Loading summary
Transcript163 lines
- [00:00]
A
The obsessive killing of Dorothy Stratton. The real life murder that inspired Twin Peaks. These stories and more are told in the Hollywoodland podcast, where true crime and Tinseltown collide.
- [00:11]
B
Follow and listen to Hollywoodland wherever you get your podcasts.
- [00:18]
A
Welcome to the Investor, a podcast where I, Joel Palathinkel, your host, dives deep into the minds of the world's most influential institutional investors. In each episode, we sit down with an investor to hear about their journeys and how global markets are driving capital allocation. So join us on this journey as we explore these insights. All right, looks like we are live here on YouTube with is all the way out from Singapore with Leo Capital. So thank you so much for taking time and spending time with us to learn more about Leo Capital and your story of how you broke into private equity vc. So welcome to the show.
- [01:25]
B
Thanks, Joel. Thanks for having me. Great to be here.
- [01:28]
A
Yeah. Excited to learn a little bit about your background and very, very excited to have the audience learn about your career as well. So maybe we can start with your background and where you grew up, what your family did and how you kind of broke into vc, and then maybe we can get into Leo Capital as well.
- [01:49]
B
Sure. Sounds good. Yeah. So I grew up between the UK and India, so did my primary schooling in the UK and did my secondary schooling in India and then went straight back to the UK for university. So fairly interesting. Dual cultural upbringing. I've always been entrepreneurial, so I always knew I wanted to start my own company, you know, and I started my first company while at university. So my first company was started in my second year of uni, the classic dorm room startup. And it taught me a lot. Right. So I think some of these things you learn just by doing. And while of course, having a good mentor back then would have been probably very, very helpful and led to a slightly larger exit. No complaints. So had a good run. We created a small business that was acquired.
- [02:38]
A
Can you tell us about the startup and the business and how that startup evolved? What was the problem you were solving?
- [02:46]
B
Yeah, sure. Going back, this is more than 20 years ago now. It was. It's one of those things where, you know, you saw an opportunity that was just easy to access. What the. So, you know, the opportunity that I saw was that we were. I was running the students union, you know, sort of entertainment committee, and we were paying a lot for our bouncers. And the reason we were paying a lot for our bouncers was. And security. Bounces plus security. Sure. Was that it was a pretty licensing requirement from the Town council to be a bouncer. So the pricing went up. But there was an interesting, interesting exemption that if you, if you were part of the British army, you didn't have to get this licensing and didn't have to pay this fee.
- [03:41]
A
Oh, interesting.
- [03:41]
B
Okay. As it happened, my roommate was a scholarship recipient from the army, so he was one of those, what's called the Territorial Army. I don't want to get into too many details. So we discussed this and he said, hey, you know, there's this, there's effectively a regiment here, which, you know, the. And the guys would be very happy to do it in their off days and there's rotating off days, so we'd have enough people every day. We just set up our own security company.
- [04:04]
A
That's brilliant.
- [04:05]
B
Much better staff, professionally trained British army staff, so to speak. And, you know, we managed to win many, many, many contracts. So completely offline business. No tech, no nothing, just. Just the interesting regulatory arbitrage, so to speak. So anyhow, so once I finished university, I had no, no desire to keep running it. So we sold it and I went to London to do my chartered accountancy with Pricewaterhouse. And that was actually the break into vc, because while there I worked for a team called the epc, the Entrepreneurial and Private Client Team. And that exposed me to the world of family offices. So as you can imagine, the who's who, Richard Branson onwards were clients. And from that I managed to get into a very interesting conversation with what's called the Claremont Group, which is the family office of Mr. Richard Chandler, multi billionaire based out of Singapore. And that was the segue from accountancy into the world of private equity venture investing. In 2008, I moved from London to Singapore and started sort of doing some of the investing for the Claremont Group. And I did that for about five years. Learned a lot about early stage incubation efforts, investing efforts across industries, tried my hand at entrepreneurship again. So built another healthcare, built a healthcare business, built another business, built a healthcare business which I sold in 2016 and since then sort of, you know, been working in the ecosystem and decided to raise a fund formally from 2017 and that led to Leo Capital. Sure.
- [05:50]
A
And with the family office, I guess the Claremont Group, what are some unique things that are different when you're investing on, on behalf of a family office versus managing your own fund that you observed?
- [06:04]
B
Yeah, I think the number one thing is the family office. The time horizons are different, so you don't have the pressure of requiring exit in a very defined time period. So you're able to take kinds of bets than you can in a fun environment. The other side, of course, is tolerance for risk is slightly different in the sense what's considered an appropriate and acceptable return is slightly different in the family office environment, where preservation of capital perhaps has preservation of capital across all deals, rather than the venture world, which is the net result of your fund, rather than specific return of one specific investment.
- [06:48]
A
That's interesting. So it's more of a holistic approach across all the investments even outside of venture, to just holistically have a number to preserve the family's wealth as opposed to, hey, this Fund's performance was 25% IRR is what you're saying, right?
- [07:06]
B
What I'm saying is in the venture world, it's more about the IRR overall, while in the family world it was overall, your IRR might be great, but these three deals return zero. Why did that happen? That question.
- [07:18]
A
Oh, interesting. Yeah. So there's more scrutiny on a deal by deal basis versus venture. Got it.
- [07:24]
B
Yes.
- [07:25]
A
That's interesting.
- [07:25]
B
And there's more sensitivity to losses on a deal by basis vis a vis venture.
- [07:31]
A
That's really helpful. Yeah, I wasn't aware of that, but that's good to know.
- [07:34]
B
At least it was in that setup.
