#
Programmes like Make in India and Skill India may be very popular in the country today, but
#
the truth of the matter is that economic growth usually happens in spite of the government
#
and not because of it. Society solves its own problems and markets are the mechanism
#
by which that happens. Back in the day, if you were a young entrepreneur who wanted to
#
start a business, you would have to maybe put your own savings into it or try and take
#
a loan from a bank or convince elders in your community to help you out. There was friction
#
in all of this, it was hard to reach scale and completely wild ideas that had a 1% chance
#
of changing the world but a 99% chance of failing would never get through. But over
#
the last few decades, we have seen the rise of venture capital and angel investing with
#
rich people pooling their money to fund new businesses or successful businessmen with
#
lived experience offering their own money and guidance to early stage companies. The
#
utility of this is obvious. In a nutshell, it is rational for me to give 10 rupees each
#
to 10 companies if one of them makes 110 rupees even if all the others fail. This makes moonshot
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ideas more likely to get funded and failure does not carry a stigma with it anymore. And
#
indeed, so many of the giant companies that dominate the world today like Google and Amazon
#
and Facebook have depended on just this kind of funding model to reach their present heights.
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Of course, many big mistakes have been made by people with money and some of SoftBank's
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multi-billion misadventures come to mind as do much hyped unicorns that seem more like
#
a Ponzi scheme than a legit business. But this is the beauty of capitalism. There is
#
space to make mistakes and many companies and venture funds will indeed crash and fail
#
just as many won't. And in the end, society will be better off.
#
Welcome to The Scene and The Unseen, our weekly podcast on economics, politics and behavioral
#
science. Please welcome your host, Amit Verma. Welcome to The Scene and The Unseen. The topic
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of today's episode is the startup ecosystem in India. And my guest is my friend Mohit
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Satyanand. Mohit has been on the show before in a very popular episode from last year about
#
two economic crises of 2007 and 2019. We discussed his personal journey at some length in that
#
episode, but not so much his journey as an early stage investor and mentor to young companies,
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which is a significant part of how he spends his time these days. Given his background
#
understanding of the economy and indeed our society, I've always found his insights on
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our startup ecosystem to be sharp and illuminating. So this conversation was overdue. Before we
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get to it though, let's take a quick commercial break.
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If you enjoy listening to The Scene and The Unseen, you can play a part in keeping the
#
show alive. The Scene and The Unseen has been a labor of love for me. I've enjoyed putting
#
together many stimulating conversations, expanding my brain and my universe, and hopefully yours
#
as well. But while the work has been its own reward, I don't actually make much money
#
off the show. Although The Scene and The Unseen has great numbers, advertisers haven't really
#
woken up to the insane engagement level of podcasts. I do many many hours of deep research
#
for each episode, besides all the logistics of producing the show myself. Scheduling guests,
#
booking studios, paying technicians, the travel and so on. So well, I'm trying a new way of
#
keeping this thing going, and that involves you. My proposition for you is this. For every
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episode of The Scene and The Unseen that you enjoy, buy me a cup of coffee or even a lavish
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lunch whatever you feel is worth. You can do this by heading over to sceneunseen.in
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slash support and contributing an amount of your choice. This is not a subscription. The
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Scene and The Unseen will continue to be free on all podcast apps and at sceneunseen.in.
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This is just a gesture of appreciation. Help keep this thing going. sceneunseen.in slash
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Mohit, welcome to The Scene and The Unseen. Thanks Amit. Mohit, in the last episode we
#
did together, we spoke a lot about your journey through life in general and we covered a vast
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sweep of time. I mean, before I come to journey of your last five years as an early stage
#
investor and mentor and so on, you were once an entrepreneur yourself decades ago. Tell
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Wow. My journey to entrepreneurship began in a way which was sort of in between being
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an employee and an entrepreneur. So a very dear school and college friend of mine who
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joined the family business on finishing college was very unhappy that I was going off to
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Bombay to work in a multinational. The multinational is Hindustan Lever, partly because you treasured
#
your friends and you wanted them to live close to you and partly because he thought that
#
I could do more for him and his family business than I could for Hindustan Lever and he was
#
absolutely right. I was very reluctant because family business in the 70s was almost a pejorative.
#
It was assumed that it would be corrupt, that black money would be generated, that these
#
were greedy people and so on and so forth. So it was not a leap that I was willing to
#
make quite apart from the fact that it had the word family associated with it and I didn't
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see myself getting involved with all kinds of peculiar and difficult relations. But four
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years later, my friend whose name was also Mohit came to Bombay and said, let's have
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a drink. And I immediately knew that this was more than just a drink and about half
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an hour later, he couldn't contain himself and said, look, I have an offer for you. There's
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no family left in the family business. It's just me. And I know that you don't want to
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get involved with what we do. So why don't you come and start something new for me? And
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this is the amount of money I have available. I said, yes, on the spot, no questions about
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what, how much money, what he would pay me. In fact, he was taken aback and said, don't
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you know, want to know how much I'm going to pay you? So I'm sure you'll pay me well.
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Not an issue. And he actually said, I will ensure that there's no interference between
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the existing ecosystem, the company I run and what you do. You're on your own. And I
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spent a very interesting year and a half or two looking at various areas. It was a completely
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open discipline here in Delhi in 81. And to cut a long story short, we ended up setting
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up Inder's first successful packaged snack. It's interesting, actually, that we should
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be recording this now in February, 2020. Because that journey, which began with the launch
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of this product cracks in 1984, has for us both for more than me just ended because they
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sold the company at a valuation of 1250 crores to an American private equity firm. So now
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it's very interesting, actually, and I'm perhaps preempting some of the questions that you're
#
going to ask to contrast 1981-84 with 2014-20. Because in that particular case, I got a salary,
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I was to get a share of the profits as and when the company made profits, but I was primarily
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You didn't own a piece of the company?
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No, I didn't own a piece of the company. There was no company. In fact, it was a division
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of the existing company. Today, a bright and lucky young man, Moet 2.0, would say, I want
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to set up a new company manufacturing space-age snacks. And he wouldn't go to somebody with
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a project and say, will you invest the money? He would get the idea rolling. And he would
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go out to a bunch of angels like me and say, I've got this business, I've got this idea,
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do you want 10 or 20% of it? You need to put 2 crores down. Which means that 35 years later,
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when that exit took place, he would own 80% of the company, not none of it like I did.
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That's a sea change. Where it's the idea that's powerful and the money that's less powerful.
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So the startup ecosystem has completely flipped the model. The money is not the constraint
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any longer. It's the idea and the ability to see the idea through that becomes the winner.
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And just thinking aloud from what you said, that your friend told you, okay, start something
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new for me. I have so much money. I won't interfere. And you said, okay. And there was
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no idea at that point. There was just the entrepreneurial urge. How common is it for
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you to find entrepreneurs who are driven, for example, by this entrepreneurial urge
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and the idea comes later. Like I guess there are two ways of doing it. One is there is
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a problem that you want to solve and you have an idea on how to solve it. And then you become
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an entrepreneur and go on. I don't know the answer to that question. I mean, because there's
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always a selection bias and I'm meeting people who already have an idea. I'm not meeting
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people who say, you know, I want to do something. What should I do? They don't come to me. They
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come to me because they know that I'm in the ecosystem. I am willing to back good ideas
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or early stage. So they would not tell you that over the process of their arriving at
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the idea. No, no, no, no. Right. And so you've kind of spoken about how the ecosystem back
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then was so different between 81 and now. When did the change start happening? Is this
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something that started happening with the dot-com boom when there were so many new startups
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since, you know, the boom happened, much more money floating around? When did the model
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start to change? I guess the seed was really planted then, but the momentum is really sort
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of less than a decade old. Numbers are not that easily available, but even in the last
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five years that I've been part of this ecosystem, one has seen it mushrooming in terms of the
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number of startups that are funded, the number of platforms that exist to promote them, the
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number of incubators, the number of angels, all of that. I would say point zero is really
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sort of 2010. That's when this whole thing sort of starts going. And you want an entrepreneur
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for a long time. You sort of moved on. You did other things. You were sort of an informal
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entrepreneur in the sense you started up things that you weren't starting up for money. Like
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you were very involved in the music scene. You started up teamwork in a sense.
#
Well, you know, yeah, there are different kinds of entrepreneurship. There's social
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entrepreneurship. And I think one of the great joys of my life was the fact that I started
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working with street children. And in some ways, that's one of the toughest things that
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I did working with street kids. And it was a startup. It was a startup in a very hostile
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environment, both physically and in terms of the establishment, the police, the juvenile
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justice act, et cetera, et cetera. But we made a lot of headway there. It became a pattern
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for me that I worked on it for four or five years and then handed it over to other people.
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It saw some rebranding. You could call it sort of mergers and acquisitions without money
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being involved. It's now called the Salam Balak Trust. It works with something like
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5,000 kids, has seven residential centers. So I read somewhere very recently and unfortunately
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I can't attribute it, which says that entrepreneurship is like a cry to the environment. I exist.
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You need to recognize me. And the way you recognize me is for what I do. I would never
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have been able to articulate this about myself because I don't see myself as being aggressive
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or needing to prove myself, but there may be something there. But as far as I'm concerned,
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it was a need that existed out there and I was answering that need. So it was coming
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from a place of compassion, not from a place of aggression or the need to prove myself.
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The other thing that you alluded to, which was working with musicians, it came from a
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very funny place, which was that because I'd already started teamwork and I also had this
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background of working in theater and managing an extremely prolific theater group, which
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was the theater action group with Barry John, my sister and her friends were amateur musicians,
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good musicians, but amateur. And we arranged this really successful concert for them. There
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were 500 people. It was, it was just one of those things that you felt really good about.
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And we had a lunch the next day to celebrate. And my sister said to me very, very woefully,
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she said, you know, it's such a shame because of your ability. We've had two or three such
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wonderful concerts and there are so many really talented full-time musicians out there and
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they don't get a platform. And so I said, do something about it. And she said, it's
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very easy to say, do something about it. I said, then we'll do something about it. So
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it literally began as that. So again, it wasn't coming from this place of, you know, I exist
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and therefore the world must recognize me. It came from a somewhat different place. It
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came from the desire to do something, to address a need which you knew you had the ability.
