Siddhartha Ahluwalia 1:35

Hi, this is Siddhartha Ahluwalia, your host at Neon Show and managing partner of Neon Fund. Today, I have with me Avnish Bajaj, founding partner at Z47. Z47 has been one of the top VC firms in India.

Also, I consider them to be one of the most competitive ones, like almost operate like a startup. And you have recently won three of the best SaaS companies that have ever started in the recent two, three years from India, AtomicWork, RocketLane, SuperOps. I consider Neon to be very fortunate to be part of AtomicWork.

And so my first, you know, question to you Avnish is, can you share more on the process of winning the best companies and the best second time founders?

Avnish Bajaj 2:17

Sure. So first of all, I’m very, very excited to be here Sid. We have interacted many times in the past. I just found out today that you are the second most listened to. So tell me that ranking.

Siddhartha Ahluwalia 2:29

So if you can compare podcasts by VC firms globally, the largest globally is Y Combinator and these are YouTube numbers because the rest of the platform numbers are not public. So highest is Y Combinator, second is Neon, third is A16Z and fourth is 20 Minute VC. This is the global ranking.

Avnish Bajaj 2:48

Z47 podcast.

Siddhartha Ahluwalia 2:49

Now you are in the top 10.

Avnish Bajaj 2:53

Thank you.

I’m very excited to be here and great job. And you know, you asked me a question how we managed to win some of these deals and thank you for putting, I think there was some ranking which came out also of, you know, the top SaaS startups from India in the last two, three years and these companies were in it. But let me flip that question back to you.

You are, you know, depending on how you count it, most likely a third time founder yourself. So if you were to raise money again, how would you be, and now I, you know, you are in the money giving business or investing business.

Siddhartha Ahluwalia 3:26

I’m more in the money raising business. You would know it better.

Avnish Bajaj 3:28

Yeah. And by the way, I also Freudian slip, I said money giving business, it should be called the investing business, but all of us have been giving and not receiving. How would you, if you were to start a company again, evaluate a VC differently from when you were doing it the first time?

Siddhartha Ahluwalia 3:47

So I think when I was doing it first time, started a company in 2012, sold it in 2017, like I was chasing VCs for attention. It was just the reverse. And today, at least for the best founders, top 1 percentile of founders, the VCs are chasing for founders attention.

So the game has completely flipped.

Avnish Bajaj 3:08

So I think that’s the key.

Siddhartha Ahluwalia 3:10

And the brand value of a VC doesn’t matter because a second time founder would discount you on whatever you have done in the past. His last relationship with you is the one that matters the most.

Avnish Bajaj 3:22

And what would you look for beyond the money?

Siddhartha Ahluwalia 3:25

I would look for a VC to be humble first. Yeah. Sit with me as a peer.

Then I would think of any other value add.

Avnish Bajaj 4:33

And as a second, third time founder, what value add do you need?

Siddhartha Ahluwalia 4:37

For example, I’ll say it very humbly. Then in case of AtomicWork, I have worked with Vijay on customer intros or whatever intros is possible. So similarly, we have founders who are LPs in our fund.

So I ask them the same. Please give us more intros to founders, to LPs. So I think the battle never stops.

And a second time founder, I have seen them, at least best of them. I know Vijay, he’s a very, very close friend and a mentor to me from AtomicWork, that they are more humble when they’re starting because they know this time they’ll fail because of themselves. So their ego should not come in the way.

Avnish Bajaj 5:18

So I think basically, and we’ll pick up on the Vijay example. When you are starting the second time, and by the way, many of them have made money also already in their previous life. I think of myself, if I were to start again, what would I look for?

You said humility. Yes, I would want a potential thought partner. See, typically, if I’m doing something the second time or a second time founder, when they are starting another business, they are generally working in their domain.

We as VCs, if we know more about their domain than they do, we have a problem. So I don’t think what your value addition in the traditional sense makes any sense. I would want a thought partner and things you said, I would want someone who would work hard for me, with me.

And I think that’s distinguished us over a period of time. And it’s not the investing team at Z47, it’s actually the operating team. I can’t tell you how many times I go to board meetings, where the founder, where there are other investors also on the board, and actually to a little bit needle the other investors, the founder will say, my entire team is made by Z47.

This entire hire is made by Z47. So our operating team is a very core part.

Siddhartha Ahluwalia 6:34

And you have two separate teams, investing team and operating team?

Avnish Bajaj 6:37

Yes, our investing team is there, but I don’t think of them as separate. And I’ll tell you why, when five, six, seven years ago in the business, or even if you look at VCs traditionally in the, how it’s done in the US, the teams are built by the investors themselves, themselves, right? I used to do that a lot, five, six, seven years ago.

So what is the investing business? I think all these things, marketing, you said, business development, human resources, it’s all investing business. So I don’t think of them as separate teams, they are separate skill sets.

So to me, that the fact that we, you said humble, I think people think of us as warm, nice people to be around, that really helps. Specifically, doing some of this blocking and tackling, helping people with their core needs helps, but I’ll tell you reputation really matters. And Vijay has given us credit, and the reputation is not when things go well, the reputation is when things don’t go well.

And Vijay is familiar with one of our companies, where things didn’t go well.

Siddhartha Ahluwalia 7:48

Yeah, Vijay told me exactly that, right? I’ll not name the company, but said the founder went to jail for unnecessary reason, and only Z47 was one to bail the founder out of jail.

Avnish Bajaj 7:58

I mean, we were all there, nobody ran away. My colleagues, Tarun and Rajinder visited him, he remembers that forever, forever. I was speaking to him six, eight weeks ago when his new round was going on, and he still remembered that, right?

Reputation matters. So I think why Super Ops, I’ll give you an example. So Super Ops, Arvind started a company, the first time called Zarget, he exited to Freshworks.

Second time he came and told Tarun that, you know, you have a right of first refusal on my note, right? And I asked him why? He said, because Tarun was the only one who was giving me advice that was the right advice for me, not just, you know, for himself and stuff like that.

So, I think that really matters. So, how do we win these? You know, for me, I think if you look at venture capital, if you look at most businesses, almost everything can be copied in no time.

Reputation cannot. Reputation is a moat. Reputation compounds with time. And I think that’s what’s getting us in.

Siddhartha Ahluwalia 9:03

I’ll take one more example. I would have loved to be part of the journey. Aman from GreyLabs, right?

So, I can recall from our first conversation that only Neon and Z47, right, were the two people speaking to Aman. Aman had an India thesis, right? Which, you know, at Neon, we feel that we are too young to just focus on India thesis.

So, our thesis is only like as a small fund from India to the US, right? So, that’s why we couldn’t partner, but else would have loved to partner with him. But, you know, how do you are the first person in the, when a founder is thinking about it?

Avnish Bajaj 9:42

And that’s our goal. Our goal is actually, we work very collaboratively with firms like yours, with many other firms, with other top tier VC firms. Our goal is to be the first into the cap table.

It doesn’t have to be the last into the cap table. So, if the founder comes, in Aman’s case, he didn’t want to dilute. So, he said, I’ll take only one.

But many second time founders, and I, by the way, encourage them to have multiple voices around the table. So, if there are multiple VCs, we encourage them to. But, you know, so I think the other piece that differentiates us in this is that we are an operator led VC.

I’ve been a founder before. If you look at Aman’s case, if you look, Pranay was chief of staff of one of the best known SaaS founders for seven years. He’s seen every piece of it.