- [07:36]
A
Yeah, yeah, yeah. And they always say, you know, you meet one family office, you met one family office. Right. So a lot of them are. A lot of them are different. And then how is the, you know, just in general, you don't have to speak in specifics, but just the investment committee process, how is that different? You know, in a venture setting versus in family offices, are they. Is there much more scrutiny or is it about the same? Or are there different? KPI's keeping that in mind as well.
- [08:03]
B
I mean, there are, of course, some key differences and goes back to the timing point. Right. So in venture investments, the ic, at least all ic, should be reviewing whether you will have an exit. The exit horizon matches up with your. With your funds horizon. Right. That's a key question. That is not a applicable question in most family offices. But otherwise, I think there's a lot of similarities in the IC process. Of course, you know, there is a difference in the sense that in the, in a family office, especially if the family is involved and, you know, their wishes carry a certain weight, which you don't necessarily have in a professionally run VC kind of setup. Yeah, but it's fairly similar.
- [08:44]
A
And do you see some of the family offices now building their own venture teams as opposed to allocating capital to funds? Do you see that as kind of a slow pattern that's changing. The only reason why I ask because I'm starting to see that some of the families are just hiring their own associates to kind of build their own venture practice. But be curious to know what you're observing.
- [09:06]
B
I'm certainly seeing it in the. In that there is a trend towards families wanting to do direct more, much more than they did, say 10 years ago. It's an interesting sort of play. I mean, you know, we get a lot of requests for basically, let's do a small investment in your fund. But as long as that allows us to co invest with you on an every deal by deal basis now that's not a great deal for us as a fund. So it's unlikely that I will give you that deal. And also I think family offices have to be careful actually about sort of going direct. There is a question of how will you win the best deals, how will you attract. I sound self serving when I say this because I'm a venture capitalist, but there is more to this business than just the provision of capital, otherwise this would never exist.
- [09:55]
A
Absolutely.
- [09:56]
B
And I think some of the family offices are finding that out. Those who have been slightly more aggressive on the direct side of finding that out to their detriment in a few of these cases. But having said that, there's no guarantee that you'd make money with firms either. So, you know, sure, yeah, I think it's.
- [10:12]
A
Yeah, no, I hear you. I'm Josh Eyre. And I'm Nicole and Iidi. And we're the cooks responsible for all the strange dishes on the Internet's most watched daily show. Good Mythical morning with Rhett and Link and our own YouTube channel, Mythical Kitchen. Between the two of us, we've worked almost every weird job the food industry.
- [10:25]
B
Has to offer and we've developed some pretty strong opinions.
- [10:28]
A
The strongest opinions, Nicole. Opinions so strong they need to be heard on an easily consumable auditory medium. Does pineapple belong on pizza? Are boneless wings just poser nuggets?
- [10:36]
B
Is cereal soup Follow and listen to a hot dog as a sandwich free on the Odysee app.
- [10:40]
A
And everywhere you get your podcasts, I think, you know, it's also the capacity of availability, you know what I mean? You don't see a lot of the family offices going to all the demo days, the pitch events. So I think the access to the deal flow, you know, selling yourself as like a founder first focused VC and really rolling your sleeves up, you know, I think is the benefit of being a vc. But you know, what's helpful to. Another insight I've been seeing is with the family offices, many of the family offices, you know, specifically in the, in the US on, you know, on the west coast and on the east coast, many of them used to be business people or, you know, first time, second time entrepreneurs. So they like to be involved. But then there's other ones that are much more sophisticated that are not. They're just. And especially the larger families, they're probably, you know, really trying to, you know, have the fiduciary duty of just out managing the capital as opposed to maybe the single family offices that are maybe more hands on. That's what I've been seeing. But have you seen that, have you been seeing that as well on the institutional side just kind of being less hands on?
- [11:49]
B
Being less hands on in terms of direct investments or.
- [11:53]
A
Direct investments? Yeah, I mean, I guess the larger family offices or the multifamily offices, are you seeing them mainly focus on just investing in the managers versus rolling up their sleeves and directly working with the founders? And even if they do direct investing, are they working and mentoring the founders specifically, or are they really just trying to get access to the deal and allocate?
- [12:16]
B
I'm seeing more trying to get access to especially sort of slightly more later stage deals. And I do think that's a fair play. Right. I mean, I think it's very hard for family offices to build early stage direct investment programs. That's asking for trouble.
- [12:32]
A
Got it.
- [12:33]
B
But slightly later stage, especially when the rounds are bigger, you can get some allocation. I've seen a lot of that. I mean, I think at least in this region we see a lot of participation, direct participation by family offices in later rounds. And you know, some of the multifamily officers though as well are starting sort of direct earlier investment programs. Let's see how that plays out.
- [12:54]
A
Sure. Yeah. It's interesting too. I think the very early is helpful, especially if there's no time horizon, you know, because then they have the decade that they can wait for. But you know, especially if you're later, you know, in the, you know, if you're older and one of the matriarchs or patriarchs in the family office, you know, you may not have another decade in you. Right. So I think, you know, in my.
- [13:20]
B
Experience, the time horizon has always been a bit of a misnomer. There is theoretically no time horizon, but the reality is that there is a time horizon and nobody has patience more than three, you know, and there's a.
- [13:33]
A
Couple arguments there's a couple arguments with the generations over the wealth and who's handling it. So that's like a whole other piece of drama.
- [13:39]
B
That, that's a whole different ballgame.