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And so Friends of Music was born. It became a very, very successful movement. A lot of
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bands, I would say, even if they weren't created by it, they were certainly formed by it. I
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know that success has many fathers. So I don't want to claim success for bands like Indian
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Ocean or Parikrama or musicians like Mohit Chauhan, but they all came of age there, had
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many concerts over there and played a role. And meanwhile, we also started teamwork, which
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now is best recognized for the Jaipur Literature Festival. But that's not why it came about.
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It came about partly because my partner Sanjay and I both wanted to spend more time in theater
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specifically and the performing arts in general, knew that that couldn't exist with a full
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time job, a full time corporate job, but also knew that theater and supporting the arts
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didn't put money on the table. And therefore you needed to find some commercial activity.
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And so teamwork was born. To do a little bit of work in festivals, in producing films,
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we sort of, we experimented a lot with what would work with us in this broad media area
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and so on. So again, it wasn't from this point of I exist and therefore I must do something
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great. So what I'm really saying is that the drive for entrepreneurship can come from many
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different places. In our case and in all the things that I did, it didn't come from, I
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can do something, I will do it. It came from, there's an obvious need over there and I think
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I can do something about it. And so I guess what I'm saying is I'm not the arch-typal
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entrepreneur who has this driving need to create something, to become rich, to become
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well-known, but I'm an entrepreneur nevertheless. So there are different kinds I think of entrepreneurs.
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You can't stamp them all with an arch-typal description.
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No, and that's a very interesting sort of line you quoted because it would, like I would
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typically assume that in any field, entrepreneurship as much as any other, that sort of self-aggrandizement
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that need to cry I exist would actually be a bug and not a feature. But in this case,
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what it seems is that entrepreneurs, if they feel that urge, are finding a place for themselves
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in the world by fixing a hole in the universe in terms of...
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That's a very good way of putting it, Amit. It doesn't cover all entrepreneurship because
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I think some entrepreneurs, in fact the ones who are best known today, actually expand
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the universe. They don't just plug a hole, they expand it. Take Elon Musk, for example.
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He's expanding the universe. Or certainly he's expanding our definition of the world
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we live in. Because, for example, it may not work. You talked about moonshot. He's gone
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one step further. He said, I want to have a Mars shot. So the world will include Mars.
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May or may not work. But there you are.
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You need people to think like that because that's the only way we actually progress.
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I was saving a couple of questions for later, but since we are on the subject of what drives
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entrepreneurs and entrepreneurship, I'll sort of ask them now. My first question there is,
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is delusion or being self-delusional a key quality, a necessary quality for an entrepreneur?
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Like, for example, I think it's a necessary quality for any artist because when you start
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out your journey, you are actually very bad at whatever it is you want to spend the rest
#
of your life doing. And if you knew how bad you were, you would not bother. However, because
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you're delusional about your own abilities, you keep doing it. And in a sense, you actually
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fake it till you make it. And just by iterating and doing it and learning, you become better
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at it. So is it the case that every entrepreneur must be delusional about the differences business
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No, I don't think so. I don't agree. I have now, you know, I've invested in about 30 startups
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and out of those, I've interacted quite deeply with roughly half of the entrepreneurs.
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And by quite deeply, of course, you mean you provide mentorship and all.
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Not to all of them, but you know, at varying levels. And I wouldn't call any of them delusional.
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Though I did mean it in a good way, mind you.
#
No, no, no, I fully take that. But what I'm saying is that, at least in terms of what
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they reveal of their personalities, which I would say is a fair amount, I don't really
#
find any of them to be over ambitious or thinking about 10 years from now. That may be a bug,
#
because maybe, I mean, Elon Musk clearly thinks that way. And people talk very extensively
#
about the reality distortion field that Steve Jobs commanded. So that means that people
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interact with him, probably thought that he was delusional. I don't know. But I've never
#
actually met somebody like that.
#
And my next question is, is humility a key quality of an entrepreneur? Because on the
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one hand, it must seem that if you want to fix a hole in the universe or expand it, so
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to say, you must have a lot of self belief. But at the same time, it strikes me that you
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also have the ability to learn and adapt and not let short term failure become an ego issue
#
and you know, keep learning in that sense.
#
I think humility is key. Knowing what your limitations are is key. And not so much for
#
the business itself, as for your own life. Because I think entrepreneurs qua human beings,
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not qua the organizations that they seek to grow, can suffer very badly if they persevere
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in something well after it's become obvious objectively that it's not going to work. So
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I think when we talk about quality, such as humility, we don't look for binary, you know,
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you can't say he's humble and he's arrogant. I think you've got to find the right balance.
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If you're too humble, and you accept failure too soon, then by definition, you're going
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to fail. And the startup is going to fold. So you know, I've seen two startups in sort
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of parallel situations. One in which the entrepreneur folded, all of us who put money into it, exited
#
with a complete write off. The other, where I think the situation was even more dire,
#
in terms of cash availability, lack of business, etc, etc. But this young man was absolutely
#
determined to make a success of it. It seemed almost willful. And yet, the last extra three
#
months that he asked for, which I finally agreed personally to fund, the rest of the
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investors had just mentally written off the money that they'd made. It was just his tenacity
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that made me bet the last four and a half lakhs on him, which was a personal loan. Here
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you go, a lack of rupees a month to support your salaries and 50,000 rupees a month for
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your personal expenditure, three months, and that's it. And three years later, today, that
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company has attracted funding from a US impact fund, and is now looking for VCs to put money
#
into it. Depending on whose figure you believe, that company is worth something like 30 to
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40 crores today. And literally three years ago, the bank balance was 27,000 rupees. So
#
here we're talking not exactly about the question you asked of humility, but it also actually
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plays into the self delusional bit that sometimes you are in such a corner that it would be
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rational for some to give up. Yeah, but you just drive yourself and say no way. So it's,
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I think one of the most difficult things to do as an angel investor, somebody who evaluates
#
ideas, companies, founders for whether to put money down, is to say this mix of personal
#
characteristics predict a higher rate of success. It's one needs to do it, but sometimes one
#
gets very surprised. Let's go back to your sort of journey now. It's not as you mentioned
#
in our personal conversations, as if you went straight from becoming an entrepreneur and
#
you make a lot of money and then you decide to become an investor. Your journey's been
#
slightly different from that. Tell me a bit more about how you came to investing. Like
#
why did you decide to sort of become an angel stage investor? Yeah. So what's missing in
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between is my journey as an investor in public markets. So that, I always dabbled a little
#
bit in stock markets, but in 2003 and by that time I was not actively running any of the
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three businesses that I had to start up and which survived. I also invested in a fourth
#
which went bankrupt. I wasn't running any of these. I had by then taken a decision not
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to have an executive function anywhere. And I had a little bit of money, not a lot, but
#
by then my father who had a small portfolio, he was a reasonably successful executive.
#
He was into his eighties and had lost interest. And so I was asked by my mother to clean up
#
his financial affairs. So I looked at that. I realized that I was getting entranced by
#
the numbers and by my understanding of both the economy and how companies run, it turned
#
out to also be a very fortunate time because 2003 was sort of rock bottom for the Indian
#
stock market and economy in terms of recovering from the dot-com bust of 2000. And the one
#
thing that caught my eye as somebody who followed macroeconomics a little bit was that interest
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rates had never been so low in the history of independent India as they were in 2003.
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And I said, we're now looking at a boom in investing and therefore in equity markets.
#
It turned out to be spot on because it took a while for that bull market phase to develop
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steam, but by 2005 it was full blown. 2007, 2008, of course we saw it crash, but those
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were great years to get into this ecosystem wholeheartedly. And I was managing not the
#
small sum of money that I had, but also my father's slightly larger sum of money. And
#
despite the crash of 2007, 2008, which I partly anticipated because of my interest in macroeconomics,
#
the period 2003 to 2015 was extraordinarily successful for me as an investor in terms
#
of the kind of returns that I get. That's very objective. There's the amount of money
#
you had at the beginning. There's what you had at the end. There's a kind of percentage
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return you made. This is what the Nifty or any other index did and you outperformed it
#
consistently. So this was very objective. But in 2000 and it was actually Diwali 2014
#
when I did a cursory kind of review and I recognized two or three things. The first
#
is that this is done well. The second is that with a little bit of luck, I now have enough
#
money that even if I don't manage this portfolio actively, that my needs for the rest of my
#
life will get taken care of. The third was that, you know what, I'm a little bored because
#
this almost seems too easy. I was sort of doing it without a lot of passion. There were
#
sectors I understood. I knew how to invest in them and so on. But there was also a different
#
realization, which was that the world was changing. I started off actually by looking
#
at sectors which I knew well and asking myself, am I missing something? I said that if I look
#
at the FMCG, the consumer goods sector, which is what I understand best, I can't invest
#
in the leading confectionary brand in India because that's Cadbury's and that's privately
#
owned by a multinational. I can't invest in the leading soft drinks companies in this
#
country, Coke and Pepsi, because they're privately owned abroad. I can't invest in the leading
#
ice cream manufacturer in this country because it's a cooperative, Amul. I can't at that
#
time invest in the leading aviation company in the country, Indigo, which was at that
#
time privately owned. And this came as a bit of a shock to me. But you know, there are
#
huge sectors of the economy where I can't invest because of the nature of ownership.
