#
I like reading mythology, and one reason for that is that I like funky monsters.
#
There is a centaur, half human and half horse.
#
There is a kraken, a giant squid or octopus or a primeval form of thulu.
#
There is a manticore, with the head of a human, the body of a lion and the tail of a scorpion.
#
There is a basilisk, a giant reptile that can kill you with a single glance.
#
There is a rock roc, a giant predatory bird known for picking up elephants from the ground,
#
dropping them from a height and feasting on the carcass.
#
Fun creatures all of them, and hey, all our mythologies and all our monsters are not from
#
There is a modern monster who can see into the future, who plays something called the
#
infinite game and who gives birth to unicorns.
#
All hail the venture capitalist.
#
Welcome to The Seen and the Unseen, our weekly podcast on economics, politics and behavioural
#
Please welcome your host, Amit Verma.
#
Welcome to The Seen and the Unseen.
#
My subject for today is the world of venture capital in India, but as you would expect
#
it is actually much broader than that.
#
Good venture capitalists need to have an understanding of the society in which they live, not just
#
at one moment in time, but how it is evolving.
#
They need to have a sense of the human condition, our needs and desires and our problems that
#
They need to be able to peer into the future and then they need to put their money where
#
It seems to me that a good venture capitalist needs to be intellectually curious, empathetic
#
My guest today to talk about all this and more is Sajid Bhai, a director at Bloom Ventures
#
who spent a couple of decades in media, most of that time in the times of India, before
#
making a leap to venture capital.
#
Sajid is a prolific essayist and some of his think pieces have caused a fundamental shift
#
in the way that people think about this industry and perhaps his country.
#
So my discussion with Sajid spanned much more than his investment philosophy or the startup
#
scene here and I am sure you will find it insightful as well.
#
Before we get to the conversation though, let's take a quick commercial break.
#
The world is changing and you don't want to be left behind.
#
One of the most fascinating subjects that I have been trying to learn about is machine
#
learning and I would like to recommend an online course that is a perfect primer for
#
Head on over to the sponsors of this episode, The Great Courses Plus at thegreatcoursesplus.com
#
and check out a course called Introduction to Machine Learning by Michael L. Littman.
#
Over 25 chapters, this course demystifies a difficult subject and tells you all about
#
its history, its science, its controversies and the modern cutting edge and that's just
#
one of the many great courses on this aptly named site.
#
The Great Courses Plus has a fantastic library of online courses from subjects ranging from
#
music, math, cooking, history, political theory and much else.
#
They also have an app where you can listen to the audio of these courses the same way
#
that you are listening to this podcast right now and it will cost you nothing.
#
You get one month of unlimited free access if you use the following URL, thegreatcoursesplus.com
#
That's right, unseen, thegreatcoursesplus.com slash unseen for one month of unlimited free
#
Why should only machines do the learning?
#
Sajith, welcome to the seen and the unseen.
#
Thank you for having me.
#
So you've had, for someone who's a venture capitalist, you've had an atypical and interesting
#
You have described yourself in the past as an accidental VC, which is interesting because
#
I've had other guests who've called themselves accidental crusaders and accidental reformers
#
So tell me a little bit more about you, your background, what were your sort of interests
#
as a young person and tell me a little bit about your journey.
#
I grew up in Kerala and sort of had this, not exactly peripatetic, but there was a fair
#
amount of transfers, et cetera, because my father was in the central bank.
#
I ended up doing my undergrad from Goa and of course, the Goa of college in the nineties
#
is very different from the Goa of the beaches and then ended up doing an MBA from IMA and
#
then joined the Times of India group and worked there for a fairly long time.