He has been in touch with Aman for probably two years, right? And so became that thought partner. Also, in some cases, for you to earn your way to be a thought partner, you have to know domain.

So, if you look at two things that differentiate us from other, even our peer set, it is operator led and domain. So, CV is, and by the way, many of them are former founders. CV is a former founder.

Akash is a former founder. You know, all of us had me, a former founder, Tarun, former founder. So, if you look at that, and then the fact that people have been in certain domains, I think that if I were to start another business, actually, that’s what I would look for.

Because a founder is able to understand another founder’s journey, sometimes actually becomes too empathetic. But I think that is one thing that is very, very differentiated for us. And the last piece, and it’ll come back to the Aman example, is that these are relationships built over many, over a long period of time.

We are not transactional. We will go meet people. I’ll give you another example.

Anil Goteti, who’s now doing Scapia. Vikram knows him for, I don’t know how many years. He was, when he was at Flipkart and we used to meet him at our events. Then he said, I want to start. So, I think just that builds over a period of time.

Siddhartha Ahluwalia 12:01

But don’t you think like second-time founders are the most demanded in the ecosystem. So, they would, you know, once they become a second-time celebrated founder, they would give their time very tightly, like to build even a relationship.

Avnish Bajaj 12:15

But tell me, if you were to start a business again, what would you look at? Actually, you have started a business again. It’s called a fund. Do you give your time very tightly?

Siddhartha Ahluwalia 12:25

Yeah, obviously. My time is for, I know, for founders. A bucket of my time is for founders, loosely held.

Avnish Bajaj 12:35

But my bet is that if you feel that you will learn something, you’ll give your time. So, that’s the bar. The founder has to feel that they will learn something.

So, if you, I’ll give you another example. So, when Jiten, you know, well-known founder, Jupiter, I remember Vikram telling me in 2017 or 18 that, you know, there’s this trend of Neobanks. I said, what is this?

So, I started doing secondary research, learning, you know, our financial services team would keep feeding information. Vikram did a podcast on Neobanks with Jiten way back, 2016 or 17. That was how Neobanks started getting talked about in India.

Otherwise, there was no talk. It was all a Western concept, right? So, Jiten, when he was actually going to start, said, I want to take Sequoia’s money because I’ve worked with Mohit and Vikram, I want to take from you because you get the concept.

So, I think the best second-time founders and frankly, that’s what I would do. I would be hyper curious. I want zero chance of failure.

90% of startups fail. As a second-time founder, I would say, if I fail, then it’s really bad on me. If after knowing all this, I’m still failing.

So, what would I do? I would surround myself with the smartest people and I think the best founders think like that and our job is to get into that consideration set. How do we get into that consideration set?

Doing things like podcasts, putting our point of view across, networking very aggressively, quote-unquote, going and meeting people, not just for the transaction, just to share ideas. You know that we do a lot of events and by the way, some of this to me, there is a transaction side of the business, but there’s also a mission side of the business and for me, a lot of this fits in the mission side of the business also. Part of the mission is to bring everybody together.

Fortunately, today, our events tend to be fairly open architecture. We invite all the VCs. They thankfully come.

So, we do all of these things to essentially for the person to say, yeah, man, I am starting a new journey. It’s going to take 10-15 years. I want somebody by my side in it.

It’s not the money, right? And I joke with people like Jiten and some of these guys that you say that we want to work with you and there’s that and then the price is like the serious market price. There’s no discount.

But I think like you said before, this is a situation where the access itself and being able to partner with them is the way.

Siddhartha Ahluwalia 15:27

Yeah. And I think it’s getting more narrower and narrower with every passing year. And you are spread across so many sectors also.

B2B software, D2C, you have fintech like Razorpay, StableMoney, B2B marketplaces like OfBusinesss, Captain Fresh. So, how do you win across these many categories? It’s not just one category.

Avnish Bajaj 15:49

I think it goes back to what we discussed we have operators who are experts in each of these sectors. And so, I personally and now clearly as a firm, we don’t believe in the generalist one. We are a specialist firm.

And sometimes it’s not easy because you know all these sectors go through ebbs and flows. And I joke now everybody here is tenured. So, people also have seen this.

But every year, some sector is hot and all the other sectors are FOMO about that sector. Everybody wants to work in that sector. Whether they know anything about the sector or not is irrelevant.

So, Sudipto does B2B. He’s doing advanced manufacturing. Pranay does SaaS and AI.

Cash knows a bunch about AI. CV is doing consumer. So, on and so forth.

We have financial services and we are all paired at various levels. We think of ourselves as squads. And the idea is like a pod structure.

But that pod is a sector pod. So, that sector pod, I tell the sector leads that think of yourself as a CEO. You have to win the most deals in your sector.

So, therefore, many of our podcasts you will see are actually around depth of content in that sector. So, I think that’s what gets us into a bunch of these. And then, of course, ultimately portfolio referenceability.

People want to associate with winners. So, when you have winners, we have all business in B2B. So, by definition, B2B companies think this is great.

If the good B2B founders start working with you, next thing you know, we have Pharma, we have Captain Fresh, we have WeGrow. It all starts working like that. Same in Razorpay, payments, financial services, 5 star, consumer, Ola.

Today, if you look at in some of the new age sectors, we are the only investors in EVs, in AI. So, I think it starts compounding. It’s a compounding flywheel.

Siddhartha Ahluwalia 17:53

And any other thing like what I understand if I have to summarize that it’s an operator-led firm and that’s what gives Z47 the differentiation. Any other differentiation that you think?

Avnish Bajaj 18:05

I would say operator-led, domain, specialist, founder referenceability. Founder referenceability, you said earlier, you had asked, how do you win these across? We are in a situation where we say when we are competing.

First of all, I think there’s a nuance. Generally, we won’t be late to a deal. Generally, we would have, if we are doing our job well, we would have known about the founder.

And by the way, in our Monday meetings, we discuss people, not deals. So, the whole DNA is a little bit organized around founders and how do we work with them. We have trackers, we would be tracking them for, and I’m not giving up any secret sauce because anybody can do it.

It’s all about the execution. So, you have that. Then you have these events and all of that, that is creating the pull.

So, I think having the domain, having the operators, and then finally, when it comes to, I said, we want to be the first into the cap table. Generally, we are not the highest price payers. The founder will say, what’s your pricing?

We’ll generally say, you won’t like it. You want to work with two VCs. If you want to work with one VC, okay, let’s agree on the construct.

If you want to work with two VCs, then you go find the other VC. My guess is that VC will set the price. But most of the time founders will ask us, we’ll put our best foot forward, knowing that we will not be the highest in the market.

And often what happens is our peer group is paying much more. And then we will tell the founder we are not in at that price. And believe it or not, the price actually comes down.

It doesn’t come to our price, but it comes in the middle. So, we were happy at 18 posts. Somebody is willing to pay at 30 posts.

The deal ends up at 22, 23 posts. But we wouldn’t go to 30 posts. So, in those situations, when we are competing, we encourage the founders to call other founders.

And honestly, like I said before, reputation is a moat. It cannot be copied easily. The other piece of the reputation is this referenceability.

It cannot be created overnight. So, when we are fighting for the next highly competitive SaaS deal, if that person is going to speak to Vijay, hopefully they’ll pick us.

Siddhartha Ahluwalia 20:26

And, you know, this kind of good aggressiveness I’m seeing in Z47 in the last four to five years. So, what has been the cultural change?