- [13:41]
A
Yeah, but I think, I think, yeah, I mean, I agree with you. I think the, you know, one to two years, you know, something like a super late stage deal that's hopefully going to have an IPO in like two years. I think I see a lot, I'm seeing a lot of family offices invest like usually in SPVs. So they're, they seem to be okay with paying the management fee. What are your thoughts on VCs now managing secondaries? Like maybe a portfolio of secondaries because that could be attractive to some family offices. Right. Because some of those secondaries could be like maybe one to two years. We heard about Airbnb and their ipo, but are you seeing that as a pattern now? Some VCs doing an SPV for like SpaceX or like a Palantir that had their direct listing. Is that something that's attractive in Singapore for family offices?
- [14:32]
B
I mean, you know, so see that I look at that as monetizing access. And if you have access to, as a fund manager, it's one of the things you do monetize, right? I mean you monetize sort of, you know, your, your deal flow, which is access. You monetize your deal value addition, which is the stuff you do as coaching. And you monetize the ability to sort of create exits. Right. Those are three broad buckets, I think, of what is, what is this monetizing ability that I bring to you as a manager? So I think it's fair and I, we have seen, I mean, not, of course not SpaceX and Airbnb so much here, more like access to grab and some of the local regional heavyweights. Those are, those are always there. I don't think you can build a strategy of a long term fund around them, but you can certainly super returns, personal returns as a GP if you get one or two of these. Right. But how to build a career of doing just that? Sure. Having said that, I've seen more and more secondaries, only funds coming up, which are interesting, which sort of seek to buy out GP interest sort of, you know, three to five years into a fund once the winners have sort of started showing themselves. So buying that position at a slight discount and then we, you know, having a longer time horizon to write that further. That's an interesting, that is an interesting opportunity. And I think Dave McClure, the former founder of 500 Startups has launched a new fund focused just on doing this. We'll see how that plays out.
- [15:57]
A
Oh, interesting. Yeah, no, that's great. Yeah, I think that's, that's what I've been seeing too. I've been seeing. Well, what I've been seeing on the secondaries is people have their seven year early stage fund but then it's kind of like a side hustle. It's kind of like, hey, we have access to SpaceX or we have access to this other deal. So then they'll just charge like the 5% management fee up front and it's probably an additional revenue stream for them. But yeah, I mean it's interesting to see people just do it professionally as just a standalone fund as well. Let's talk a little more about Singapore. And so you spent some time in India and now you're based in Singapore, right?
- [16:37]
B
That's right.
- [16:37]
A
So maybe you can tell me a little bit about maybe some of the trends that you've been seeing and what some of the focus is in both countries. And now with Singapore, what are you excited about with Leo Capital?
- [16:51]
B
Sure. So I think India is the easier one to answer there. There's been a huge investment in digital infrastructure. Right. So I'm sure you're aware, I mean the India stack has been transformational for a lot of businesses from the Aadhaar ky. So Aadhaar is a unique identity number that almost a billion Indians have to the account aggregation framework now, which is basically all your financial data from all your accounts in one, in sort of one API call to the payments interface, UPI, etc. So the digital infrastructure in India and the fact of JIO making data available widely, India is the cheapest data in the world at sort of about 20 cents per gigabyte has transformed that country over the last four years, four to five years. Internet penetration has truly sort of become mainstream and data driven companies have truly become possible. So companies like Meesho, which is a effectively a reseller network, so it allows anybody to set up a side hustle of a shop, something like drop shipping, but more personal face to face selling rather than just sort of creating a website. It's more selling to your friends and to the people living in your building, etc. Those kind of companies have become unicorns and have done really, really well because of the growth of the this digital infrastructure. So overall across India and Southeast Asia we are excited about social commerce, the rise of social commerce that is a huge and still grow and sort of still early stage Opportunity in the sense many more models will be created to tap into that opportunity. Covid, of course, has created a massive fillip for ed tech, so we are seeing enormous increase in utilization of edtech plays. And of course you've heard of some successes like Byjus and White Hat Jr. Et cetera. Question, of course, remains open whether this will continue post Covid. But as of now, and I do think there's enough behavior change happening overall that a lot of this kind of online teaching, especially sort of supplementary teaching, will continue to be a major theme post Covid. And finally, because of all this digital infrastructure, we're seeing the rise of embedded finance, right? So how do you effectively enable anybody to receive payments, send payments, create lending as a service, insurance as a service, finance as a service is a theme that's coming up quite a lot in Southeast Asia, in India, actually, more than Southeast Asia. And that's a theme that I'm personally very excited about. I think that will lead to much more inclusion, financial inclusion, which is a major problem in the region.
- [19:54]
A
The Aadhar card. I've been looking at a couple companies in India that have been building on top of it, kind of digitizing the workflows of presenting that information. So I think one startup I was talking to, they were taking, because I think the problem they were saying is when they go to a merchant, they have to show a copy of the other card or something like that. And then I think also when you put your finger on the sensor, the merchant actually downloads your data. So what they were coming up with was just some type of app with a barcode. You scan it and then it authenticates it. However, they were using the blockchain and I was trying to understand, like the use case of even needing the blockchain because it sounds like it's just some type of digital authentication. So I was curious on your end if you've seen a lot of companies already doing that. If that seems like, hi, I'm PJ Vogt and I want to tell you.
- [20:48]
B
About my podcast search engine. We try to make sense of the world one question at a time. No question too big, no question too small. We will even answer your questions if you send them in. Stuff like what happens when a cemetery goes out of business? What should we do about teens using AI to do their homework? Who buys luggage at the airport luggage store?
- [21:09]
A
Follow and listen to Search Engine in.
- [21:11]
B
Partnership with Audience Odyssey. Wherever you get your podcasts.
- [21:15]
A
Crowded market just kind of building, you know, more digital versions of the Aadhaar card and just Easier authentication.