#
And I think one reason I kind of ended up working there was also an interesting place
#
because all the conversations were really, really interesting, got to talk with a diverse
#
set of people and for a business guy, I was always on the business side, I got along very
#
well with the edit guys and I ended up working there for a long time across multiple kind
#
of roles and broadly in the strategy, started a few businesses and in fact, the most interesting
#
one was of course Times Now, it was supposed to be called ETTV then and Parto and I, Parto
#
sadly now is in prison anyway, so Parto and I were the first employees, so to say, we
#
got transferred from the Economic Times and then Aruna Goswami was employee number five
#
and I of course moved out then briefly to work in another media company where Prakash
#
Rai was my boss and after about a couple of years, I joined the Times back and I was there
#
for another 10 years and so coincidentally, the division that I joined Times back was
#
a division called Brand Capital and which was headed by Karthik Reddy, not exactly headed
#
but he was one of the senior guys there and as it so happened, he moved out two years
#
to start Bloom Ventures, which is an early stage venture firm and in 2018, I was really
#
getting bored and I kind of made up my mind to quit, fortunately, got a call from him
#
and he said, look, what are you doing, et cetera, et cetera, there is a role, would
#
you be interested and I was like, wow, of course, so I mean, I've given you kind of
#
my timeline really so to say but what it doesn't really tell you is kind of and you know that
#
I quiz and so I've always had this interest in trivia, fairly Catholic interests, very
#
diverse interests, I'm obsessed by lots of little things and to that extent, I think
#
I bring in that journalist perspective, I mean, I don't think I could probably run
#
a division as well as some of the founders or I kind of invested to but it does give
#
me a kind of perspective, a worldview and that serves me well in this business.
#
So that's kind of a little bit about me.
#
I now find myself interestingly enough in Delhi and kind of the funny thing is that
#
I lived in Bandra in Bombay for about 14 years and then there's an interesting opportunity
#
to start a university business for the Times and I leapt at it and ended up finding myself
#
in Noida because the university was in Greater Noida and the interesting thing is I remember
#
going to get my Candra Bank account kind of shifted and so the previous one was in Bandra
#
and this one was in a small village called Bangel nearby.
#
So I remember the lady looking at me said, Bandra, Bangel, Bandra is a Bangel, I like,
#
so that kind of was the kind of transition that happened but I find Noida particularly
#
interesting and so I think given you a very, very long answer, a very rambling answer but
#
that kind of gives you a perspective, listeners perspective of me and probably stop you.
#
It's a delightful answer with many strands I want to follow because long, I mean our
#
lives are long and rambling so how could, why should we sort of simplify them.
#
Otherwise struck by a number of strands, one is you kind of mentioned at the start that
#
you grew up in Goa and the Goa where you studied was very different from Goa of the beaches
#
and in the years that I was a professional poker player, I used to spend tons of time
#
in the offshore casinos there and all my friends would see that I am in Goa all the time and
#
I would tell them that listen in these last four years I haven't been to a beach even
#
once because it's a whole different sort of a city.
#
So one of the things that I was struck by and this is something that's clear through
#
all your writing is your intellectual curiosity that you are always bringing wider frames
#
to bear on in ways that we don't often think of them which I found extremely fascinating.
#
So here's a sort of broader question I had for later but since the subject comes up now
#
I've kind of noticed that some of the most insightful people on social media that I've
#
come across, there's of course you in India for example but also you know people like
#
Paul Graham who started Y Combinator and so on.
#
Some of the finest insights I have seen have come from venture capitalists or successful
#
entrepreneurs who then gone on to you know fund other businesses and all of that and
#
what struck me was that one I should not be surprised that VCs are more insightful than
#
others because their experience requires them to just look at a variety of businesses from
#
a variety of perspectives and really you know understand people and understand society but
#
also there might be some selection bias at play because the people who make for good
#
VCs to begin with or choose that as a career track might be people who already have those
#
kind of broad lenses and therefore are suited to being VCs and so on.
#
So where do you see yourself in that spectrum?
#
I mean it would seem to me that since you've you know become a VC pretty late you are already
#
someone who had those sort of broad worldviews which made you a perfect fit but is there
#
something to saying that it can also work the other way and is there a sort of an optimal
#
mentality therefore that a VC should have or a prospective VC should have?
#
Wow, it's an interesting question.