#
And this suddenly led me to different allied tangential path of thinking. What about 20
#
years from now when I'm approaching 80? Are there similarly going to be huge sectors of
#
a changing economy which are close to me? And the answer was obvious. Yes, they are
#
going to be because a whole new sector of the economy, anything which was digital, anything
#
which had to do with stuff transacted over the telephone was being funded by a different
#
ecosystem and ecosystem of startup funding, startups then getting supplemented by angel
#
funding, the angels getting supplemented or supplanted by VCs, the VCs getting likewise
#
supplemented or supplanted by private equity. And if ever those companies came to market,
#
it would be 20 years down the line or 15 years down the line, by which time they would be
#
fully priced because those would then be half a billion, one billion dollar companies, well
#
known brand names and you wouldn't be able to buy them at a discount. It's more difficult
#
to make money from businesses which are well recognized and brand leaders than from investing
#
in businesses before they are well known. This was a very deep realization for me that
#
if I want my portfolio to be representative of the world in 2035, when I'm hitting 80,
#
then I have to do something about it. Now, when I put these two thoughts together, which
#
is that I have enough money and therefore I can move to higher risk investments and
#
that if I don't do that, I run the risk of omission, which is not investing.
#
What millennials would call FOMO, fear of missing out.
#
Right. So that's when I decided to get into startup investing. And so it was purely an
#
asset allocation incentive. It had nothing to do with how entrepreneurs fare, the change
#
in the ecosystem. These are all post-factorial realizations. But for me, it was driven purely
#
by two things. One is I need to get into something new because I'm a bit bored of what I've been
#
doing for 12 or 15 years. And secondly, in order for my portfolio to respond to changes
#
in the economy, I need to understand this ecosystem. And that's why I got in.
#
And it also strikes me that your money would have more social utility being invested in
#
startups which are attempting to fix holes in the universe and expand them rather than
#
existing big companies and so on. Now, I know that wasn't a motivation for you, but it leads
#
me to my next question about why are startups important?
#
Well, it was partly a motivation. It was. It was. In the sense that I'd had this conversation
#
very, very often with a very dear friend of mine from Delhi School of Economics, who was
#
more of a socialist than I was, and said, you know, this is like a fixed buy. This is
#
a zero-sum game. The stock market is zero-sum game. What are you doing by investing in the
#
stock market? And I know that it's not, you know, it's not a zero-sum game. And if you
#
are selling a stock, you're selling it for a very good reason. I'm buying it. It's for
#
a very good reason. It's not zero-sum, because you're selling it to meet your objectives,
#
which are different from mine.
#
It's a positive-sum game. And the economy needs them. I have four listeners who want
#
an episode-length elaboration on this. I had an old episode on the importance of finance
#
with a good friend, Ajay Shah, which I'll link from the show notes. But yeah, here you go.
#
So, nevertheless, even though at a philosophical or intellectual level, I knew that there is
#
value to being a participant in the listed space, there was a feeling that even if I
#
end up owning 1% of a startup, it probably has a little more social value than investing
#
0.01% in a Hindustan lever or a Reliance or whatever. So, it was part of it, but it wasn't
#
a major driver. Having said that, five years later, I look at it very differently. And
#
I think there's huge social value to investing in startups at many, many, many levels. So,
#
let me try and enunciate it. And it's an enunciation that I've never done before. So, that's the
#
advantage of this kind of conversation.
#
So, I think firstly, it incentivizes pools of capital that may have otherwise not been,
#
not gone into promoting entrepreneurship. What I'm saying is that when I become sort
#
of the locus around which other investors participate, I ask myself the question, this
#
five lakhs that this friend of mine is putting into this company because I've spent time
#
understanding it and believe that it has a future. What would that five lakhs have done?
#
I don't think it would have sparked entrepreneurship. I don't think it would have sparked a new.
#
So, I think that is, even if you look at it from the point of view of mobilization of
#
capital and we work largely in a capitalist system, it's a new way of mobilizing capital.
#
And without overstating the case, I sometimes believe that when the history of startup investing
#
gets written and elaborated 40, 50 years from now, there will actually be people who say
#
that this was as important a development in the economic system as the joint stock company,
#
as the company with limited liability, you know, because that also had a very powerful,
#
it became a very powerful engine. It allowed for risk taking without the risk of bankruptcy
#
or personal bankruptcy. The risk was limited to the capital that you put in and it created
#
a whole movement, a mushrooming of entrepreneurship. I think this is as significant a development.
#
We don't see it yet, but we're beginning to see it.
#
We see the results of it certainly if you look at the dominant companies like Google
#
and Amazon and how has that changed?
#
Exactly. So, Peter Thiel in his book, which I was just reading, says that the 12 leading
#
tech companies in the world were all funded through this ecosystem of startup and VC.
#
And together they're worth $2 trillion. That's roughly the size of India's GDP.
#
And I just urge the listeners to not just think of the sum of money. I mean, $2 trillion
#
is such an abstract sum.
#
No, no, I was coming to the fact that when you order food, you do it on tomato or swiggy,
#
which are funded like that.
#
And like so much in our lives, like everything we do in our smartphones, everything we do
#
on our laptops, the way we communicate, the way we think, the way we consume information,
#
everything has changed.
#
It's all changed. So, the first is the mobilization of capital. You know, as an economist or in
#
my hat as an economist, that's one way in which I like to look at it. The second which
#
is probably even more significant at a societal level is the fact that it stimulates entrepreneurship.
#
And people who couldn't have been entrepreneurs, and this goes back to 1984, when I became
#
an intrapreneur, not an entrepreneur, who couldn't have been entrepreneurs.
#
And this is the other side of the same thing, the mobilization of these fresh pools of capital.
#
The young people who have an idea now say that there's an ecosystem to tap into in order
#
to give them a first stab at making that idea possible. Because the banks are not going
#
to give money to them. They would never have given it. Because banks work on likelihood
#
of success. They're not calibrated to look at a very skewed curve.
#
And even if they recognize a hole in the universe they made, they will not recognize the possibility
#
Correct. Correct. But you know, I think it's in the structure of banks, the way they look
#
at money and so on, they're not geared to high risk. Their governance systems are not
#
geared to high risk. They are geared to short returns and that's their mandate. And I'm
#
not forking them for it. They're part of a different legacy system of managing money.
#
So I think that's the most powerful that this incentivizes and attracts a whole host of
#
young people who could not otherwise have considered entrepreneurship.
#
Related to that, but not entirely directly and therefore I would map it as a third vector,
#
is the fact that it encourages people to come up with ideas.
#
And fourthly, which you sort of mentioned when we began, and again all of these are
#
interrelated and yet I think they need to be listed separately, is that it destigmatizes
#
failure because in an earlier era, 20 or 30 years ago, a failed entrepreneur was considered
#
a disaster. It's just one more thing. You know, you did one more thing, it didn't work
#
and then you're on to the next. In fact, I've just experienced that at a very personal level,
#
a company I invested in, it folded, it got bought over at a fairly discounted price from
#
somebody else. I'm to get some money back. It hasn't yet come, but I already have a deck
#
from that entrepreneur saying, this is my new enterprise and will you fund it? Which
#
is both funny, slightly tragic because, hey, you're already on to something. I haven't
#
even got my money back from what you last did. But there's no stigma. She's out there
#
with a new idea and people will back her. And perhaps it's a feature that you tried
#
and failed because you tried and learned, you know. I don't think we've yet got there
#
where it's a feature. In Silicon Valley, they say it's a feature, not a bug. I think we're
#
somewhere in between. It's not yet a feature, but it's no longer a bug. So I don't know
#
if you know this about me. This predates our association, but I am a failed entrepreneur
#
twice in the year 2000. Okay. So very briefly, because our listeners may find it amusing
#
and it also brings me to my next question, which is in the year 2000, I got up with the
#
guy who ran MagnaSound at the time and one of the senior executives and I went to them
#
with an idea for digital music. And the vision I sold them was that CDs, which we now listen
#
to, which we then listen to, which were then ubiquitous CDs and cassettes will one day
#
be obsolete. Everything will be digital music. So the idea I came up with was for something
#
we then call Sonic Town. You can Google it, you will find nothing because this is 2000.
#
And the idea was that we will get rights of songs from companies, sell them for the equivalent
#
of 50 rupees each, 60 rupees each, a dollar and one-tenth of a CD at the time, which then
#
costs 500. And also simultaneously, we will allow bands to make their, what would today
#
be called social media pages, profiles where people can comment and all that. So a combination
#
of iTunes and MySpace. One of my partners went to the US, spoke to record companies.