- [21:24]
B
So, you know, the Aadhaar guys would be absolutely sort of irritated. Perhaps the right word. Because they built it digital. Right. So.
- [21:32]
A
Oh, they already did.
- [21:33]
B
Okay. Yeah. I mean, yeah. I mean the whole idea, it's unfortunate. Sort of complete misuse of the concept of Aadhaar to be showing Aadhaar card. That Aadhaar card is supposed to be meaningless.
- [21:44]
A
So it's not a card, it's actually an app. Pretty much.
- [21:47]
B
Or I mean the Aadhaar, the core of the Aadhaar is your whatever 12 digit identity number.
- [21:52]
A
Oh, got it.
- [21:53]
B
So in an ideal world, you know the. You should, you should just be, you should know that number and you can input that number and biometrically authenticate yourself.
- [22:02]
A
Got it.
- [22:03]
B
The recipient should. Neither doesn't need to know any of it. It'll just get a token showing your authentication. Yeah, that's the theory. But it has not worked like that. So there are a bunch of. But I don't see the blockchain use case. I see a lot of people pitching it. I think it's just a hype word that's great to use in your deck. And when you ask them what exactly and why exactly do you need a blockchain? Because Aadhaar itself is centralized. Right. And I'm not quite sure what you're.
- [22:29]
A
Achieving by decentralizing it.
- [22:31]
B
Yeah, yeah. But there are a bunch of companies that are creating very good, you know, more, more sort of user friendly digital overlays using the Aadhaar workflow invoice Sign Z which is broader, just video kyc, mastercard is using it now globally. So the company. There are companies that are using that infrastructure and adding to it. I think those are going to be interesting companies. I don't see a use case of blockchain. Sure.
- [22:58]
A
Yeah, same here. I think that was my question. I wasn't sure if there was a lot of people already building, you know, digital support. And now it's helpful to know that it already is digital. I thought it was a physical card and then it has a number. But it's sounding like it's already. Like the whole concept was to make it digital in the first place.
- [23:16]
B
The whole concept was to make it digital. But given the difficulty of explaining that to the wider public, etc. They launched it as a physical card.
- [23:24]
A
Got it.
- [23:24]
B
And I know that some people still regret that decision.
- [23:27]
A
Yeah. But I think the winner is probably going to be the one that builds the best customer experience. Like in one tap, you know, one or two taps, you're already authenticated. You know, you are who you say you are and it's super easy. And I think the challenges are when there's too many taps or too many clicks and then the user drops off.
- [23:45]
B
Right? Yeah, yeah. And of course, you know, protecting data and protecting privacy and all of these things are really important. And Aadhaar has taken care of it with certain level of their APIs, etc. But there are, there are improvements that can be done.
- [23:58]
A
And with Mumbai and Singapore being more of like financial hubs, do you see more fintech activity there versus like Bangalore where it's maybe more infrastructure and QA automation, Are there some, you know, even within the countries, are you seeing just different interests within those regions?
- [24:15]
B
Yeah, that's a great question. You know, it doesn't break down that easily, but you do see certain types of, you know, certain types of companies coming up in certain jurisdictions, certain areas. So Bangalore certainly is more enterprise SaaS.
- [24:29]
A
Sure.
- [24:30]
B
So Bangalore and Delhi are the two sort of core centers for entrepreneurship in India, and Mumbai is a distant third. So, you know, you do see, you see more consumers type coming out of Delhi and more enterprise tech coming out of Bangalore. Singapore is interesting. It's sort of a regional hub. So you see a lot of sort of teams are here, but they're all building for different markets like Vietnam, Indonesia, Thailand, etc. So it's a fairly broad mix. But there is a significant push by the government of Singapore, FinTech Festival, etc. To promote FinTech startups, given that the government realizes that they've been historically a finance hub. So, yeah, there is a certain element of seeing more fintech in Singapore, but there's a lot of regional elements here as well. Sure.
- [25:26]
A
And tell me about LEO Capital. So do you have some other GPS as well on your team or is it mainly you? And if you have team members, how'd you meet them? And how did you decide to come up with Leo Capital?
- [25:40]
B
Yeah, so Leo has two gps, Rajul and myself. So Rajul has been a very successful entrepreneur. He built a company called Pine Labs, which is like the square of India, so.
- [25:50]
A
Oh, sure.
- [25:51]
B
Yeah. It's a payment processing network. And you know, he was an angel investor in my startup. That's how we met.
- [25:58]
A
Oh, got it.
- [25:58]
B
Okay. Yeah, he was on my. He was on my board for whatever three years and we worked very closely together. And once that wrapped up, I sort of said to him, let's, you know, we should do a fund. He'd been thinking about doing a fund as well.
- [26:10]
A
Yeah.
- [26:11]
B
And that's how it got started and we have one more partner, Dinesh, who sits out of Bangalore. So the three of us on the investing side and then we have a couple of people in the back office.
- [26:22]
A
Sure. And are you guys only focused on the Asian region or are you guys agnostic of geography?
- [26:30]
B
No, we invest sort of, I guess two large buckets. India domestic, which is tech. We invest in tech first up. So tech companies solving for the India domestic demand or enterprise tech companies from India or with an Indian connection building for the world. So that actually tends to have a lot of Bay Area founders, but with a significant back office team or a dev team in India.
- [26:55]
A
Oh, interesting. Okay, so they're based. So are they Delaware? Are they like a Delaware LLC or are they still kind of an India domiciled company, the Delaware C Corps, most.
- [27:05]
B
Of the time within India Sub. Yeah, sure.
- [27:08]
A
It's interesting. And so you. And as far as the focus, are you guys mainly focused on enterprise tech or are there any other sectors that you guys are looking at?