Avnish Bajaj 20:36

So, I’m glad you called it good. People inside call it bad, but no, I’m joking. So, look, it’s a little bit of a philosophical point.

If you, you sold your company in 2007. Yeah. Internet was average till then.

If you look at the evolution, most of us VCs got started in 2006. I would say first decade was a write-off. Now, many of our second funds are actually really good funds.

But that’s because those companies hit traction later. Right. So, our one fund only comprises Razorpay, Ola, Five Star, all business.

Siddhartha Ahluwalia 21:10

And how big was that fund?

Avnish Bajaj 21:12

250 million. So, that’s a, you know, very strong multiple, but our next one will be even higher multiple than that.

So, essentially, the first decade was too early for tech. If you look at the evolution of what started happening in 2016, Jio is well-known, UPI, UPI Rails, Aadhaar by that time had been fully rolled out. So, actually, and we show this to our investors, 2016 to 20, India’s digital infrastructure was being built.

Today, everybody calls it DPI, Digital Public Infrastructure, but it is world-class, right? During that phase, Demonitisation came. Everybody said Demonitisation was a very bad economic decision.

It was the best decision for people like us because it brought everything online. Payments exploded. GST was very important for e-commerce and B2B because it created a single market.

And then COVID came, but your wiring was complete. So, to answer your question, 2016 was survival. 17 is the first time we started seeing some of the things, you know, start to take off, 17-18.

So, that’s the time we said, basically, your mind unlocks and you start thinking about the future. So, we said, what would Matrix India at that time look like in 2022? So, we came up with M22.

Then 2018-19, when we raised our next fund, by that time, actually, Rajendra had gotten us started on this experience founders, that experience founders are coming out. So, we looked at that and we said, okay, what is the next five years? At that time, the narrative had started on India being a 5 trillion dollar economy by 2025, by this year.

For the first time, because you were out of the survival mode and you were able to think a little bit bigger, we could actually think of our destiny and the country’s destiny and in some ways form some linkages. So, then we said M25, Matrix 2025, M25, so on and so forth. After that, after M25, we talked about 8-10 trillion.

So, it became 2035. After that, we talked about Viksit Bharat. So, actually, Z47 came out of 2047.

But when you say the aggression and all of that, I think it’s just when you move out of survival into something that you are enjoying, then you realize the founders are compounding, you are seeing the kind of value they are creating. It just unlocks your mind. So, I think the aggression is more just unlocking of the ability to actually make a difference, get excited by what is happening and that’s what you’re seeing.

Siddhartha Ahluwalia 24:01

But is the team weekly or monthly KPIs measured on coverage?

Avnish Bajaj 24:06

It used to be, it was a big mistake. So, until 2015-16, they used to get measured on coverage. And we had some review meetings where people would say how many companies have you met and this and that.

So, it created what we call a met culture. The quality of the meeting may have been nothing. So, people were just filling out spreadsheets.

So, also, again, context was different, younger people. Today, there are more people with experience also in the business. So, I would say, and this is I learned from somebody very wise in this business.

When the markets are thin, coverage is a good measure. So, including me, we used to go to IITs, we used to go to conferences, we used to speak at conferences. Honestly, conferences, you get mobbed later, you are taking, giving out your card.

It’s a lot of hustle. But also, in a not so good way, it creates a hustle culture. We now joke misdirected hustle, mindless hustle, MH.

When the markets deepen, that becomes a bug, not a feature. Because there is so much going on, then you will end up boiling the ocean, you will end up doing a hundred things. So, it’s okay, you have to keep creating the top of the funnel.

Now, there’s so much in the top of the funnel, that the processing becomes much more important. You have to be much more thoughtful. So, I think that is a actually a big change that happens as you evolve in this.

Siddhartha Ahluwalia 25:51

From a founder’s perspective, I can share my perspective on what changed at Z47. So, for the longest period of time, I saw McKinsey consultants.

Avnish Bajaj 25:59

They are still there, but now they do not identify themselves as McKinsey.

Siddhartha Ahluwalia 26:05

Being part of Z47 till 2019, 2020. And after that, I think you started building operators in the team.

Avnish Bajaj 26:13

Operators, but you know, what you see from outside, is not inside. So, Vikram is a McKinsey consultant, but he worked for us through startups. One failed, one succeeded.

Rajat is a McKinsey consultant, but he ran his family business. So, our McKinsey consultants were also operators. So, there is a nuance, but yes, you are right.

Now, we have actually hired people who are ground-up operators.

Siddhartha Ahluwalia 26:39

And your love for second-time founders, especially, I think in B2B SaaS, most of your companies that you are investing in are all second-time founders.

Avnish Bajaj 26:48

Financial services, but finish your question.

Siddhartha Ahluwalia 26:52

Why this love for second-time founders?

Avnish Bajaj 26:54

Love is for all founders, let’s be very clear. Founders first. In fact, if you ask me, there is the fearlessness and the high energy and hustle and all that, that I really, really enjoy about the first-time founders.

And then there’s the thoughtfulness and the method, all of that, that I get from the experienced founders. The mix, by the way, globally is 60-40. And if you look at value creation, it’s 50-50.

What happened was actually very interesting. We were at an off-site, 2016-17. Again, the time where I said success started becoming apparent, some unlocking started happening in thinking.

So, Rajendra does many analytical things for us. So, he went up with a flip chart in one of our off-sites and he said, look at all our successes. So, Ola was clear, Practo was clear, OfBusiness was looking interesting, Razorpay was looking interesting.

In those days, there were others, Tribo, other companies, which are all young first-time founders. And then if you looked at the next set of value, you could see that these were coming out of a different set of companies. So, actually the number was, in 2016, the number of companies worth more than 500 million were 13.

And one was from an experienced founder. It may have been Freshworks or one of those. When you looked at fast forward to today, about 50%.

So, I think the 500 plus are 150 or whatever, similar to the unicorn number, because the 500 to 1 billion is not that many. And about half are experienced founders. So, we could see, you know, the classic Wayne Gretzky thing that where’s the puck going?

The puck was going there, our strength was here. So, that’s when we developed this paper. The podcast started then, the networking and mining.

So, instead of just going to the IIT conferences, you now start essentially networking in all these companies, your Jitens had emerged. So, it was very much a conscious call to say more value creation backwards. Now, you also had asked that what is different about them, right?

I’ll tell you, after getting to know them, we realized that this is a very different archetype. First-time founder archetype is completely fearless, you know, very much run fast and break things, classic YC kind of a playbook. And they will create tremendous value.

They will disrupt a lot of things. Take Zepto as an example. Now, how that company ultimately does, we’ll see in terms of capital efficiency, but it has woken up everybody and it has changed the mindset.

It’s like when Bhavish came, started Ola, right? So, first-time founders will really disrupt markets. What experienced founders do differently?

They generally don’t take market risk, right? They will go after deep markets. It’s much easier to build businesses in deep markets, okay?

Having built a company once, they will typically be very profit-driven. So, they will chase deep profit pools. Now, if you are saying that the market is deep, so I’m not taking market risk and the profit pools are existing, so you’re not taking that risk, so what they spend a lot of time on is thinking distribution.

You know, there’s this famous debate in the US, does product matter or does distribution matter, right? Basically, both matter. But a lot of people say distribution matters more than product.

Second-time founders actually end up thinking more distribution than product. So, they’re much more GTM-led and stuff like that. I’ll tell you two, three other things.