#
I think one of the big ones gave us in principle said, yeah, okay, 70,000 songs you can take
#
and sell them for this much each, a dollar each. And we were all set up. Then we went
#
to New York. We made a presentation to a room full of venture capitalists and they were
#
all gung-ho about it and said, you are right. This is a future. You are a visionary. And
#
then the NASDAQ crash happened. So nothing happened. It completely went. Timing. And
#
that brings me to my next question. I won't mention my second venture just yet, maybe
#
some future episode, which failed within a few months as well. How important is the role
#
of luck in the success of startups? Like we had search engines before Google and obviously
#
they built a better mousetrap. You had social media before Facebook and whatever worked
#
with Facebook as opposed to Orkut or MySpace almost seems to have been happenstance. You
#
look at Facebook in the early days, it's not as if Zuckerberg had a mission. It just evolved
#
into something like that. You know, I look at the success of many of these companies
#
and it seems that they were just in the right place at the right time, not too early, not
#
too late at the right place to have access to the kind of networks and funds. And therefore
#
it seems that a lot of companies which have become big, like even the Ubers and OYOS of
#
today, those guys just in a sense not to take away anything from their drive and their enterprise,
#
but in a sense they kind of got lucky because similar ideas float around often, you know,
#
come up at the same time and I wouldn't attribute that much to luck. I clearly luck or probability
#
or whatever has a huge role in life. And when I look at my own life, I like to attribute
#
everything to luck. In that timing is luck. It's very important. But I think what's also
#
important is your ability as an entrepreneur to listen to what's happening around you and
#
to respond to signals, which may be very dim for everybody else at that point in time,
#
but somehow you pick out that one signal and say, this is an important signal. And then
#
in terms of your interaction with that signal, which is what you do as an entrepreneur, you're
#
able to amplify that signal and make it more and more and more powerful. That's what you
#
do as an entrepreneur. And that's clearly not luck. That is, I mean, I don't mean to
#
say it's all luck. Obviously it isn't. But at the same time, I think most people in the
#
supplies, not just to entrepreneurs, but to everyone, uh, underplay the role of luck in
#
their lives. They attribute too much of their success to their good qualities and often
#
too much of their failures to themselves. When I think you should not be so disheartened
#
by failure or become so arrogant and confident by success. And the role of luck is larger
#
than we, but I don't mean to say that luck is everything. Yeah. I think this is a very
#
long philosophical discussion, not restricted to the startup space. But, um, as someone
#
who has learned to develop a lot of respect for, uh, young entrepreneurs and not so young
#
ones who are steaming ahead with, um, what they set out to do or something different
#
from what they set out to do, but nevertheless successful. Um, no. And when I say luck playing
#
a part, I also mean bad luck in which be young, thoughtful people who identify the right idea
#
and they do all the right things, but it doesn't work out. You know, I, I, I used to think
#
that a lot, uh, certainly about myself, um, that I got lucky with many things that I did,
#
but, um, when I look at the young entrepreneurs that I work with, I like to attribute a lot
#
of what they do, not to luck, but just do, uh, great to intelligence, to dynamism, to
#
ambition, to, um, to extraordinary skill sets of, uh, analysis and, uh, enormous amounts
#
of reading and, uh, going out and meeting people and the determination to make things
#
happen. So if the environment around you is not conducive to something, then none of these
#
things work. But having a dipstick for that environment and whether the idea that you're
#
going to put is going to flourish there, is that luck or is it, um, uh, the discrimination
#
and the ability to gauge what's going around? It's a bit of both, but I would put more emphasis
#
on your entrepreneurial instinct to pick out what is going to flourish in that particular
#
And I guess just thinking aloud, it would actually be rational for you to ignore luck
#
completely because you can't control it. You control the controllables, which sort of then
#
brings me to my next question that when you, when you're deciding to fund something, what
#
are your heuristics for deciding I should do this? Is it the idea? Is it the people?
#
And if it is a people, as I would imagine it, it largely is, what are the qualities
#
that you're then looking for?
#
Yeah. So, um, clearly it's got to be both. Um, so the idea is the first screen and, um,
#
if I think it's a bad idea, then the meeting is over, right? But, um, you can get the same
#
idea from five different people. And if we look at mature businesses around us, we've
#
seen that, you know, in, um, in the eighties, I remember counting that there were 500 television
#
manufacturers in India. Now there are about five. So it's clearly not the idea. Um, but
#
yes, the idea has got to have, um, the potential for success. It should not be an idea that's
#
already seen a lot of, uh, traction in the marketplace. So you need to be early as the
#
way I look at it. There's no point, uh, funding the 99th, uh, stack food company or the 31st,
#
um, but not too early as I was. Yeah, not too early. Uh, but actually in this space,
#
I think because of the nature of, uh, of, um, the beast, I think too early is better
#
than, um, than, uh, too late. Thirdly, it's got to make some sense to me. I can say, look,
#
I know that there's a lot of scope for software that improves the functioning of businesses,
#
but as somebody who's not run a big business or run any business for the last 20, 25 years,
#
I don't know what's happening over there. And you might be the best guy since Oracle
#
or, um, uh, Microsoft business, but I'm in no position to gauge. And so I won't take
#
a call on that, but that's only the first screen. Then much more important is the founder
#
or founders. And, um, so what do I look for there? The first is passion. They've got to
#
really want to do this because unless you're incredibly lucky, so I'm going back on whatever,
#
but you know, unless everything works right for you, you're going to run into deep shit
#
in the first five years. And the only thing that enables you to jump that ditch, that
#
shit creek is going to be your passion. Otherwise you're going to say, I don't want to get my
#
hands dirty. I've got an MBA and an IIT. I can get a job at 50 lakhs a year. Let me go
#
back and do it. You know? And so the only guy who was going to say, look, I'm going
#
to try and jump this ditch. And if I don't succeed, I'm going to fall into it and I'm
#
going to swim through it. So that guy's got to have passion. Just sticking with that ditch
#
analogy for a moment. Sometimes actually you don't need to jump that ditch. Maybe you
#
can just walk downstream and there's a lovely clear stream on which a boat is available.
#
So you do something else which is related. So I want the person to have passion, but
#
I also want them not to be too dogged, but also adaptable. And the word we use for startups
#
is pivot. So often business have to pivot. They start off in one area, they end up looking
#
at the same broad business, but from a different perspective. So can you pivot? Or are you
#
so determined, this is what I've got to do and I'm going to do this without stopping
#
and scanning the environment? Perhaps there's a better way of working with the assets that
#
I now have in terms of my experience of the sector, the people who are working for me,
#
my understanding of it. Maybe this idea that I had was relevant three years ago when I
#
formulated my business plans, but the environment has changed. So is the entrepreneur willing
#
to pivot? So are they that kind of person who's willing to alter their perception of
#
reality because reality has changed or their earlier perception was not sharp enough? These
#
to some extent, you can assess what I'm finding increasingly. Perhaps it was not part of my
#
metric in terms of evaluating entrepreneurs is their ability to attract and be lead a
#
team. And a lot of entrepreneurs are don't make good team leaders. So their own analytical
#
business, ambition, et cetera, et cetera, can do what 50 people can't. But when they
#
need a hundred people, then they need 50 others. And can they hold that team together? Can
#
they communicate the idea? Well, can they build a team spirit, align everybody in the
#
same direction, not dominate them, allow people to grow, et cetera, et cetera, et cetera.
#
As a company goes from startup mode to a company, which now has a product, it has traction,
#
you need all of these functions getting staffed. Do you have the ability to convert this startup
#
into a maturing organization? These are things that I've now started thinking about because
#
I've seen some of the businesses that I invested in falling at that level. But now it's a 50
#
crore business. It's valued at three or 400 crores, but it's not being able to attract
#
and or retain talent. There's always friction at the system. There are gaps. Money is not
#
the gap. You have the money to hire people, but you're not being able to get a team together.
#
And I'm realizing that if I don't want to exit a company in year four or year five,
#
but want to be with it for seven, eight, 10 years, then I need to start looking for this
#
already at an early stage. Is this person capable of becoming a leader, which is different
#
from being a good startup entrepreneur? And given that there's no easy demonstration
#
of that, like you can get someone's passion and you can get the dog in us, but if there
#
are two people to begin with, you cannot gauge the leadership. So have you developed some
#
kind of a radar for it or some sense of? I haven't, but I think the very fact that I've
#
started thinking about it and perhaps now we'll look for insights from the businesses
#
that have done well and demonstrated that ability as against those that haven't and
#
look back at my earlier experiences in more mature companies. I think that hopefully I'll
#
have a better heuristic a couple of years down the line. You've got to look for it.
#
And for you, is integrity a factor in the sense that, you know, will you appreciate
#
the guy who's being? It's not a factor. It's a binary. If I have the slightest suspicion
#
that it doesn't exist. And does it reflect in how the person then presents their business
#
plans? Like for example, they'll show you projections and if they're bullshitting too
#
much, are you just going to say, no, forget it? The way I function, I never look at business
#
plans because at an early stage, the plans are irrelevant for someone who's just has
#
this most early stage company is just an idea. So that person says, you know, by year three,
#
I'll be selling 27,200 who done it set an average of $1.83 per that's bullshit. So I
#
don't even look at it. But is that a bug? If someone bullshits or will you excuse them
#
and say, okay, that's part of the pitch that these people have been that kind of thing?
#
No, that's, that's, I don't see that as an integrity issue. It's just become a part of
#
the package. It's a hygiene thing. You have to do it. They think they have to do it. I
#
never look at it. And I make it clear. I'm not looking at this stuff. Six, eight months
#
a year down the line, once money has come in and you're starting to get traction. Now
#
I turned the other way. I say, you have to have a plan. And there I'm a firm subscriber
#
to the Lao Tzu. I think it was who said, planning is everything. Plans are nothing. So plan
#
doesn't mean anything. I don't expect that plan to come through for a two year old. But
#
the process of thinking about it clarifies your, your, what are the levers that you need
#
to work on? What is it that you can move around? Which is an early predictor of what is going
#
to work and what doesn't work. You've got to arrive at those and you can only do it
#
by that, by that mechanism of creating a plan and analyzing what the inputs that go into
#
it and what they're going to lead to. So that's not an integrity issue for me, but integrity
#
issues can manifest in many different ways and might take you by surprise when you can't
#
do anything. They can take you by surprise. They can take you by surprise, but you know,
#
if you've been in business, you've taken risks all your life, you know, in hiring people,
#
in signing contracts and buying land and negotiating factories and mergers and acquisitions. I
#
think you develop something of a nose for it. You know, I won't say I never made a mistake
#
in trusting somebody, but by and large, I believe that by and large people are trustworthy.
#
But I'll give you one example. Somebody came to me wanting to work in the already had some
#
products in the food space. And there was this energy bar that said 20 grams of protein.
#
And because I understand food really well, the moment I looked at it, I said, can't be.
#
This bar is not enough to have 20 grams of protein in it. And so I looked at it carefully
#
and there was an asterisk at the end. And then to find what the asterisk was signaling
#
to, you had to look at the back of the pack and it said per hundred grams. And the pack
#
was and the pack was like 20 grams, let's say. So I actually had only four grams of
#
protein in. As far as I was concerned, that meeting was over. Now, legally speaking, what
#
he was doing, I don't know whether it was correct or incorrect. I presume it was correct.
#
He was not making a false claim in a court of law. It's not a false claim because he's
#
saying it is per hundred grams. But the signal to the consumer is wrong. As far as I'm concerned,
#
that's over. It's not a lie, but it's misleading. It's misleading. It's an intent to mislead.