- [27:20]
B
So these two sectors, that's about 50, 50. So 50% enterprise tech, which is India building for the world and 50% India domestic, which is more consumer, which is more sort of India consumer focused domestic demand.
- [27:32]
A
Okay, and then is there any focus in Singapore as well? Are you guys just based in Singapore but so supporting India?
- [27:40]
B
So we do occasionally do Southeast Asia investments as well. I mean, just announced our investment in Colearn, which is an ed tech startup in Indonesia. We've done one in Vietnam called Jili. So you know, I guess sort of if there is a model being done in Southeast Asia which is clear parallels to what has worked in India, then we do look at that seriously. And yeah, you know, look at, look at sort of deploying some capital in those opportunities.
- [28:08]
A
That's great. And when you guys look at founders, what are some characteristics that get you the most excited when you're kind of evaluating them? And maybe what's your process for getting from sourcing to actually getting excited to write the check?
- [28:25]
B
Yeah, that's a great question. And if I was to sort of, you know, summarize, I call it the three T's, it's the tam, the team and the traction.
- [28:34]
A
Oh, that's great.
- [28:36]
B
So for us it starts with the tam, which is basically the market opportunity. Is it large enough? Can a venture return be built there? And we spend a fair amount of time actually doing bottom up stamp because, you know, the easiest way to get time, sort of misled by time is right. That you need to own 1% of everybody buying a toothbrush in the billions, it never works like that. So that's, I think, where sort of a significant portion of time goes truly bottom up stamp relating to that company and truly understanding the path to 1 million in revenue, 5 million in revenue, 10, 100 million. Right. So trying to understand that path, obviously it becomes more and more blurry as you. Sure. As you go further. But understanding it bottom up, once we're satisfied with that, then the next is the founder. And of course, you know, it has to be both really, otherwise the investment can't get done. And in terms of the founding, or it's more like the founding team rather than just the founder, we look obviously for an ability to, you know, the sort of term is acneed a bit. But founder market fit. Why is this the right founding team to solve this problem? What has the founder been able to do to attract the right kind of people? What have we learned? The coachability of the founder, the ambition of the founder, and the, you know, the ability of the founder to articulate what he's trying to do and why it makes sense. I guess these are sort of the elements that we spend some time on and of course we do a bunch of ref checks and, you know, all of those things, but those are the things we're trying to get to, you know, and if I could sum it up, it's three things really. It's their ability to handle ambiguity, their initiative, and their resilience. And we work hard to sort of score these three elements because ultimately we think all founders need to be able to deal with these three elements to build a large business. And as a mixture of these two, then traction comes third. And typically, you know, it supports the decision. It very rarely will it. Sometimes, of course, it can also say that this is really not worth backing because even though you're excited about these two things, you know, the market is telling us it's not ready or the timing, the traction helps determine whether timing is right or not.
- [30:50]
A
Yeah.
- [30:51]
B
And, you know, if once three of them sort of meld together, you get to a point where you're excited or otherwise.
- [30:57]
A
Yeah. I mean, I think if Uber tried to launch in the 90s. Right. It probably would have flopped. Right. So, I mean, have we not had mobile technology and geolocation? Right. I mean, the perfect harmony of timing is important. I posted a link. There's an interesting article called the Tam Onion. So what they do is every week on the Moth podcast, we share stories that are funny, strange, heartbreaking, and above all, true. I myself have been married for 56 years.
- [31:28]
B
Unfortunately to four different women. It turns out the people I was.
- [31:34]
A
Looking for all my life is what you people would call nerds. Follow and listen to the moth on the Free Odyssey app or wherever you get your podcasts. They've actually evaluated like the bottom up and top down approach and then they had an interesting diagram of breaking up the market sizing. And it's funny because it looks like an onion. Like if you cut the onion in half, it's like they bucketed different layers of different areas to focus on. So I've shared that with a few of the people in my community. I thought it was pretty funny. So I agree totally. The TAM is super important. And then breaking that down on the team side, what are some red flags that you've seen? So for some of the people in the audience as they start to build their career as VCs, what are some things that they should see as a red flag if they meet a founder and should be concerned about or at least just monitor as they're continuing to see if it's a good founder market fit? I'm sure you have tons of stories over the years of you being a venture capitalist, but I'll start. So one for me is obviously if you ask a founder who their competitors are and you know, like five competitors that they don't know about, that to me would always be a red flag. But I'm sure you've got a couple too, if you have any, that'd be great.
- [32:56]
B
Yeah, no, that, that is a, that's a crying red flag. Right? They said there's nobody doing this. It's a very good reason. It's probably a clapper. You know, I think a few that sort of come to my mind immediately. One is if it's been, you know, if sort of just, just see for the attrition in the company and especially if they've already had a few co founders that have left, etc, that that's typically not work well for us at least. And it's important also to check with their immediate previous employer if you can like just get a sense of how it is to work with that person. Because ultimately that is a really important point in sort of building. So the team has to be built and you're trying to judge whether this person is able to bring on talent and hold on to talent. A lot of people are able to bring on talent but are unable to hold on to it and that that sooner or later leads to disaster. The other is I think just being clear eyed about what kind of capital is required to build whatever business they're building. What I mean here is, you know, people sometimes miss, you want to be, you want to understand what poker table you are getting into and the founder should be able to articulate it and understand it. And you know, like for instance, if somebody's trying to get into payments and say we will, you know, make this happen at whatever 50th of the cost. That to me shows certain naivety, right. That the founder has not understood which game he's playing and is sort of hence it's going to be unable to play it because it just doesn't know which game he's playing. Right. So yeah, get a sense that do they know which game they're trying to play and can they actually then play it?