Very different archetype. First-time founders get off the ground very fast. When I first started working with experienced founders, I used to say, nothing happened for 6 months.

Siddhartha Ahluwalia 32:40

Yes, I mean, nothing will happen for 24 months. Nothing will happen.

Avnish Bajaj 32:43

But when they do, then suddenly with the bank, right? If you think about org building, they have to make a product. If they have to make an org, then they have followership for the org.

Often, they will start as 3-4 co-founders or they will start as 2-3 co-founders with a team of 10. That you take out such a significant risk from the business. So, I think like I said, it takes both types. I will tell you first, a second, experienced founders tend to be really good custodians of your money.

They are not doing it for you, they are doing it for themselves.

Siddhartha Ahluwalia 33:19

Their own reputation, I have an example. So, Paras Chopra, I call him a good friend.

Avnish Bajaj 31:52

What a success.

Siddhartha Ahluwalia 31:54

The best bootstrap success in Wingify. In his next company Nintee, we were a small check. I just wanted to be part of his journey.

He figured out within 6 to 12 months that there is not a founder market fit in what he was building. So, he returned 75% of the capital without even taking a single dime of salary ever from that company.

Avnish Bajaj 32:16

Since you mentioned the term and I do not know if you have mentioned it before on your podcast, have you explained what for, I have heard product market fit, what is founder market fit?

Siddhartha Ahluwalia 32:24

The founder market fit is basically, I am a founder, this is a market that I understand. Do I see my own personality suited for this market for 20 years, basically? Like for example, if you say traditional dhanda businesses, why a businessman would give his son the key to, because the son has been sitting on the galla for the first 20 years of his life, since he was a baby.

So, there is some natural tendency, galle pe chippega or nahi chippega. And galle pe nahi chippega, then it is obvious to the businessman. For example, the keys from Dhirubhai Ambani went to Mukesh Ambani, but nobody knows that Mukesh Ambani since 10-12 years of age was spending time with his father in those field meetings.

So, that I consider to be the founder market fit, a market that founder calls comfortably is his own. This is the market I understand.

Avnish Bajaj 33:18

No, no, we’ve had situations and I think Anil would not mind me saying this. So, when Anil Goteti was starting his second company, he wanted to do US-India SaaS, even though the founder market fit was questionable. And we told him and he said, No, e-commerce has a lot of burn and all.

And was not looking in the direction of getting the product market fit, he returned the money. He returned the money.

Siddhartha Ahluwalia 33:48

And you were their investors in his second company?

Avnish Bajaj 33:50

No, so we were investors in this company where he returned us the money. And then second time around when he started, he said, this time I will take all from you. So, this goes back to your earlier point, in earlier business he had taken other people’s money also.

This time we were the lead investors. Now, Scapia is much more his founder market fit and he is doing beautifully. He loves traveling.

Many of us love traveling. And so, he created a travel first company with a credit card, but a travel first company. So, very important founder market fit.

Siddhartha Ahluwalia 34:20

I’ll take an example again. Like Samay Kohli from Grey Orange, when he started his next company again, Buddy. I would say he’s one of the most thoughtful persons on going about experimenting and being patient with himself.

Like first time founders think that they owe it to the VC to show ki kya move kar diya needle and then because if there is speed and no direction, then there is no velocity. So, many times it happens in first time founders just because they feel they are accountable to the board.

Avnish Bajaj 34:51

It’s very, very important. I haven’t made the note here, Sid, but I think if I had to summarize what was the difference between first time and again, both are important, but it’s the speed and velocity.

Siddhartha Ahluwalia 35:06

And when first time founders hit velocity with fearlessness, I think outcomes like Zepto happen.

Avnish Bajaj 35:12

Zepto, Zomato, Ola, Ola Electric, all of that.

Siddhartha Ahluwalia 35:19

So, you have been, I believe, building this institution for last 18 years or 19 years.

Avnish Bajaj 35:25

I’m not going to acknowledge my age, but yeah, go ahead. What’s your question?

Siddhartha Ahluwalia 35:29

My question is, when you first went out to raise LP money in 2006, how were LPs thinking about allocating dollars to India? And how has it transitioned? And because now you mentioned various phases, how did it transition 2016, then now 2025?

Avnish Bajaj 35:50

So, actually, and I’ll give a little bit more macro answer also. In 2006, 2004 to 2006, India shining all of that, a lot of people fell for the hype. And we are still paying the price for it.

So, 2006, there was a deluge of capital. 2010, there was a deluge of capital. So, how do LPs think?

LPs, there is a standard endowment model that most LPs follow. Very simply, 5 to 6 asset classes, because they essentially want uncorrelated returns. Look at what is happening in the stock markets today.

People who got in at the top of small and medium cap stocks are obviously feeling a lot of pain. But there’s real estate that is still booming. So, you want uncorrelated asset classes.

Siddhartha Ahluwalia 36:44

What do you mean by that for our audience?

Avnish Bajaj 36:45

Uncorrelated meanings, meaning, when you look at your returns across, then they are more stable. Individuals can have different risk appetite. I maybe have the risk appetite to say I’ll be all equity.

But when you look at institutions, they do need more predictable returns. Okay. So, typically, there is a, what is called an endowment model of investing, which was pioneered by Dave Swenson of Yale.

So, what is uncorrelated asset classes? Public equities, debt, private equity, which is venture capital is a sub part of it. Some people may have natural resources, so on and so forth.

And public may be hedge funds, but there are 5-6 asset classes, real estate. So, then by the way, they also think of geographies. So, broadly, this is the model.

Now, 2000s, typically, people are always hunting for two things, growth and return. So, India historically has attracted capital wherever people thought there is growth here. So, across cycles.

Now, I think the most instructive of how this has played out is over the last few years, which I’ll come to. So, China had a big boom here from years, from 2008 to 2018. Everybody wanted China.

Generally, what happens in these things is most money actually comes in close to the top. 2022, the war started. 2016-17, Trump came the first time.

By the way, people have their own views on him. When Trump came the first time, the general narrative in the world, which you will also remember was China will be the largest economy in the world. And Trump said no.

Actually, that changed the whole thing and benefited India greatly. So, he said they can be, but not at our expense. So, when that narrative started changing, that really changed in 22, when the war started, Russia, China, all these issues started.

So, then the limited partners said, China is a problem. You would have thought India would benefit, but India did not benefit. Because of what I said earlier, people came to India in 2006.

So, they said, India is always a story. There is a line which says, India never misses an opportunity to miss an opportunity, which is so sad to hear. I hear it from, I used to hear it.

So, we will talk about how that.

Siddhartha Ahluwalia 39:37

LPs told you on your face.

Avnish Bajaj 39:40

LPs or later stage investors have said this. There is an even brutal one. India stands for, I am not doing it again.

So, they have all these, they have their perceptions of elephants on the streets and all that. So, 2022, when all of this happened, India did not benefit. Because investors know India, and they have generally mixed to negative views, because venture capital has had liquidity issues.

Private equity has had high valuation issues. Actually, the people who have consistently made money have made money in the public markets. So, one of my LPs always says, we love you guys, but when are you going to beat my investment in HDFC Bank, which I made 30 years ago, because it was a compounder.

In 2023, what happened is that people realized, so 22 people said, China has a problem, let us pause, let us go back to safety to the US. In 2023, there was a little bit of an oh shit moment, that China is worse than we expected. It is not coming back so quickly.