#
And as far as I'm concerned, I will not have anything to do with that. Because if he behaves
#
with his consumer that way, he'll behave with his investor that way. Whatever. It doesn't
#
matter. It's all the same thing. Either you're a person who believes in being honest or you're
#
not. And it's actually more difficult to be dishonest with the investor than it is with
#
the consumer. But it doesn't matter to me. It's a person I won't be able to look in
#
the eye. I can't look a dishonest person in the eye. It's a little peculiar, you know,
#
but I actually can't. Because the owner should be on him to not be. Yeah. But that's me.
#
You know, that's me. It's there's an intimacy into looking into people's eyes and you don't
#
want to be intimate with somebody who's clearly young. And he knows this is a willful attempt
#
to mislead. And often startups are led by two people. And so I guess somewhere at some
#
subliminal level, I'm also looking for the honesty of interaction between the two of
#
them. And not as an exercise in detective background work, but just by the nature of
#
who I am and the fact that these are people who's typically whose parents would be younger
#
than me. So there is this sort of avuncular sense. It's a fairly strong drive for me as
#
a human being. The first thing I do with people is to try and understand where they're coming
#
from, who they are, understand something about their lives and so on. And in that a certain
#
honesty is almost enforced. You know, when I sit down and talk to you about what life
#
was like as a student or as your parents' son or what you did in your last job or whatever
#
it is, false notes are so easy to pick up because this is not a canned presentation
#
you're making. You know, this is not about this deck that you've spent several months
#
over and have presented to eight other people. And as I said, I'm not doing it to uncover
#
this, but when I reflect on the question that you asked me and I look back, I think there's
#
very easy to pick up false notes if you are a people oriented person. And if I'm not comfortable
#
talking to that person just at a human level, I have no desire, I have no need to, right?
#
Because that 10 or 15 or 20 lakhs that I'm going to invest in this person's business,
#
not going to make an at the individual level is not going to make any difference to my
#
life. I don't want to have to meet this person again. So I think on that score, I've been
#
quite lucky that I've, in fact, it's really interesting. The only organization where there
#
was a breakdown of issues of integrity and so on and so forth was between two co-founders
#
and I had not met the other guy. Ah, so you had no way to gauge. I had no way of gauging
#
it. And when things came to a head and I had to, I first tried to broker a rapprochement
#
between them. It didn't work. I then tried to, I became the investor director. You're
#
trying to bring this company back together on behalf of the others. When it didn't work,
#
then I tried to divide up work into silos for them. And that didn't work because they
#
wouldn't speak to each other. And that meant that I would have to become the de facto managing
#
director, which was not the intention. And then they left it to me to decide who would
#
get the business. And then it was very easy because one person had misrepresented reality.
#
So that's, I mean, I'm them. I'm not saying that there aren't going to be other cases
#
in the future, but in the last five years, it's quite telling that the only case where
#
I found that a founder was willfully misrepresenting was a founder whom I'd never met. Now, is
#
this a unique ability at judging people or is it sheer good luck? We'll leave it for
#
others to decide and we'll take a quick commercial break. And after we come back, more insights
#
from your journey into what is the startup ecosystem like today? And you know, how does
#
this whole business of investing work after a short commercial break? If you're listening
#
to The Scene and The Unseen, it means you like listening to audio and you're thirsty
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for knowledge. That being the case, I'd urge you to check out Storytel, the sponsors of
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this episode. Storytel is an audiobook platform that has a massive range of audiobooks from
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that's Storytel with a single L, Storytel.com. Welcome back to The Scene in the Unseen. I'm
#
chatting with Mohit Satyanand about the startup ecosystem. Now, when you decided that, you
#
know, for all the reasons you described, that, okay, you want to now get into investing in
#
mentoring, which I'll ask you more about later, startups yourself. What are the specific areas
#
you were looking at, specific problems you wanted to solve, specific sectors that you
#
thought, I'm familiar with these, so let me look at these. How did the whole process begin?
#
How do you get yourself known to potential entrepreneurs? Do you also build a network
#
of investors? What was that whole process like?
#
Yeah. So, you know, by nature, I'm not a very systematic person. I tend to take all of life
#
pretty much on the fly. But I did start with one thought, which is that as with the arts,
#
if you get into something new, you've got to pay your dues, which means getting punched
#
badly and making mistakes and so on and so forth. And I also realized that by and large,
#
the startup ecosystem is populated by people who are much younger than me. And at some
#
sort of subconscious level, the realization that I mustn't let my ego come into this
#
in any which way, you know. And there are people who've been functioning in this ecosystem
#
for a few years. They know a lot more about it than I do. And I shouldn't be that uncle
#
who knows nothing but pretends he knows everything. So I think for me, that was a very, very important
#
starting point at the level of the self. And so I tried to find out who were the people
#
operating in the startup ecosystem in Delhi. And let me get to know them and made it very
#
clear from moment one. I know nothing about this. I'm here to learn. I'm going to ask
#
really naive questions. Please educate me. Whether it was a 23 year old who had a startup
#
or a 40 year old who had made investments, it was all from the same starting point. I
#
know nothing. I'm here to learn. You've referred often to mentoring. This was not part of the
#
plan at all. Zero. It was, I'm going to make investments. Those investments are typically
#
going to be 1% of the equity in a company. That doesn't entitle me to a board seat. These
#
are people working in areas about which I know nothing. So this was not even part of
#
the plan. You know, by definition from where, you know, we began, I was looking at investing
#
in areas which are the future of the economy. And therefore the starting point is I don't
#
know anything about them. And therefore let me not restrict what I get into. I'm willing
#
to invest in anything I learn along the way. So one thing that I've always had immodesty
#
about is my ability to learn, my willingness and my ability to learn. I learned something
#
it'll be above the median. And, you know, there's this very simplistic maxim in investing,
#
which is that you don't have to be right 100% of the time, as long as you're right 51% of
#
the time, you know, you'll make money on average. So, or even if you're right 1% of the time
#
and you get more than 100 fold. My point only was that, you know, I think that I'll be able
#
to learn enough about this ecosystem in a couple of years that I won't fund those 15
#
businesses out of every 20, which don't make money. I'd have at least one or two out of
#
the five that make a lot of money. And along the way, I'm going to make these mistakes.
#
I'm going to lose money. I'm not actually went into it without thinking too hard. So
#
what I did, and this was very important from a numbers point of view, because if there's
#
anybody listening to it, who's listening to this podcast from the viewpoint of, hey, can
#
I get into this ecosystem too? I think it's important to look at the numbers. And so what
#
I said was that I am going to put between five and 10% of my total financial net worth
#
into this ecosystem, not more. And because even if I make a complete loss on all of this
#
money, it's not going to affect my retirement plans. Number two, that I'm going to divide
#
this into 20 startups, because you can't predict whether the startup that you put money in
#
is going to be one of those which becomes 100X, becomes a Google or whatever it is.
#
And so you've got to spread the odds. And statistics tells us that small samples, anything
#
below 30 is a small sample. The way I worked the numbers, 30 didn't, 30 seemed too ambitious,
#
both in terms of money, as well as in terms of two years of investing. I thought that
#
was too much. So I kept it at 20. And I was well prepared for the fact that the bulk of
#
those 20 would take place in year two, because it would take me a year to understand the
#
whole ecosystem and so on. So I took one shortcut along the way, which is that I align myself
#
with an informal network. Couple of guys, much younger than me, but I liked them. They
#
were smart. They'd already made a few investments. So there were certain pieces that I could
#
sort of bounce my thoughts of, learn from, etc. They were already plugged into the system.
#
They were getting what in the ecosystem is called deal flow, which means that young people
#
were sending decks to them and saying, will you fund this? So to start with, I was riding
#
this deal flow. Because the system was growing so rapidly and there are always a hundred
#
potential startups for every angel investor, word gets around very fast. And the external
#
ecosystem, let's say LinkedIn, Facebook, Twitter, they're all feed into this. So the moment
#
I'd funded two or three startups riding piggyback on this, the word is out there. I'm not putting
#
the word out there. The social media system is putting the word out there that this is
#
a guy who's investing. And then because I carry those labels somewhere, people dig those
#
labels out. They're not on my Twitter handle. They're not on my Facebook, but people want
#
to the ferret come out. And they say that this is a guy who built a successful snack
#
food brand. This is a guy who founded a company which now runs the Jaipur Literature Festival.
#
So these tags were associated. And so the deal flow started. People started coming.
#
I started at one stage when I was really active. And before the system got a little more formalized
#
and I'll explain that a little bit, I was getting between 20 and 30 decks every week.
#
So because the whole startup ecosystem was, in a sense, very early then, it was growing
#
extraordinarily rapidly, 2015, 16, 17. I was at an inflection point. And so it became like
#
this tsunami. Getting deal flow was the least of my problems.
#
But filtering from them.
#
That's your personal choice. And what I also learned very rapidly is, I think this is part
#
of every journey. So these two guys on whom I wrote piggyback in the early stages, the
#
first five deals I did, three or four were with them. And I think I imbued them with
#
a lot more savvy and qualities than they had. I'm not downplaying what they have, but I
#
gradually learned that they too have their shortcomings. Their hits and misses are the
#
same as anybody else's and therefore I mustn't blindly follow them. I have to also now start
#
exercising my own judgment. And so I started picking only one in five or ten that they
#
The second thing that started happening and which has shaped my participation in this
#
ecosystem hugely is that in that interaction that I would have with young entrepreneurs,
#
which was only from the point of view of my having to decide whether to invest in them
#
and their idea or not, that some of them would say, you know, we really enjoyed meeting you.
#
Can we come back again? I would say, yeah. And so it's they who trust mentorship on me
#
rather than the other way around. And even now, when people come to me and ask me to
#
invest in them, I make it very clear to them that my investment doesn't carry any conditionalities
#
on it. If I make that investment call, I'm making it. I'm not saying I need a board seat.
#
I'm not saying I need to be an advisor. I'm not saying I need to be a mentor. Yes, I would
#
like to be kept informed, but that's standard hygiene that you must do in any case.
#
And ironically, then, that role of mentorship, which was trust upon me, which was not part
#
of my design, has in some senses become for me the defining and the most valuable feature
#
of being part of this ecosystem. That was purely accidental.