- [34:38]
A
And what's a good benchmark for retention? Right. So you know, what's the minimum that they should retain talent? You know, especially with, with it being a hot ecosystem, people are bouncing around because of, you know, competing job offers and stuff. Right. So is it, is it at least two years or is it at least three years? How long do you think it should be to feel comfortable as far as retention for employees?
- [35:02]
B
I don't, I don't think there's like, I don't, I don't look at that. What I tend to ask, my questions are a bit more, you know, point me to sort of two people who were regretted attrition and two people who are non regretted attrition.
- [35:15]
A
Okay.
- [35:17]
B
And you know, I'd like, what I wanted to chat with the regretted guys is if I can, I tried to chat with at least one is will they will if the right opportunity came back, will they want to work with this person again? And that gives you a good flavor of what happened. And I asked the same question to the non regretted attrition as well. That gives you another interesting answer. Then you try and what you're trying to triangulate to is how do, how well does this person attract talent and then what does this person do to retain them?
- [35:45]
A
So just to clarify, so regretted, does that mean the employee regretted leaving or.
- [35:49]
B
It'S no, no, I'm the founder, I regret, well, I really want you on my team, but you've got this better opportunity to say I'm going.
- [35:57]
A
So that would be regretted because, because they found the team member left on their own.
- [36:02]
B
Right.
- [36:02]
A
But then non regret, it means you just fired them and you didn't you.
- [36:05]
B
Fired them or you were delighted when they came and told you, look, I'm Leaving.
- [36:08]
A
That's. Yeah, that's really good. I didn't even think about that. So that was really helpful. Thanks for sharing that.
- [36:13]
B
And that's important as well that if the non regretted actually quit rather than being fired, that is also telling you something about their decision making.
- [36:20]
A
Do you speak to the employees too or just the founder?
- [36:24]
B
I try and speak to one regretted and one non regretted if I can. And sometimes the companies are too early, there is nobody, nobody's been fired yet. In which case you try and speak to the former employer to the extent they have one. If they fresh out of uni, et cetera. They just back your gut.
- [36:46]
A
Yeah. And then let's talk about the third T. So traction. What are some KPIs that we should be making sure that we always monitor? When you're evaluating the company and the level of traction, are there any specific numbers or KPIs that you look at that you recommend?
- [37:04]
B
Yeah, I mean so traction is a very broad subject. Right. And traction will mean different things and different kind of businesses. So in a B2B setting, what sort of. Obviously you know, what I look at is an ability to land a sale at a sort of decent size ecv. Right. So depending on what they are. But basically has the company been able to land a customer which is truly using them or is it sort of a, you know, very bits and pieces implementation and all the small like pilots everywhere and no use case. So that's, that's always helpful that at least one company is finding their use, their product useful enough to use in production and pay, you know, a decent 10k sort of AR 10k CV kind of thing.
- [37:52]
A
And there should be eventually, probably in the beginning, not so much because you're doing pilots and hopefully converting them, but there should be some, you know, predictability in the. At some point.
- [38:01]
B
Right.
- [38:02]
A
So there should be like a life. Yeah, yeah.
- [38:04]
B
Ideally you should, you should have a sense of that. I mean I think some of our stuff is a little too early to still have that. So what we look for is it's just that you have become truly integral to some companies operations at least at some level. Right. You're not like a 2k 5k kind of annual contract which is, you know, nobody cares.
- [38:24]
A
Yeah.
- [38:25]
B
On the, on the, on the customer side, you know, it's what we look at is sort of cohort retention. I think that's a really important indicator. So you know, day seven, day 30, day 60, day 180. And again the right number will vary a little bit by the kind of Business. It is, it's a content business or it's a, you know, chronic disease management app. Whatever it is, you have to do some work around, you know, what is the benchmarks in that specific industry.
- [38:55]
A
Yeah.
- [38:56]
B
So it's not something that I don't think there's, I don't think there's one sort of rule of thumb that can be applied. But you know, it's easy enough to get some of these benchmarks and get a feel for whether. I guess the key question is is there customer love on the customer side and the key question on the B2B side is, is this truly something that is going to embedded in the core workflow of the company or is it just going to be on the, on the edges?
- [39:22]
A
Yeah, that's, that's all great advice and we will definitely take that back for our personal learnings. What's some advice that you would give to a person that's trying to break into venture, you know, from maybe another industry? How would you advise them to possibly navigate, you know, getting closer to that, that goal?
- [39:45]
B
Great question.
- [39:46]
A
You probably get that a lot. I'm thinking, right.
- [39:49]
B
People do ask me this and I should probably put my thoughts a bit more in order. My first question always is why do you want to break into venture? That's a good question and let me break that down. So, you know, venture looked glamorous from outside, but it's, it's business saying no pretty much 9.9 times out of 10. It's a business with very long feedback loops. So there's nobody telling you you've done a good job till quite a long time. It's a business with, you know, very difficult sort of. There's no structured career. Right. I mean it's fairly, it's fairly unstructured in that sense. And it's a business with. Where you need to create a lot of your own work. There is, sure, yeah, sure, you drive your analysts. But you know, so it's a lot of things that, not necessarily a great fit for most people. So my first question to people is to just make sure, you know, you really want to get into this and you're not just getting blinded by the supposed sort of glamour around it. Assuming you do want to get into it and you don't have, you know, the simplest path is be a successful founder, have an exit and then talk to the fund that backed you to get you started in venture. Simplest path. Obviously most, most of us are not successful founders. Second simplest path is somehow get into it post university as an analyst in a large fund and then you're set again again. By the time you're asking me this question, you're typically not straight out of university as well. So then the third and probably the hardest path is, but it's becoming easier now, is really try and sort of try and follow the ecosystem, identify a few areas that you are excited about and go out of your way to help those founders. Sure. Without any expectation of return or any such thing. See what you can do. Try and if they're raising around, see if you can pull together some angels and put even a small check in. If you can help them with a specific thing like growth hacking or hr, whatever, just offer to help and use that. Try and use that to connect into funds. You know, if you be helpful and you build sort of good founder relationships over. It's a long, it's a three to five year kind of horizon. But that will help you ultimately break in.