So, then where should we look? US is highly competitive, valuations are crazy, AI craze, all of that. Where else can we look?

Let us look at India. When they look at India, they are like, but we have seen this story before. Nothing has changed about liquidity.

You look at the venture capitalist returns, you know, returns multiples, by the way, are great, but liquidity is not there. So, people were still on the sidelines. 24 it changed.

24 many IPOs happened. You know, we had Ola Electric go public, we had Five Star go public in 22. Many LPs saw a lot of liquidity, Swiggy, First Cry, all of these things are great for the market.

So, that changed the narrative, that this time India is more real. And of course, now the markets are correcting, but this time India is more real. And then by the end of 24, I think it became clear to people or many people took the call that they don’t have the patience to stay or think about more investing in China or stay invested in China.

So, that now India is seeing a benefit. Definitely seeing a benefit. Don’t look at foreign portfolio flows in the stock markets.

Those are much more volatile. But I think this time it’s looking much more interesting. Now, when people look at India, then people say, which asset classes?

Real estate, most foreigners, they’ll play through some of these large institutions like Blackstone or Brookfield. But generally, they are looking at private equity, venture capital, and public markets. And what they ask, so we have actually done benchmarking.

And essentially, so the people who are, I would say 70-80% are sold on India. Not all of them are sold on the timing of India. They still question the liquidity cycle.

So, they say, show us the liquidity and we’ll come back. And these are people who are going to invest for 20-30 years. For them, 2-3 years doesn’t matter.

Then the question is, which asset classes? Private equity, the view is that prices are too high, but their liquidity is good. And venture capital, people say, why should we lock up money with you?

Your net IRR, is it better than the public markets? So, there’s something called PME, public market equivalent. So, just like ours are funds where we call capital, if the money was getting invested in public markets, what would the return be?

Our job as VCs is to beat that. So far, actually, interestingly, on IRR and multiple, we very easily beat it, all of us. The top five, you said, the five firms or whatever, everybody beats it.

Issue is, they are liquid, we are illiquid? So, liquidity is slowly getting fixed. I think this year, now markets will correct, but when they come back, so many companies, the big thing said that is different is, US was built on the back on China, the technology investing markets were built on the back of companies that went public between 1-2 billion dollars.

This 5-10 billion dollars, I know you have a question for me also. This is all very good, we all want it. But that is not bread and butter.

Bread and butter is of 1-2 billion dollars, that is going to start. In fact, it may be 5,000 crores to 10,000 crores in Indian rupees. That, when that happens in the next cycle, which I believe will happen.

And what has changed? Companies have, many companies in our portfolio, in your other VC portfolios, many companies have reached a scale where they can get their valuation and they are profitable. So, the challenge is, if you go public in that small cap kind of a market cap, it is very hard to exit.

But if you are profitable, OFS may be better. So, I am actually very excited. I think LPs are waiting to see that.

I think rightfully so. I think we have to honor our allocation. But I think that’s coming.

And what has happened in China, 8-18. What has happened in the US, 95-2010. That has started in India in 23-22.

And it will run through, because in India we do everything slowly. So, it will run for another 15-20 years.

Siddhartha Ahluwalia 45:04

And what has happened? Can you repeat that?

Avnish Bajaj 45:06

Markets have deepened. Markets have become profitable.

Forget the large, you know, quick commerce, burn, all of that. That is a very, very important story because it is changing consumer trends. But that’s not the story of Indian startups.

Many in our portfolio today are EBITA positive. That’s a big change. When I go and meet all the IPO investors, they say, we want non-dilutive growth.

You, meaning private market investors, want dilutive growth because you get markups. We don’t get markups. Our stock price is diluted.

So, non-dilutive growth comes from profitability. So, it is very key to be profitable. And most of the companies today are.

And therefore, I think once this market correction gets over, 6 months, 9 months, 12 months, so many companies have filed, you will see a deluge of IPOs, but in a good way. Actually, the deluge of the last 6 months outside of tech was froth. I mean, you must have seen some of those companies are going public with no real office and stuff like that, right?

But that was not in tech. Now, when the next deluge comes, it will be a good deluge with actual real businesses.

Siddhartha Ahluwalia 46:22

And further extending, you know, my question on LP. So, how are institutions thinking about this money, this much percentage should go to US, this much to India, this much to Asia or rest of the world?

Avnish Bajaj 46:35

It changes every year. So, I think overall people had reached, so assuming, so for American investors in particular, America is the most attractive. And by the way, credit to that economy, they still generate outstanding returns, right?

So, the default is, should we be looking outside? Like I said before, now people are saying, so some people started looking outside when China was the bull. So, at peak, people may have gone to 20-30 percent allocation to China.

India has always been in the single digits at best, maybe 10-15 percent. I think, I do not think India will go to 30 percent because I think people have learnt a tough lesson in China. I think, but India is benefiting both from reduction in China and Europe.

Interestingly, Europe has become less attractive for people. I expect, there are two cuts. One we discussed is by asset class. So if you say 20%, which generally ends up being 30 to 40 % of the investor pool, their full endowment of foundation is going to be in privates, then within that, they may say 20-30 percent is India.

So, if you take the whole, then it is 5-10 percent. But they will also have publics with the same view, right? So, that is typically how they cut it.

It is a board level decision. It is an investment committee level decision. They generally go through annual planning cycles.

Now, this is typically your most seasoned US institutional investors.

Siddhartha Ahluwalia 48:21

Like StepStone, Adams Street of the world.

Avnish Bajaj 48:24

No. So, well, they are also very seasoned, but they are more fund of funds. This would be the endowments, foundations, all of that. Now, fund of funds are much more nimble and flexible.

So, they will have dedicated allocations. So, they will have much more in India. They may decide in a particular fund cycle, because they are raising funds every 2-3 years, right?

Endowments and foundations and all are permanent capital. Then you have to also look at where has the puck moved? A lot of wealth creation has actually happened outside the US also.

They do invest in fund of funds. So, those guys are awash in capital. Sovereign wealth funds have become much larger in the Middle East, in Southeast Asia also.

So, they actually want to invest in this region. Everybody will want 50-60% America. So, that is considered the safe haven.

But that’s typically how it works. But you will find regionally focused people whose allocation will obviously be much more to the region.

Siddhartha Ahluwalia 49:27

And when these folks think about VC and specifically India, then what is their own framework that how much they would, you know?

Avnish Bajaj 49:34

So, there are two types.

There are the types who say, like if you were thinking about your investing, would you look at return or you would look at asset allocation?

Siddhartha Ahluwalia 49:44

I would look at return.

Avnish Bajaj 49:46

So, anybody who is like basically fairly commercial, they will say, who cares?

I want to look at the return. But what people miss in that set is return over what period? If you look at the return over a 20-year period and then say that I want more less volatility, then asset allocation is important.

But to answer your question, there are both types of investors. There are types of investors who say, we believe the 20-year view. Therefore, we will measure VC not just on your last 2, 3, 4, 5 years returns, but we know how this asset class works.

And I will invest in public markets and I will invest in real estate. And it’s my job, i.e., the investors to do asset allocation such that things move around. This is the most institutional capital.

And then there are others like you and maybe even me who would say, just show me return. So, it’s both types. But if you look at through cycle long periods of time, asset allocation matters.

And then you basically divide your risk, divide your reward also, but it is the best risk adjusted reward that you get.