#
And when you say valuable and defining, you mean also for yourself, not just for the people
#
I'm talking only about myself. That's for them to come on a podcast and tell you how
#
much it meant to them. But defining for me, because at several levels, the first level
#
is that that ongoing interaction helps you to understand the whole process of building
#
a new business afresh. Because these were things that I did 20 and 30 and 40 years ago.
#
And I'll never be, I'll never do it again. And the entire environment in which they function
#
is completely different from what it was in the 80s and 90s.
#
So in a sense, you're being forced to put yourself in the brain of the entrepreneur.
#
Yeah, and in a different environment, in a different ecosystem. So I'm learning in a
#
way that I would never otherwise have been able to learn if I was just
#
You're learning entrepreneurship without actually being an entrepreneur.
#
Right. So that's extraordinarily valuable. But that's at the meta level. The second thing
#
is that I am learning about a whole new range of businesses, operating factors within that
#
business, which I wouldn't have understood as well. If I was just an investor, I would
#
just see the quarterly numbers of the annual numbers, but not really what went inside them.
#
So it's enriching my understanding of business. Thirdly, very valuable is building very, very,
#
very deep relationships with young people. Because otherwise we all tend to, at least
#
in my generation, all our relationships tend to be with people of the same age, the same
#
social background as you went to. And I see that when I go to parties with people I grew
#
up with, everybody's within two or three years of each other, they all went to the same schools
#
and colleges. They all did more or less the same thing.
#
And in your case, because you're active in theater and all that, you are in any case
#
with young people all the time.
#
Yeah, but now I'm interacting with, and this is where the social fabric has changed hugely.
#
None of my friends from the 60s, 70s, 80s, 90s, et cetera, are people who grew up in
#
small towns. They're all people who grew up in Delhi or Bombay or Calcutta or Chennai,
#
maybe Pune, like you. But today, if I look at the entrepreneurs I work with, somebody
#
grew up in Dhanbad and somebody grew up in Agra and somebody grew up in an Air Force
#
station in Jaipur, et cetera, et cetera, et cetera.
#
And I'm being able to develop relationships with these people, which are not just business
#
relationships, because that's not the way I work or live. The relationships become very,
#
very rich ones. So I've developed incredible relations with these people.
#
Fourthly, at an instrumental level, what it's also doing gradually, and as I said, I've
#
not developed those heuristics at a formal level, but what it's also gradually doing
#
me, doing is informing my understanding of what it takes to actually be a successful
#
operational entrepreneur. And to go back to the question you earlier asked, it's somewhere
#
building up that profile of what is it that is going to make this person able to successfully
#
create a business out of this idea. And that comes from working with them on a weekly,
#
monthly, quarterly basis.
#
And lastly, that very, very amorphous sense of giving back, that because of my experience
#
as a business person, not the most extraordinarily successful one, but despite that, I'm not
#
Bill Gates or Nandan Delekhani or whatever, but despite that, I, besides them, I can actually
#
see the value of the time that I'm spending with them come back. And I can literally see
#
this is what I've put into the business and this is what it's resulting in. So there is
#
that element of giving back, but as I said, I don't want to overstress that because the
#
other rewards are very substantial in any case.
#
And I would then guess that your mentorship doesn't like, what form does it take? For
#
example, I would guess it's not in the form of micro things like this is a specific problem
#
we have, what should we do where you might choose to sort of take a backseat because
#
you know the environment as little as them or less than them, but it would be more in
#
the form of here is how you think about this situation or you know, how does that work?
#
So you know, I think it needs to work within a structure as all organizations do. And that's
#
something that I'm very particular about. There needs to be a framework within which
#
this relationship functions. That's the absolute base minimum, which means that there's got
#
to be a monthly meeting and a monthly meeting has got to get have an agenda and they've
#
got to be certain minimum numbers and points to be covered. That's like a base point. But
#
if it stops at that, then it's not really mentorship. The mentorship happens when, and
#
as I said, I don't force it. It happens when somebody brings you up and says, you know,
#
I need to come and see you. I'm having a problem with this particular employee or I'm not being
#
able to see how we need to rethink our brand strategy or how aggressively should we spend
#
the money that came in in the last round? Or, you know, this is what a potential customer
#
is asking for. It means are dropping our price to our other customer compared to other customers
#
by 25%. Should we do it? What is the impact of this going to be on our overall pricing
#
structure? These are questions that are easier to answer when you've faced similar issues
#
20 times in the past, you know, and sometimes it can get as detailed and as specific as
#
you've said, you know, but that's not structured. What I always tell people is throw as much
#
as you want to at me. Unlikely, there's going to be so much that I'll say, hey, this is
#
too much. A lot of it happens by happenstance. You know, I've gone into an office for a meeting.
#
There are five packs on the table and I just pick it up and I'm looking at it. It's not
#
part of my role or the way the interaction is structured for me to say, hey, you need
#
to send every product label to me. That's creating too much load on me. But I'll pick
#
it up and I'll say, you know what? This is simply not aesthetic. And how is the product
#
design ecosystem working? Who's doing it? Who's overseeing it? What is the nature of
#
the designer? And then saying, you know, this is not going to work. This can't be done internally.
#
You need a design shop to do it. And you need to look at their track record and you perhaps
#
if you want to send me a link to the work they do and let me take a call on whether
#
I think their quality is good enough or or not. So I think it's a willingness to engage
#
with everything and yet not to demand that everything clears you. So there's a little
#
bit of there's a little bit of happenstance in it. There's a lot of randomness to it.
#
But what happens if you engage frequently with not just the entrepreneur, but then as
#
time goes on with the larger team is as in any relationship that you pick up cues really
#
fast. Your ability to pick up cues about what I'm saying and thinking much higher than you
#
have with the person you met for the first time because of the depth of our engagement.
#
And if you are having a problem and you bounce it off me, my ability to find the appropriate
#
response because there's no there's no objective best response in most situations. The response
#
is the appropriate one appropriate to you as a person, the other people and or institutions
#
involved in that is what makes it appropriate. Now my ability to find that is conditional
#
or determined not just by my intellect or experience, but also by my understanding of
#
you. And that comes from the time and the trust in the intimacy with which we work together.
#
Can you illustrate that difference between an objective response and an appropriate response?
#
Sure. So how aggressively should you grow a business? There's no appropriate response
#
to it. I mean, there's no objective response to it. You can say that, you know, there's
#
a lot of competition coming and therefore we have to grow extremely rapidly. But the
#
appropriate response depends on your team. How prepared are they for a phase of rapid
#
growth? How much stress can you handle? Can you work 18 hour days or not? Some people
#
can some people can't. Can you handle stress? So in the same situation, I might give a different
#
answer to two entrepreneurs. Makes sense. Moving on, let's let's talk about and again
#
I'll ask a very layman question here because my knowledge of this is sort of very old.
#
As the startup ecosystem has evolved and where it is today, what are sort of the different
#
stages of startup funding? Like you are an angel investor. You're taking the initial
#
idea and you know, you're trying to grow that from scratch. What are the different stages
#
of startup funding? How do those different stages interact with each other? How do those
#
different stages influence each other? Like how many angel investors are investing to
#
actually grow a profitable business and how many of them are just looking at an exit down
#
the line? How does all of that work? Yeah, we could spend a few episodes on this, but
#
to put it very simply, the first stage is what we call family and friends. So, you know,
#
you have an idea and you want to play with it and you take your savings and perhaps some
#
money from your dad or your brother or whatever it is and you sort of play around with this
#
and maybe have a prototype of your product or service out in the market and start refining
#
your understanding of what it is that you want to do and is there a market out there
#
and so on. So, this is sort of the family and friends stage and broad ballpark you would
#
have invested between 10 lakhs and a crore at this stage. A crore is really the extreme,
#
typically less than 50 lakhs and now you feel convinced enough that there's enough meat
#
over here for me to take this to an angel investor or a group of angel investors and
#
I now need a crore or two to grow this business. The median is now actually in the last four
#
or five years, I've seen this whole ecosystem becoming almost formulaic. So, you know, the
#
medians are quite well defined. So, when you now bring this to the level of angel or seed
#
funding, that's already the second stage and you would typically look at raising between
#
one and a half and four to five crores. The median number would be two, two and a half
#
crores at this stage and at each stage, you typically dilute your shareholding or then
#
the cumulative shareholding by 20%. So, that means that you're saying, in effect, I want
#
you guys to put two crores in, meaning a bunch of angels and at the end of that, you will
#
have 20%. So, you're valuing the company at 10 crores. Correct. So, you're valuing the
#
company at 10 crores. Let's say you raise two and a half crores. The companies are 12
#
and a half crores. You have 80%. The angels have 20%. The next is what would be called
#
the A series, which is when the first bunch of institutional investors come in. There
#
could be something in between which we would call it pre-series A, but then you have the
#
A series. At the A series, median would be 80 to 100 crores valuation for the company.
#
It could be lower, but you know, as a median number. So, if you give away 20%, you're getting
#
about 20 crores. Absolutely right. Absolutely right. Now, what happens to the angel investors
#
at this stage? At this stage, it can go either way. It can go one of three ways and none
#
of them are mutually exclusive. You can have a situation where the angel investors get
#
an option to put more money into the business, to either protect themselves from dilution
#
or actually increase their share. That's becoming increasingly rare actually, but that option
#
does sometimes exist. The second is that the status quo for the angels. So, they get diluted
#
by a little bit, but they don't mind. The VCs who come in the early stage, they're still
#
early stage by their definition. They come in and they put 20 crores in and they give
#
the option to some angels to exit. Typically, when they do that, that's at a discount to
#
the price at which they're investing because they say, our primary function is to provide
#
growth capital to the company, not to give an exit to somebody else. So, if we are valuing
#
the company at 100 crores, you want to exit, we will value your shares at 80 crores. So,
#
you exit. What they're sometimes a little more accepting about is the startup guy taking
#
some money out because by now, he's spent four or five years growing the business. He's
#
typically taken away a lower salary than he would much lower than he would at that level
#
if he was working for someone else. So, this is time for him to take a little nest egg
#
out a crore or two crores, which is okay if the company is now valued at 100 crores for
#
him to say, I have 60% of the company. Let me, which is now valued at 60 crores, can
#
I take five crores out of the company? It's quite normal.