- [42:07]
A
Yeah, that's really helpful. Yeah. I'm trying to, trying to think ahead of some questions that the students might have. I also want to introduce you to Bonnie Halper. I don't know if Bonnie, if you can hear me, but Bonnie was my co host on this show and her and I lost touch the last few weeks, so I brought her back on. So I'm super happy that she's on. So, Bonnie, I know you've been listening in the background here. What comments do you have or any questions you have for Shatank? So Shatank's in Singapore, he's at Leo Capital. So, you know.
- [42:40]
B
Yeah, so I've been in the tech industry a very long time and I've been following tech a very long time. And you know, often I find companies that I bring to investors and they don't see what I see. I mean, for example, I understood Amazon when Jeff first presented investors didn't I know that he didn't take a lot of outside investment. But why don't more VCs have talent scouts? I know you hire young analysts who have this finance background, but what about boots on the ground, people who are looking at everything? I can name one company. Kimi. I saw them at a New York tech meetup and it was this guy, this developer whose fiance, now wife, kept losing her keys. So he wrote this program and kept her key up in the crowd rather than having to pay locksmiths $200 each. Pop. The key was she would just walk in and they'd print it out. Nobody saw it. The investors didn't see he's doing Very well. Now he's got kiosks and Bed Bath and Beyond and Walmart. Why don't you have Boots? Why don't more investors have talent scouts? I know it's something that doesn't exist in Silicon Valley.
- [43:46]
A
Are you talking about like the Sequoia like scout program? Is that what you're saying?
- [43:51]
B
Yes, there one who does, who does that?
- [43:53]
A
There are, yeah.
- [43:54]
B
But it seems that only Silicon Valley does that and I always wonder about that because somebody like me who reports on technology and sees tech.
- [44:04]
A
So yeah, I guess I know that.
- [44:06]
B
Yeah.
- [44:06]
A
To spin off of that, to add to that, what do you think the pros and cons are with that Shwetank? Like having a scout program?
- [44:12]
B
You know, I think it's broadly, it's a good thing. Right. And I think like all of us, I mean we may not have a formal scout program, Right. But all of us try and develop sources of people like yourselves, Bonnie, you know, who are sort of reporters or the ecosystem support people who are seeing everything and you know, you try and try and sort of speak to them and get, get access to the interesting things that they're seeing. Bottom line, I think scout programs cost money. Right. I mean everything is ultimately down to economics. So smart smaller funds find it harder just because their economic system is constrained by in any case. So that's why if you see a lot of the scout programs are by the larger funds who have the ability to create separate pools of capital to co invest with scouts, to incentivize the scouts on that pool of capital, et cetera, et cetera. It's something that we are open, we are thinking about it and we will create it. But it's just something that's hard to do with, with smaller pools of capital. Sure.
- [45:11]
A
So we got a couple questions, so guys, feel free to unmute if you have a question. I'm going to read a few of these questions. We talk, hopefully it's okay if we can just rapid fire a couple questions here. So here's one of them. I notice you're interested in insurtech. How does insurtech work in countries like Singapore where they have national health insurance and low medical costs compared to the US and what are some emerging trends in healthcare in the APAC region?
- [45:38]
B
Yeah, it's a great question. So you know, the insurtech market is certainly emerging, not nowhere close to the size of the US market the way insuretech on insurtech is broader than just health, of course, but specific to health. Right. And this is the case in the uk In Singapore, the government has a sort of base level of care, but a lot of people want to buy top up care, right? So stuff that allows you to go into private hospitals, stuff that allows you to skip wait lists, et cetera, et cetera. So the market size is smaller, but there's still large enough sort of play. And especially in Singapore where the national health insurance only applies to the citizens. And if you notice a lot of Singapore is foreign workers who then have to pay for their own insurance, et cetera. So large market is created there. What are some of the emerging healthcare trends? Trends in APAC and healthcare? See, APAC has gone mobile is mobile first, right? So everything APAC jumped the sort of laptop form factor. So everything is mobile first. So you're seeing a lot more adoption of telemedicine, a lot more adoption of sort of remote monitoring and fundamentally sort of cheaper ways of caring for people using technology vis a vis the US and in Fintech. You know, a lot of interesting things happening around payments and especially the infrastructure for payments. You know, how do you make that cheaper and faster?
- [47:15]
A
Sure, that was great. Any other questions, guys?