Siddhartha Ahluwalia 51:01

So, I consider ourselves, whenever I’m traveling for podcasts outside India, or even for our fundraise outside India, since NEON is a USHQ fund, we consider ourselves as Ambassador of India. We’re just not selling NEON. We’re selling, this is India and people will measure ourselves to what we say.

Similar for you and at a much larger scale.

Avnish Bajaj 51:21

Well, yes. And, but by the way, one of the LPs was telling me this, you know, we were marketing and selling the story when there was no story. Now, there is a story.

Now, it’s actually exciting. Now, it’s actually very energizing. So, I have actually also been on a evangelization kind of normally, I wouldn’t travel much to conferences.

But because of all the excitement that is going on, I’m actually very excited to evangelize and market India. In fact, Rajendra is doing a webinar, you know, targeted towards investors who have never invested in India to just learn more about India. It’s not about fundraising.

It’s actually just bringing people up to speed, what’s happening in AI, what’s happening in all of these things in India.

Siddhartha Ahluwalia 52:09

So, now a question on previous trajectory, like you have win founders like Bhavesh in all their ventures. How do you do that?

Avnish Bajaj 52:20

Yeah. So, you know, I think the difference is when you look at a traditional view of tech founders, and by the way, this has changed. And obviously, Elon Musk has now gone into a different orbit. But if you look at all the images here, you know, there’s Jeff Bezos, there’s Steve Jobs, there’s Mark Zuckerberg, Elon Musk.

In the last decade, they have really emerged as business builders who are far more than your traditional tech founders, right? And obviously, much larger businesses that have been built. So, I have had that thought.

Remember, you asked me what changed in the last five years? I said, we started thinking bigger. We started thinking of our destiny with some linkage to the country’s destiny.

And the founders, man, we have always been founders first. And I looked at those founders and even it’s not just Bhavesh in our portfolio, but even if you look at Deepinder, you look at them and you’re like, why are these guys not the new age digital industrialists? And I remember using that word first internally on a podcast here.

When you look at Tata, Ambani, Birla, Adani, all of these guys, they are in multiple businesses. That’s considered a feature. When a tech entrepreneur wants to do multiple businesses, it’s considered a bug.

Why? What’s the difference? Right?

So, and now, of course, with Elon Musk doing so many things, Jeff Bezos doing so many things, it’s become normal, right? I think the difference was we thought of that very early and we behave like that. We don’t tell them, don’t do this, don’t do that.

I just tell them, boss, you, and it’s not a very limited window of opportunity, but it’s like, even if it’s a 15, 20 year window of opportunity, these are the builders of the next India, right? And that excites us a lot. And I think they can feel our excitement.

They can feel that you had mentioned my founder’s note. I actually wrote in that, that at some point, of course, we have to make great investments. Of course, we have to have great funds and return a lot of money to our investors.

But we did start thinking of ourselves as beyond just financial returns. We started thinking of ourselves as partners to the nation builders. We think these are the next nation builders.

So to answer your question, I hope that one of the reasons Bhavesh chooses to keep partnering with us, and he says this also, is that he feels that we emote that ambition. Rajinder, you mentioned different types of investments we have done with them. Krutrim is one of them, so ambitious.

It is effectively open AI plus NVIDIA, plus your Microsoft or AWS, all in one, right? We need it. This has to be a first generation of internet we gave away to the Americans, right?

Second generation, actually, people captured some value back, right? With the Swiggy’s and the Zomato’s and the Ola’s, and of course, Ola Electric in a different domain. So, I think they see that we actually believe that. And that’s why they…

Siddhartha Ahluwalia 55:46

So is Bhavesh an exception in your portfolio or are you okay doing similar model, encouraging your best of founders to say, why do you want to exit one company? Why don’t you build three, four companies at the same time?

Avnish Bajaj 55:57

I’ve already done that. I’ve already done that. And fortunately, my founders are saner than I am. They say Sir, not now.

But by the way, there’s a right to play and a right to win. Bhavesh made his business profitable before he went and did something else. You can’t be loss-making in one business and start loss-making in another business.

But I have encouraged many founders saying, why don’t you think about adjacent businesses? My co-investors sometimes might shoot me, but actually they have, I think the co-investors also appreciate the fact because now there is a… Bhavesh may be superhuman, he may be able to do certain things differently.

Ultimately, there are people who are very good with zero to one, one to ten, ten to infinity. I think now Elon Musk, Bhavesh, some of these guys may be able to do all of it. If I were to do it, I would not be able to do all of it.

I would probably say I’m very good with zero to ten. And when I reach ten, I will hand this business over to a professional CEO to run to take it to infinity. Then you can do whatever you want, as many things as you want.

Siddhartha Ahluwalia 57:06

And are you seeing more companies like Krutrim, like this is a specific question to, you know, building AI and infrastructure startups like OpenAI in India, like the deep tech innovation, like a lot of folks have labeled India as an application AI layer.

Avnish Bajaj 57:20

No, actually, if you think it’s worse than that, if you look till 2016-17, all of the models were what I call, not what I call, everybody calls copy-paste models. In 2017-18, at least we took the call that we have to back Made in India for India. That’s why we went very deep into B2B.

That’s why we went very deep into financial services. Now, Made in India for the world is happening. I actually believe cutting-edge stuff is happening.

If you ever get a chance to visit the Ola Electric factory, you will see how cutting-edge it is. If you get a chance to use the models on Krutrim, a lot of cutting-edge stuff. Neysa is doing AI infrastructure, AtomicWork, Vijay.

Vijay is doing as cutting-edge as it comes. AMP is doing AI agents. But if you ask me, is the entrepreneurship at the level that the opportunity is? No. And it is one of the first times I feel that I have always felt that the entrepreneurs are ahead of the market in India. This time, I feel entrepreneurs are behind the market. If you look at semiconductors, 90%, I don’t know if you know this statistic, 90% of chip design goes through India, including the Chinese chips. Why? Cadence, Metrographics, Synopsys, all these chip design companies, all of them are in Bangalore. Texas Instruments, its entire chip design thing is in Bangalore.

The best AI chip designers are Indians. How many chip companies are there from India?

Siddhartha Ahluwalia 58:54

Zero.

Avnish Bajaj 58:55

Krutrim is making it. Now, gradually Tata will make it. So, this time, I feel that it has come in a lot of comfort zone.

And I was going deeper to understand why is it so. You know how much a good engineer would make at Texas Instruments? I heard $400,000.

In India, by the way, in Bangalore. It may be less than that, but it’s in that range. So, it’s a lot of comfort zone.

So, this is one of those where I want to go shake people up and say that there is so much opportunity. What is there in this? Because you know what Trump is doing with barriers, you know what China has done.

These are actually national security issues. People don’t want to have their hardware from other countries. People don’t want to have their AI from other countries.

It’s a very big opportunity. Now, India has actually, to be fair, announced, Mr. Modi, when he came back from France, there’s a big push on the AI mission. So, the government is trying.

But you know, we used to say earlier that India succeeds because of its entrepreneurs, despite its government. Right now, it’s a little bit opposite. We actually have a government that is really pushing.

Entrepreneurs need to wake up. They need to come out and say, this AI movement, if you were to go to the valley, I don’t know when you last visited. I haven’t visited in a while, but I hear a lot of the buzz.

This is the conversation everywhere. What’s happening in humanoids? What’s happening in this? What’s happening in that? We’re a little behind.