#
But what that would mean for the investor is that it's five crores less actually going
#
into the company's fund for-
#
They see it as a different, they'll find a different pocket to take the money out of.
#
It's not a big deal. So, my interaction with the ecosystem really stops there at series
#
Right. So, these are the three options, right?
#
You can invest further, you can sell out-
#
Which is called a re-up. So, you just protect yourself.
#
You can re-up, you can exit, or you can-
#
Yeah. And staying put would mean if you have 20% of the company, you lose 20% of that.
#
As a group. So, let's stay with this for a while because the other question that you
#
asked was how many angel investors? So, typically, again, just to stay with a number, typically
#
there'll be 20 angels. So, that two crores or two and a half crores would be divided
#
among 20 people. It wouldn't be even. It's not like everybody's put in 10 lakhs. It would
#
range typically from, today it's more or less uniformly a minimum ticket is five lakhs.
#
There's no maximum. Typically, what happens is there's one large investor who's a lead
#
20 to 50 lakhs in. And it's also not necessary that the largest investor is the lead investor
#
because what's beginning to happen is that there are some people who are getting sort
#
of tagged as good lead investors who are willing to play an active role, who have put some
#
effort into interacting with the entrepreneur, ascertaining that he's a good bet, willing
#
to answer questions and have some sort of brand attached to them. So, that person may
#
actually be the second largest investor, as has happened to me in a couple of cases where
#
somebody else has put 40 or 50 lakhs in and said, but I don't want to be the lead investor.
#
I said, okay, I'm willing to put 20 lakhs in and I'm willing to be a lead investor.
#
So, broad numbers, five to 10 lakhs each, 20, 25 angel investors to two and a half crores,
#
10 crore valuation. Next round, you're talking about between 50 and 100 crores and you've
#
still got 20 investors, maybe four or five less because the company offers, the VCs offer
#
an out, not everybody takes it because a lot of people believe, rightly so, that in the
#
last two years since we invested here, we've seen two or three other companies that we've
#
invested in go to zero. So, let's ride the winning bets and not exit them rather than
#
exiting the winning bet. So, that's fine. By the time it comes to the series B, you
#
can rule out the first option as an angel investor, which is of investing more. A, the
#
ticket size are too large. B, by now the institutional investors want to clean up the capital table.
#
So, you will get an exit. Odds are you'll get an exit, but certainly the first option
#
doesn't exist of re-upping. So, it's only one of two options.
#
And what does a median size go to now? We've gone from 10 crores to 100 crores in series
#
200 plus in series B. Yeah, 200, 250. And by now the nature of the VCs is also beginning
#
to change. You're looking at bigger players, a lot of them foreign rather than domestic.
#
And the size of checks is now not really in crores of rupees, but in millions of dollars.
#
So, now you're talking 5 million, 10 million size of checks coming into the ecosystem.
#
I think that by and large, the risk reward ratio is not changing because the odds that
#
this company, which has grown 20X in the last four or five years, to grow again 20X is very
#
low. And for someone like me, who's entering into this to get into a very early stage of
#
risk reward, that's then catering to a different part of my risk reward portfolio. I need then
#
at that stage to reconsider this investment, not as being part of my seed investment. It's
#
in a different pocket. It's more mature investment. So, unless I'm really involved with the business,
#
really convinced about it, I've known it from inside, I think from a purely risk reward
#
ratio, by then it's time for me to get out. I have seen a couple of B and C investments
#
where for some reason the entering capital didn't make that offer. So, I'm still in there.
#
But by the time you then get to larger VCs and then finally you go to P players, that's
#
a part of the ecosystem that I don't have much personal knowledge of. I know it more
#
But how many rounds are there? We've reached A, B you said would be 200 crores plus. What
#
is C? What is D? Where does this go?
#
Well, if the company keeps growing and you end up like a flip cart with a valuation of
#
18 billion and 1 billion coming in, that's probably series H by then. It's academic
#
as far as I'm concerned.
#
And how much of what is now happening with all these different series funds? There are
#
two motivations for investing in the stock market. One is you look for value and you
#
try to make money and you look at the fundamentals of companies and so on. The other is you write
#
the sentiment and you look for the greater fool. You're not necessarily looking for inherent
#
value in the business per se. What you're looking at is...
#
That's the stock market.
#
That's the stock market, exactly. Now, does a similar sort of logic invest in the venture
#
fund? For example, in the case that as an early stage investor, I'm not talking about
#
you per se, but in general, would there be motivations for people to invest in areas
#
which are hot because they know that, for example, series A, series B will happen?
#
There is fashion. Wherever there are humans, there's fashion, whether it's in theater or
#
cinema or clothes or music, whatever. There's fashion, there are trends. People are going
#
to ride those trends. There is what you talked about earlier, FOMO, and I think we all have
#
it. Anybody who's been in the investment space does have FOMO. It's very difficult to be
#
completely objective about yourself, but I think if anything else, I tend to veer in
#
the opposite direction, which is the moment something starts getting popular, I want to
#
get out of it. It's just something very hardwired.
#
Are you unusual in that regard? Possibly.
#
Because are there many more, to use Chuck Prince's phrase, are there many more people
#
who are dancing while the music plays?
#
Yeah, sure, sure, sure. Sure, that's true. But I think that if you compare the startup
#
space to the stock market space, the percentage is much lower because unlike the stock markets
#
where there are many more intermediaries, and the bulk of people are investing through
#
mutual funds, advisors, eulips, et cetera, et cetera, because they doubt their own ability
#
to write those checks, the startup space is populated by people who are writing their
#
own checks. And they're also typically people who have more intimate understanding of business,
#
the average person has functioned at a fairly responsible level for 10 or 15 years. So the
#
nature of the people who write checks into the startup space is different.
#
They have deeper understanding.
#
They have deeper understanding. Yes, there are trends, you know. So e-commerce was a
#
trend and then fintech was a trend and then food tech was a trend. And whenever something
#
starts trending, then you have very high failure rates. So you have to be aware of that and
#
stay away from entering trends before they've become.
#
High failure rates because many people then get attracted to the trend and many more people
#
come in and of course Sturgeon's law applies here. So you tell me, you're functioning in
#
a particular regulatory environment. What role does the Indian state play in this? Like,
#
you know, would the regulatory environment be a factor for you that should I invest in
#
this company or not? First, let's see what sector is it in?
#
Yeah, clearly, clearly. First, I want to make the statement that one of the things that's
#
really attractive about the startup space is that a lot of them enter into space where
#
there is no regulatory environment because it's so new, because it's so new. So you look
#
at e-commerce, they're now trying to create a regulatory environment. There wasn't a regulatory
#
environment. And that's fantastic. Now, if you look at Ed Tech, which is an area where
#
I desperately want to make good investments, because that's one area where I can actually
#
say that my desire to invest over there is driven by the dismal state of education in
#
our country and not just by the desire for a return. The two, of course, do and should
#
converge. But then I can say that I want to invest there because I think that the existing
#
educational system is completely broken. The extensive rules that we've talked about often
#
in our personal conversations and in writing that both of us have done about the maze of
#
regulations that governs the education system, it doesn't exist out there in Ed Tech. And
#
therefore, it's a great place to experiment in. But on the other side, somebody came to
#
me with a proposal for investing in drones. I think drones are fantastic because I could
#
already see 20 ways in which they would be useful to us as individuals and to society,
#
whether it's mapping of lands or it's delivery of medicines or entertainment or shooting
#
weddings from a different area of perspective. You can think of 20 uses.
#
In fact, at dinner last night, your friend VK Madhavan was telling us about how the government
#
of Forissa used drones to map exactly who stays where in a slum colony so they can then
#
assign services and even in some cases property rights accordingly, which is so mind blowing.
#
It's mind blowing. But I also saw that there would be an entire welter of regulatory issues
#
that these guys would have to deal with. And therefore, as a business, you would get into
#
times when you're burning capital just to survive while you can't move forward because
#
there's a file sitting on somebody's desk in the Director General of Civil Aviation.
#
And so, though I saw that this is a very promising area to get into, I didn't want to get into
#
an area where the regulation is not clear, but it is going to apply. You can have an
#
area where there is no regulation, but it's not important enough for the government to
#
create regulation in a hurry. But in drones, it was just my sense that this is immediately
#
an area on which the government is going to clamp down.
#
So it's not just for the quality of the idea of the services. It's also what environment
#
Absolutely. Absolutely. So regulation is certainly something that you need to keep in mind when
#
you look at anything in any nation, and certainly in India, where the ability to create fresh
#
regulation is both extremely dilatory, extremely unpredictable, and inevitably very constricting.
#
So if I see that's going to be an issue, I'm sorry, I'm not interested.
#
And how has the startup ecosystem changed in the last five years? Not just in terms
#
of the ecosystem itself growing in its own way as it is, but also in terms of interactions
#
with the state. For example, you had that sort of an issue where I think investments
#
by angel investors were going to be taxed.
#
That's something that I have some experience of. So firstly, the ecosystem has grown massively
#
in terms of numbers. Secondly, I don't know the numbers because we as a nation are not
#
very good in terms of tracking statistics, whether it be GDP or the number of toilets
#
that were actually built under Swachh Bharat or the number of startups. But it's grown
#
enormously. And I think there's worldwide agreement on the fact that ours is the third
#
largest startup ecosystem in the world, behind the US and China. And that's extraordinary.
#
That's absolutely extraordinary. It's also grown in the sense that now there are people
#
looking to service different parts of that ecosystem, which is always a good symptom.
