Siddhartha Ahluwalia 56:28

Yeah. It clearly shows if the, the, the finance team at Myntra was awake at 4am, it was like hair on fire problem. Yeah. I often wonder, right. After Recko and PingSafe, there haven’t been that size of acquisition though from Neon Portfolio.

Saurya Prakash Sinha 56:47

Yeah.

Siddhartha Ahluwalia 56:47

Companies Zenduty got acquired recently, Requestly got acquired, Logiq got acquired. Right. There are a couple of more acquisitions from our portfolio.

Right. But not at a hundred mil plus scale.

Saurya Prakash Sinha 56:59

Yeah.

Siddhartha Ahluwalia 56:59

So why do you think, was this, was that a surb phenomena that, a hundred million plus acquisitions were happening because there was cash in the ecosystem overall or not enough great quality Indian products in B2B space are produced that, global players are willing to offer?

Saurya Prakash Sinha 57:18

Yeah. So I think, I mean, I would probably say, I mean, it’s, a hundred mil, say 200 mil, it’s still a lesser amount, I would say. Right.

And the reason why I say so is because instead of say benchmarking gains, say some of the Indian buyers. Right. So I would benchmark it more again.

Siddhartha Ahluwalia 57:35

I’m talking only about US buyers.

Saurya Prakash Sinha 57:37

Yeah. So, so I think I would, I would say, I mean, I would benchmark ourselves against more, more with say Israeli companies, right. And I think I’ve seen more examples where I think the Indian companies are somewhat similar ARR.

In multiple cases, product is much, I think better, but I think the valuation, are say lesser. All right. So I feel, I mean, at certain places, at certain places, I think till the time, I think, there is more product strength and it’s gets reflected I feel, I mean, and there is enough, enough thickness in the product layer. Right. So what I mean by that, I mean, if the product layer is very thin, very, very thin right over there, and if there’s something which can be, which is not say very, very specific domain knowledge, right.

And which can be built by say, some, another group of people. Right. So that gives you say lesser leverage in say the acquisition side.

But if the, if the domain knowledge is something which is very specific right over there, and there is enough thickness in the product layer, which is there, right. So when I say thickness, what I essentially mean is that there are a lot of things which you can do, right. But let’s suppose, I mean, if it’s a product, which, which majorly does say, some API testing, et cetera, et cetera, right.

So you might not have say very large playground, right? Similarly, I think that problem might be sensitized, is also sensitized to a lot of other developers where they will be saying that, look, I mean, we also work around, say these problems. So it’s not say something which is very, very far off, right.

But you take the case of some, maybe a security. In security, I mean, we don’t have a lot of people who understand that space. It becomes something which is a real knowledge, right.

In case of finance, again, I think the, the, the thing about, I think building into some of these domains is that if you start asking your user, you’ll probably build a better version of say QuickBooks or say a Tally, right. But you will not come up with something which is just very new, right. Similarly, if somebody from the domain starts it, I mean, they might probably build something which will be again, very close to say an ERP or say something like this, if somebody, you know, very new starts it, I mean, they might build something which would be very close to an API, right?

So you need, I think some persona or say some very specific knowledge, which is a combination of, you know, sufficient domain knowledge combined with say something new, which is happening, right. And then you see, I think, a very different kind of part, which is coming in. Right.

So I feel, I mean, that knowledge becomes the prime one. And I think a reflection of that inside the product essentially, enables you to get the pricing leverage, right. And it just happens that we have very less number of companies which are there.

And it goes back to, I think the earlier thing, which you highlighted that we have just indexed so much on price arbitrage and playing in…

Siddhartha Ahluwalia 1:00:48

Certain domains, which was successful.

So we’re just trying to do pattern matching or as a ecosystem.

Saurya Prakash Sinha 1:00:53

Correct. Correct. Correct.

And, and the challenge which generally comes over there is that, is that people haven’t gone on the journey of a product discovery right? Where I mean, you’re just trying to create something which never existed, right? It’s easier to create something where you have say, you know, some draft or some initial word and then you’re doing some incremental progress on top of it, right?

But if there’s nothing, right? I mean, it’s a very difficult place to start with, right?

Siddhartha Ahluwalia 1:01:23

Yeah.

Saurya Prakash Sinha 1:01:23

I think that is one and second, I feel I mean, since we don’t have a lot of those examples, right? So there’s still some time before you essentially see those kinds of companies, you know, coming in, because generally, I think I feel like all of us are at the end of the day, an aggregation of our life experiences, right? So somehow, I mean, you need a few of those experiences, right?

To, to essentially build that intuition that looks like, you know, there’s something valuable over here. And then a lot of grit that maybe I should, you know, also go and chase this thing after it. I mean, if we would have probably, you know, left it in say, eight months, I mean, there would not have been any record.

Siddhartha Ahluwalia 1:02:07

Yeah.

Saurya Prakash Sinha 1:02:08

But somehow, I think we just chose to keep, keep going on it. Right. And, and, and luckily, I mean, there was a large value pool, which existed right over there.

Siddhartha Ahluwalia 1:02:19

No, thank you so much. Saurya. It’s been amazing learning from you today.

Saurya Prakash Sinha 1:02:23

Oh, I think I mean, I should be thankful, because I feel I think some of these stories should, you know, come out a lot more in the ecosystem, ecosystem, because you never know, you know, when somebody who’s going through this journey, and if they pick up some bits and pieces out of these things, and, and if it inspires them to still keep moving on their journey, I feel I mean, you just feel a lot more fulfilled.

Siddhartha Ahluwalia 1:02:53

It’s been an amazing conversation. Thank you so much again.

Saurya Prakash Sinha 1:02:56

Thanks. Thanks.