Siddhartha Ahluwalia 1:00:26

In fact, like for us, I’m there every second or third month. And in a recent fund, which is Neon Fund 3, all of our founders, like the CEOs, they have tech teams in India, but they are ways out of valley.

Avnish Bajaj 1:00:38

For this reason?

Siddhartha Ahluwalia 1:00:39

Yeah. Because it’s such a big wave.

Either you are sitting on the wave or you are…

Avnish Bajaj 1:00:45

missing the wave.

Siddhartha Ahluwalia 1:00:47

On the beach.

Avnish Bajaj 1:00:47

Yeah. So, I think this one, we need to do more.

Bhavesh cannot be the only person doing it. Neysa cannot be the only person. Vijay cannot be the only person.

Sarvam is doing some stuff, all of that. But we need this time in this segment. Everyone wants to do quick commerce.

Nobody wants to do deep tech. There should be 10x more entrepreneurship in deep tech.

Siddhartha Ahluwalia 1:01:10

Now, I want to do a quick rapid fire with you.

Avnish Bajaj 1:01:14

These are always the most dangerous.

Siddhartha Ahluwalia 1:01:17

Before proceeding to the last part of our podcast. Most resilient founder that you know.

Avnish Bajaj 1:01:23

I mean, that’s an easy one. Just Bhavesh, given all that he has gone through. His Ola pretty much shut down during COVID.

He fought Uber. There are so many different examples, but it has to be him.

Siddhartha Ahluwalia 1:01:36

The founder that has the highest muscle in enterprise sales for B2B software.

Avnish Bajaj 1:01:40

So, you know, I was thinking about this. I don’t think I’m competent enough to respond to this, but I’ll say one thing. And since we both know Vijay, and then there is the RocketLane founder also, Srikrishnan, I’ll tell you one of the very hard decisions to make, very gutsy decisions to make is to say I am getting contracts in a certain segment of the market and I won’t take them because I want to move up market.

Both of them have done that. They don’t want to operate in this 5, 10, 20,000, 50,000 ACV. They have aspirations to do hundreds of thousands or millions in ACV.

India has never done that. So, if they pull that off, I think they will ….

Siddhartha Ahluwalia 1:02:25

I think there is a reason for that. Like Indians have a scarcity mindset. I’m not blaming, like I’m part of that.

Avnish Bajaj 1:02:33

Can you explain that? What is the scarcity mindset?

Siddhartha Ahluwalia 1:02:33

So, for example, when we come out of a metro, the metro has stopped for everyone, but there is a rush to who will go out first.

Avnish Bajaj 1:02:42

Yeah. Basically, that old mentality has not gone because it was always a scarcity driven nation.

Siddhartha Ahluwalia 1:02:50

So, same thing is happening in B2B software. Take whatever you get. 10k, 5k, 20k, don’t miss out on anything. And if you are saying yes to everything, then you are not saying, you are saying no to the biggest chunk.

Avnish Bajaj 1:03:04

Correct. Yes, that’s very well put.

Siddhartha Ahluwalia 1:03:06

So, I think we have to combat that for us to build real enterprise software company from India and think our own hangover of colonial mindset.

Avnish Bajaj 1:03:16

Yeah.

And which is credit to Vijay and again, even in RocketLane that they are actually playing, you know, that’s the big change. Even if you look at which are the investors chasing those companies, they are the best US investors. We could be sitting here, I could be feeling very happy that we are investors in this company.

But when the best American investors are chasing our companies, that means they have measured those companies against all the companies.

Siddhartha Ahluwalia 1:03:39

All the companies in Bay area.

Avnish Bajaj 1:03:41

Yeah. Yeah. So that’s a big change.

Siddhartha Ahluwalia 1:03:44

And you talked about 1 to 2 billion dollar exits, which are the bread and butter. But what puts India on the map right now are the 10 billion dollar companies.

You have, you know, a few of them, I would say Razorpay, OfBusinesss, Ola, Ola Electric, all are contenders to be 10 billion dollar companies. Are you able to identify them when they are starting in the beginning?

Avnish Bajaj 1:04:09

No, no, no chance.

But I can tell you that, let’s take Onecard as an example. See, what makes a 10 billion dollar company, it’s not just the founder. Is there a TAM?

And is there a profit pool? If you look at the TAM and the profit pool of the credit cards, it is just the same.

And if you look at SBI cards, by the way, when we invested, it was about 10 to 12 billion, but it has reduced. So, then theoretically, you would say a credit and by the way, Bob cards, I think might get spun out, whatever, but it was also valued pretty highly.

So, you could say that is possible, right. Then you meet a founder like Anurag, who’s built ICICI’s credit card business. Now, RBI, assuming RBI keeps blessing us forward, is there, you know, 5 billion was evident, but not at start, but it was clear that this is not 1-2, this is 5.

Country Delight operating in a category when we started was milk. So, it was hard to underwrite even a billion dollar outcome. Although milk is a very deep category, it’s the margins, right?

But Chakri was outstanding. And then as the grocery basket started becoming the mainstay, what’s the TAM? So, you have to look at the TAM and the other parts of it, but to answer your question, you don’t know at the start.

But you typically, my experience has been 18 to 36 months, mostly 18 to 24 months, one starts getting an idea, is this a multi-billion dollar outcome or is this a capped out?

Siddhartha Ahluwalia 1:05:47

For example, I would again go to AtomicWork, I would say, they are fearlessly replacing ServiceNow.

Avnish Bajaj 1:05:55

What is ServiceNow’s market cap?

Siddhartha Ahluwalia 1:05:57

200 billion, 11 billion dollar revenue, still growing 20% year on year, right? Even if they eat up 1% of ServiceNow market.

Avnish Bajaj 1:06:05

And by the way, they may be much more profitable because they are building AI first. And I think that by the way, so just on that point on SaaS, you know, if you look at AI agents and what, I don’t know if you have covered this with your audience, SaaS is service as a software. Now, there is this concept of servitization of software, which is, sorry, SaaS is software as a service, now it is service as a software.

The TAM of services is 10x the TAM of software. If you could replace, so earlier, if you were trying to replace ServiceNow, the buyer would say, okay, your software may be better, but my agents are trained on ServiceNow. Now, your sale is, I’ll replace your agent, what software I use doesn’t matter.

I think it’s a very big deal. And I hope again, Indian founders wake up to it. Because the market cap that was created by Infosys and TCS is waiting.

And I think TCS must be again, 200 billion and whatever.

Siddhartha Ahluwalia 1:07:09

Each one of them is above 100 billion.

Avnish Bajaj 1:07:45

Yeah, that’s waiting to be created in this service as a software.

And we have an edge. We have done this before. So, I actually can also see an Infosys and TCS built virtually from India using agents.

Then you have to say, what’s our right to play, right to win? So, I think that’s where the talent pool, being aggressive, we have always had the best engineers, thinking bigger, I think is critical. And AtomicWork is a great example of that.

Siddhartha Ahluwalia 1:07:45

Avnish, when we have India’s entrepreneur energy at all-time high, the best of second time founders have come in the last three years. I think as a VC, seed is the only battle to be won.

Because series A tech, you have lost the companies. What are your thoughts about it?

Avnish Bajaj 1:08:03

Of course, that’s very convenient for you to say, given your business. And I’m sure your investors will see it. I don’t think about it as stage, I think it is about it as a founder.