- [47:21]
B
Hi, Mr. Shwetan. Hi. So my question is that if a founder is unable to make revenue as per his commitment, so how venture sees, venture capitalist sees his intentions, are they interested in the founder anymore? I mean, so the question is pre investment or post investment, Right? I mean, let me just. So look, the, the revenue numbers will never be met post investment. That's a given, right? So the, the best way to think about that revenue number, whatever model the founder has built, is to sort of use that as a assessment of your understanding of their ambition. Are they truly building a venture scale business? See, in venture, the biggest thing to realize is it's the size of your win that matters, not how many losses you have. Frequency of losses or frequency of small wins do not create a great venture outcome. What matters is what will help you create that 100x500x outcome. And that only happens very rarely. And that only happens when you have a real home run. So what you're looking to first see is whether the founder is thinking in home run terms or thinking in very big outcome terms. Or is he thinking, I'll make a business which has whatever 10 million of revenue sells for 100 million and everybody's I go home happy. That's a dangerous place to be from a venture perspective. So the model is more for that. So the key is that the founder should be meeting his near term revenue goals that he's presenting to you. So if he is, you start the conversation. It normally takes about three months to close, right? So over the three months there should be some growth, there should be some sort of lining up with the model that is presented. But over time, I mean, I personally don't worry about what the founder has said. I create my own internal sort of numbers and then I work with the founders to try and meet those numbers. And typically as an early stage investor, what you're solving for is what how much progress needs to happen so that the next round takes place. And so as an early stage investor, what you need to really do is understand who's going to invest after you because your capital is rarely enough to create the outcome you need. So who's going to invest after you? And what is the kind of metrics they look at? What is the kind of progress they want to see before they write their check? So for us, for instance, we write a million dollar check. The guys who follow us write sort of 5 to 8 million dollar checks. So a lot of my time is basically spent meeting those guys, understanding what they're thinking, understanding what metrics they're going to be looking for in my companies and then back solving to those metrics. I hope that helps. Thank you. It helps. Great.
- [50:05]
A
Any others? We got around 5, 10 minutes left and thanks for sticking around for so long. I know you're super busy, so any other final questions before we wrap things up?
- [50:17]
B
Yes, just wondering, you did touch on financial inclusion in India and Asia and I was just out of interest. I just wanted to know, is that now a mature market and do you.
- [50:36]
A
See in your opinion the.
- [50:40]
B
Unlikely chance that any new startup can still make make inroads into that market? I mean, overall, certainly it depends on how you slice the market, right? So if you're a startup that's entering payments, it's probably harder. But having said that, you know, Bharat Pay started a year or two years ago and has made significant progress. If you think about insurance, you know, only about 30% of Indians have insurance at the moment, so there's a lot of growth left. So depend the overall financial piece is quite large, right? From savings to payments to insurance to lending. So there's space in all of the verticals. Some verticals are more tightly competed than others. Okay, what about potentially micro investing? Is that a prospect that you could see picking up? So see, this is the challenge. Any idea is potentially workable. As an investor, you need to disassociate yourself from the ideas and go back to the question of TAM team Traction. In this case, what I would look for is try and understand the TAM and what will it take to become a significant multi billion dollar tam? Then see if there is any traction on the ground and expect for the founding team to show some traction and only then would I get excited about it. It's hard to get excited about an idea in the abstract.
- [52:10]
A
Awesome. Thank you for that.
- [52:11]
B
It's very, very useful. Great.
- [52:14]
A
Awesome. So we'll take maybe one more question if you got any.
- [52:23]
B
Yeah. Hi Shweta and thank you for. Thank you for the talk. First of all, my question is, as someone who's based in Bangalore, you were mentioning JIO and other developments in India. I was just wondering in light of the current pandemic, what are some of the emerging trends or markets that excite you the most? And conversely, which sectors do you think have been worst affected going forward? Again, there's not much insight I have to this. I think the way I think about these things is more what's the consumer's job to be done, right? What is this problem they're trying to solve and does so bottom up thinking, right. So what is the problem that's being solved and then what is the solution that you're bringing and how does that make sense? That's how I approach things. The pandemic in my mind changes a few things. Obviously it creates immediate ripple effects. Right. Like lending companies are hard hit while work from home companies are, are sort of, you know, having edtech etc. All having their moment. But these things are all temporary. They will pass. As a venture capitalist, you'd have a much longer time horizon. I do think it's important to start with sort of really fundamental thinking and work and understand what problem your customer has and why that solution is going to be something that's worthwhile over the next five, seven years because that's the time of length that you'll be invested in it. Thank you.
- [53:49]
A
Good question. Bonnie mentioned that she loves the three T's so thanks for that.
- [53:54]
B
I think it's fabulous. Thank you for sharing that. You're welcome. Thanks.
- [53:58]
A
And then I always wrap up with the speaker, always sharing one piece of life advice, anything that you got from a mentor that you want to leave with us, if you have anything, we'll take that back with us.
- [54:12]
B
Yeah, sure. So the, the most interesting piece of advice I got was never say no to yourself. And by what that my mentor, what meant by that was it was this was in the context of a job that I was doing at that time and his advice was always if you want to do something, get your boss to say no. Don't self say no. And I found it very useful in all aspects actually, is that if I want something, I should not be saying no to myself. Ask the question, make somebody else say no. And if they say no, then it's okay. But people hate saying no, so you'd be surprised how many times you get a yes.
- [54:47]
A
That's really good advice. Well, hey, thank you so much. I know we've spoken a few times, you know, in the past, but thanks for really diving deep and opening up to us about your story and excited to hopefully collaborate in the future and I hope you have a great week.
- [55:02]
B
Thanks. Thanks Joel. Thanks for having me on the show. Really enjoyed it. Thanks everyone for spending time and I hope you got something out of it.
- [55:09]
A
Yeah, absolutely. Well, thanks guys. Thanks everyone. And.
- [55:28]
B
Every week on the Moth podcast.
- [55:30]
A
We share stories that are funny, strange.
- [55:32]
B
Heartbreaking, and above all, true.
- [55:35]
A
I myself have been married for 56 years.
- [55:40]
B
Unfortunately to four different women. It turns out the people I was.
- [55:46]
A
Looking for all my life is what you people would call nerds. Follow and listen to the Moth on the free Odyssey app or wherever you get your podcasts.