#
So there, for example, I had a meeting yesterday with a young man who is a charter accountant
#
and a CFA and wants to tailor the services that he offers only to startups. That means
#
that here's the assessment of somebody that this ecosystem is large enough for specialist
#
And this is a revealed preference. It's not signaling.
#
Absolutely right. Absolutely right. Every month or so, I meet somebody who wants to
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become an incubator or somebody who does early grooming and a hygiene check for startups
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and prepares them for the stage where they come to an angel investor like me. The third
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sign is, which is something that I'm fairly engaged with, is platforms, formalized platforms
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where, for example, one of the companies that I'm currently in the process of helping to
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raise funds as the lead investor. So their fundraise, or raise as it's called, is now
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live on a platform. And so the way it's working is that I've done, you know, I've had a couple
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of interactions with this person. I've liked the product. I've liked the guy. I've liked
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the deck. I've tried to understand the market. And now it's on a platform. And that platform
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is a fairly organized company, which itself has investors behind it. Okay. So you can
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see how rich it's already. So there's a company which has been financed by seed investing,
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which has now become a platform for seed investors. I think they do like something, they feature
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something like 70, 80 deals a year on that platform. And it's now got fairly sophisticated.
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So now, if we had signal in this room, I would show you, here's this company, 10 crore valuation.
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So it falls exactly into the median numbers that we were talking about. Fundraise targeted
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two and a half crores. Lead investor, Mohit Satyanand. You click on that, it shows your
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profile of Mohit Satyanand. This is what he's done in the past. This is the number of companies
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he's led. This is what happened to those companies. And it says, as of this morning, it said 81
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lakhs committed. And each person who commits, now their mugshot comes in as well. And that's
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a live bar. So it was 81 lakhs when I woke up this morning. And just before we came into
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this recording, it was 96 lakhs. So they're moving towards that target of two and a half.
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So you're buying shares into an angel investing fund, so to say, or an angel investment online.
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Your committee online. And then, of course, all the rest of it happens. So now there are
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these platforms emerging. And so the platforms began emerging five, seven years ago, but
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they've become richer. They've taken on board a lot of feedback. So it's much clearer now,
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what is the role of a lead investor? And what they're now trying to do is to make these
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lead investors into brands, as it were. So if I'm successful, one day I'll be a brand.
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I'm already, as far as they're concerned, I'm a brand. I'm this lead investor who's
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led four or five investments, two or three of which have been extraordinarily successful.
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We say we've invested behind them. So now I've become a flag bearer for other people
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to sort of stand in my, what they call, syndicate. And now they've started defining other things.
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So for example, now I'm going to put in two or three years of effort in shepherding this
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company, hopefully to the next stage, where it's valued at a hundred crores. I need to
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be rewarded for that. Beyond 20 lakhs of family money that I've put in. And so that too is
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now formalized. And it says that all the people who invest behind him, when they get an exit,
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15% of the upside that they make. So if they've invested 5 lakhs and that's now worth a crore,
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you get 15% of that 95, which is called the carry. So you can see that in four or five
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years it's already become a very, very mature ecosystem with syndicates and lead investors
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and investor directors and so on and so forth.
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And what about an issue which has been in the news for a couple of years about the angel
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tax? What is this angel tax?
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I think it's now largely resolved. And this is something where I must publicly acknowledge
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the role of one person. And I'm not saying that he was solely responsible, but that was
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my point of interaction, which is Amitabh Gant, who is the CEO of Nitya Yogi. And so
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almost exactly a year ago at Jaipur Literature Festival 2019, where he was a guest and he
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was talking about making India and so on and so forth, I was, I have to say a little sarcastic
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with him. And I said, you know, Amitabh, you're making all these statements on stage, but
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the fact is that here are these startups and they're getting screwed with this angel tax.
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So actually it was not an angel tax. Okay. It was a tax which was brought in by the last
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government for a completely different reason. But when it came inappropriately to be applied
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to startups, it got called the angel tax. Now that tax was in order, I think it was
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a reasonably well-conceived tax. It was in order to staunch the ecosystems that had been
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set up to launder money, to convert black money into white and vice versa. So you had
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shell companies and so I would subscribe to this shell company at the rate of 50,000 rupees
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a share. And then two years later, I would be told that the value of the shares only
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one rupee. And so my money has gone down the drain, but actually I needed some cash. And
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so that cash was paid back to me. So these became these shell companies. And obviously
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on this other side was somebody who wanted to do the opposite and the shell company made
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a transaction fee from both sides. So what the tax did, and I've forgotten the exact
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number of the income tax act under which it came into being, what it said was that where
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the income tax officer believes that there is some misrepresentation of the underlying
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value, he or she can look at the existing assets of that shell company and determine
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that the amount paid for the shares of that company was inappropriate. And therefore say
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that it's completely irrational that you should pay 50,000 rupees a share for a company
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which has no assets. And that entire amount is going to be taxed. I think it was well
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intentioned. It was addressing a clear tax dodge. Unfortunately, the same thing, the
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same logic applied to a startup almost works because it says you have no assets. You just
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have an idea. And I am putting, I'm putting a value of 10 crores on it. So if you look
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at just the numbers, there's a logic to saying that if that penal tax is applicable on that
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shell company, unfortunately I have to say most of them in Calcutta, but I don't want
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to tar all Calcutta businesses with that brush, then why shouldn't it be applicable to your
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idea of Sound Nation or SoundCloud or whatever it is? Now my point and that of everybody
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in the ecosystem was that surely an income tax officer can distinguish a shell company
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from a startup. Perhaps this was naive, but it was clear that this was being misused across
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the board. But what Amitabh Khan said at that stage was that we need this to be certified
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by third party. Is this a startup? Because it can't be to the discretion of the income
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tax officer. And Nithi Ayog or the Ministry of Industry, your make in India or whatever
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have no mandate to dictate to the income tax department what they do. And so what they
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did was to create this DPIT certification for what is a startup. Now it's unfortunate
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that you have to now create a new department, a new paperwork for a startup to prove that
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it is a startup. And it's unnecessary friction for a startup as well. It's unnecessary fiction,
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but the fact is that it's worked. And those two or three startups where I'd invested,
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which were being sent notices and we were all being asked to furnish all kinds of details
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as angel investors and so on, their cases got sorted out, they got withdrawn. And over
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the last eight, nine months, I have not heard of any such case. So I have to say that it's
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worked. And Amitabh Khan came to Jaipur literature festival this year. I did a panel with him.
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And I will link that from the show notes because it's most enjoyable conversation. We shall
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not say anything more about it, but kindly watch it. But I started by thanking him for
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that, for that initiative because it really worked.
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Well, who said Amitabh Khan? He did. So, you know, before we wind up, you've been doing
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this for five years, but of course you have a lifetime of experience behind it, which
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has fed into angel investing. At the same time, it's not as if you are, you know, sitting
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at an elevated level and putting your money, you're also because of your mentorship, you're
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also deeply involved, you're also learning entrepreneurship while you're doing it. So
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I'll ask you two questions and you can take whichever one first. One is what is your advice
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to these two young entrepreneurs today? And like what learnings would you have that you
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think that they should know that they need to know before they get into it? And two,
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what is your advice for other people like you who would wish to invest? How should they
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go about it? For both of them, my first and overriding
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advice is do it. Okay, no, absolutely. Absolutely. To young people, I would say this is the time
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to dream. And there's never been a moment in the history of mankind, of capitalism,
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of entrepreneurship, which is so supportive of new ideas and so rich with possibilities,
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so rich with possibilities. Never, never, never. Will it last? I think it will, but
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that's irrelevant for you as a young entrepreneur today. It exists. It never existed before.
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Go out and do it. That's number one. Number two, I have to say this despite not being
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perhaps the most impartial person, but find a mentor. And I'm saying this not because
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of my experience as a mentor. I'm saying this because the evidence from Silicon Valley,
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where of course the system was in a sense created and where it's the richest and has
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the most number of hits and successes and so on, that academic studies have shown that
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startups with an entrepreneur, with a mentor, do significantly better than those without.
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So there's something to be learned from Fadiul studies like me. So that's the second, get
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a mentor. And the third, which is related to the first is, as we discussed, there's
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no stigma to failure. Coming to the second, which is people who want to invest in startups,
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absolutely, firstly, do it. Secondly, don't ever make the mistake of saying, let me try
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one or two and see if they work. Because all the data from all around the world shows that
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three or four or five out of 10 are going to fail and you're going to get no money
#
back. And the way probability works is that for at least three or four or five people,
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if they only invest in two, they're going to fail. And therefore you're going to be
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out of it. You need to have a program which says, I'm going to invest over the next two
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or three years in 10 or 15 or 20.
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We discussed this in the episode that we did together on poker and investing that volume
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Volume is key. Volume is key. And I would say that 20 to 30 is sort of the minimum threshold.
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Not as if to say that, you know, you pick any 20 and throw money at them. You obviously
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exercise discretion, judgment, interaction, understanding, experience, interacting with
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other people, but irrespective of all of that, you could be on the wrong side of the probability
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distribution and end up with the first three or four all failing. And in fact, the odds
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are higher because you haven't yet sharpened your intuition. So the odds of the first three
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or four being failure are much higher than the odds of the next three or four being failures.
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So if you've decided to get into this, put aside a pool of capital that you're willing
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to put at risk and say that if the first one fails, that's fine. That's to be expected
#
as the second one fail. That's to be expected. But I'm in this for a minimum of 10 or 15
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and don't give up till then.
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These are very wise words for anything in life. Don't give up. So Mohit, I always learn
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a hell of a lot whenever I chat with you. And even though I'm not neither a budding
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entrepreneur nor do I have any money to invest, this has been very illuminating for me.
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Thank you so much for coming on the show.
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If you enjoyed listening to this episode, you can follow Mohit on Twitter at Mohit Satyanand,
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all one word. You can follow me on Twitter at Amit Verma, A-M-I-T-V-A-R-M-A. You can
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browse past episodes of The Scene and the Unseen at sceneunseen.in and thingpragati.com.
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Thank you for listening.