Get into, by the way, you know, we do invest from DVC. We have discussed, I think we are in one or two companies together, we should be collaborating more. So, I actually give reverse advice.

Fortunately, we are lucky to be in business with some of the best entrepreneurs. Our market share is 20 to 25%. That means we are not in 75% of the good companies out there.

Out of those 75%, I think one third, another 25%, those founders are really good, exceptional founders. I’m not saying the others are not, but just as per our frameworks. I think we should be in business with them. So, my view Sid is, and it is very unabashedly founder backwards view that if we miss the founder in the seed, then we have to get in again, somewhere.

I would say, even in our seed fund in DVC, although the construct of the fund doesn’t work, we are one of those that is going to be very, very aggressive, hopefully thoughtfully aggressive about following on with this.

Siddhartha Ahluwalia 1:09:30

So, if you had missed AtomicWork in seed, could you have entered AtomicWork in series along with Khosla and others Battery?

Avnish Bajaj 1:09:38

It’s a very hard one. The answer is yes, but I’ll tell you, there’s a nuance to it. So, in our traction playbook, we actually have this framework that says, do you know this founder over a long period of time?

And quote, unquote, is this in a glaring error bucket? So, we have this concept internally about thinking in lines, not in dots. Dot is, this event happened, it happened like this, then this happened, then this happened.

Our traction playbook or our playbook of getting into business with people like this is, we would have missed Vijay, but Pranay, Vikram, somebody would have been meeting him every two months.

We would not let it get to the Khosla round. We would actually do a preemptive saying, we know we are paying up, your multiple is crazy, but you are in our glaring error bucket, we need to be in business with you. I think that’s how we would do.

Siddhartha Ahluwalia 1:10:43

So, that is still seed plus, but I still think that series A, as you said, you still try to preempt around, you will not wait for series A.

Avnish Bajaj 1:10:53

We are never market participants. We are never participants in market rounds. Very rarely, actually never.

We are always, so we have this concept of P2P. There should be only two answers to a deal situation, preempt or PWC, which is pass with conviction. There’s nothing in between.

So, we don’t want to see rounds happening and then decide if we are participating.

Siddhartha Ahluwalia 1:11:21

And tell us some of the anti-portfolio companies that you have.

Avnish Bajaj 1:11:25

75 percent, all the valuables, so Flipkart, Zomato, Swiggy.

So, any great company that we are not part of doesn’t mean it’s an anti-portfolio. We go deeper and say, was it within our playbook? Did we see it?

If we didn’t see it, why not? Is that worth fixing? And I think some of these companies, Flipkart in particular, believe it or not, Axel had called me and they said, we are doing this book site and because you are an e-commerce founder, we want you involved.

I had just sold Baazee, I thought there were no internet users. So, I didn’t take the meeting. If I had met Sachin, we would have wanted to be in that round.

I would have personally wanted to be in that round. So, there are such errors, those won’t happen again. Then there are errors like Swiggy where, you know, he emailed us proactively, but we already had a competing investment.

So, there are many of these. If you look at the pattern, the pattern is, we do very well when we override any views we have on the market by saying, we like to back founders. You had quoted somewhere, you know, my quote from what I wrote in the founder letter saying, markets don’t execute, businesses don’t execute, founders do, people do.

Every time we have violated that principle, it’s an anti-portfolio. Every time we have followed that principle, it’s a great hit in our portfolio. So, Ola, we didn’t believe in the market, we believed in the founder.

So, we have a line internally, when somebody says, like the founder, don’t like the business, that means we are entering our anti-portfolio zone. So, now that we have analysed enough data like that, then we say, pause, this looks like an anti-portfolio zone, let’s go deeper.

Siddhartha Ahluwalia 1:13:19

And a deeper question, right? When do you start feel that you start liking a founder, like from signals?

Avnish Bajaj 1:13:27

People have different views. For me, it’s 30 minutes. So, for me, I mean, I have so many patterns because I’ve been doing it very long.

It takes me about 30 to 40 minutes on my first meeting to figure out if this is a, it may not be fully yes, but that I’m getting excited. Then you have to do a lot more work and it has, there are, I would say, 20 to 30% of the time, I’ll end up in a situation where I get excited and then it changes later. Very rarely, almost never, is it a situation where 30-40 minutes into it, I’m not really thinking I should be doing it and later it changes.

If that is the case, I have generally gotten it wrong.

Siddhartha Ahluwalia 1:14:11

And how are teams, like you said, the teams are structured like pod. How are teams independent in their own decision making?

Avnish Bajaj 1:14:18

We call it conviction investing, not consensus investing. So, actually, the pod gets to decide. Now, obviously, if people who have vintage in the business are negative on something, then the pod should think harder.

But ultimately, the way it works is the pod does the work. The pod may be paired with somebody who has vintage and they may, you know, we call it 2P, second pair of eyes, but then they bring it to a team meeting. Team meeting, people vote.

That vote is opened up later for everybody to see, but people vote and they write their comments on what they think. But ultimately, that is to give the pod and the leaders of the pod input on what others think. That’s not the decision.

The decision has to be made by the pod. So, it’s fairly independent.

Siddhartha Ahluwalia 1:15:08

And you have people in the team who have stayed for more than 10 years, Vikram, Tarun, Rajinder. What makes a team sticky?

Avnish Bajaj 1:15:16

Misery loves company.

So, when there was no market, I think, you know, I keep saying I have a framework that we are very input led people. I believe this is an input and I, you know, very much when Dhoni used to be the leader of the Indian team, I used to resonate a lot because I could see all he cares about his process. He never cared about outcome, right?

So, I tell the team think about relentless input and reliable output. I think the people who have stuck together for a very long time had very, very similar views on just being relentless in input. I think we are culturally very aligned.

We have never focused on rewards and incentives and who’s making what and all of that stuff. And I think that’s what has really kept us together. Going forward, it’s that is, if you ask me, the most important deliverable from the leadership of the firm is to continue that kind of a culture, right?

We don’t like prima donnas. We don’t like people who think they know all the answers, right? So, we don’t like politics.

You know, there are almost unwritten rules that if you’re going to be this type of person, then this is not the right place for you. We have value system called the Z10, which we rolled out with Z47. So, Z10 are essentially the values that we all aspire to.

One of which is founder’s mindset. What does that mean? Don’t come to us with problems, come with solutions.

As a firm and a leadership and a culture, if we are not giving you the resources you need to solve a problem, then it’s a problem that we have. Otherwise, go and figure it out. I would say I’m very grateful and proud that I think it’s a very entrepreneurial firm, top to bottom.

Then we have this concept called own alpha, which is almost a superpower. What is your superpower? Can we channel that superpower towards what the firm needs as a superpower?

So, there are some tenets and I think if you are able to bind the term, bind the firm better around those tenets, then that’s what. And it’s all organic. Some of it was people with vintage, I’m very glad, grateful to like Vikram is now 15 years, Rajinder is 14, Tarun is 12, 13, something like that.

So, that common language automatically over a period of time. But now that you don’t have the luxury of time, how do you inculcate that much faster for newer people and that’s some of these values.

Siddhartha Ahluwalia 1:17:53

Thank you so much, Avnish. Love, love this conversation.

Avnish Bajaj 1:17:56

Thank you, thank you. I’m very happy to be on the second most popular show.

Lovely flowing conversation and good luck.

Siddhartha Ahluwalia 1:18:04

Thank you, Avnish.