#
Many facets to that question, firstly I'll say that there are many successful VCs who
#
write and who have interesting worldviews but there are also equally very successful
#
VCs who don't write anything, who don't necessarily express it and so it is a business
#
which or success here can't be reduced to a simple heuristic.
#
But there is a strand of VC and the one reason why VCs do that is to compete for founders.
#
So the one reason I write is to build a personal brand, a personal brand that I hope brings
#
me to the notice of founders and when they are looking to kind of talk to someone when
#
they are looking to kind of race their round, I hope they will reach out to me via an email.
#
So this perspective is important and this kind of explains to a lot of this.
#
So it is true that VCs are generally interesting, there is huge intellectual curiosity, there
#
is no doubt about that.
#
That I think is the sent canon of becoming a VC.
#
If you don't have that it's very hard, it is both a necessary and a sufficient condition.
#
To express that intellectual curiosity through writing then you are fundamentally competing
#
in the kind of an intellectual marketplace for ideas and the way it works is the top,
#
so in venture capital, typically in a fund and let's say in Bloom there is a 100 million
#
dollar fund and we invest in 25 to 27 companies, of those 25 to 27 companies invariably it
#
is 3 to 4 of them that will kind of return most of our money.
#
They bring in like 300% or 400% of the money and the rest just lose everything that we
#
put in or almost there.
#
I mean kind of being very simplistic, so there is a power lot to it and fundamentally the
#
top 3 or 4 companies are led by great founders and of course you are trying to kind of get
#
the best founders to pick you as much.
#
So unlike a lot of people feel that VCs pick founders, in the best deals the founders are
#
picking the VCs they want to work with because there is so much competition.
#
Look back at all the big deals that happened, Facebook, etc.
#
Mark Zuckerberg decided who is going to come in and pretty much once in the top companies
#
the founders are doing the picking like Kunal Shah of GRIT who I think if you have not had
#
him on the show you should have him on the show.
#
So Kunal Shah could pretty much could have picked anyone and he picked Sequoia for example
#
So VCs are competing for attention of founders through interesting world views and through
#
interesting insights and they hope the founders will notice.
#
So I belong to that one strand of that VC who is the content writer, the person who
#
is trying to kind of give out insights etc.
#
That is kind of one answer to one of the facets of your one.
#
I do believe that historically VC used to be much more of a financial kind of world
#
in the sense that typically people who were strong in finance and or strong in technical
#
like had those two semiconductors etc. would typically find their way into it.
#
We typically have a bridge of the two but increasingly we begin to see very diverse
#
perspectives and you begin to see very interesting people make their way into VC.
#
So VC is getting democratized to that extent.
#
So I don't know if I can give you the exact answer that you're looking for but yeah so
#
Yeah that kind of makes sense and you know one of the sort of I had for example Santosh
#
Desai and also Ambi Parmeswaran later at different points on my show and one of the things about
#
both of them is that you know in their quest to become excellent at what they do which
#
is advertising they also come up with they also came up with some surprisingly startling
#
insights at least to me about Indian society right and while reading some of your work
#
I came across some of those moments also of course the segmentation that you've done
#
of India 1 alpha, India 1, India 2, India 3 we'll discuss that in detail later but just
#
one that kind of struck me was that in one of your essays you have these three photographs
#
of Starbucks in three countries and in the other two countries which you pointed out
#
the menus are in the local language and in the third one which is India it's completely
#
in English where you point out that you know that there is like a separate class of people
#
you've called them Anglo-Indians you've called them India 1 alpha whatever who are just completely
#
apart from the rest of the country in a sense and you mentioned Kunal Shah I think he's
#
referred to the same phenomenon in different words in a recent essay he wrote that got
#
a fair bit of attention pointing out that you know cred was targeting that sort of segment
#
So the way I want to have this conversation is that of course I want to talk about the
#
Indian startup scene and the way it's evolved and you wrote this incredible 7000 word essay
#
on that which I'll link from the show notes plus I also want to talk about how venture
#
capital firms work in India and how you see the current scenario and all of that we'll
#
talk about all of that but I want to go back to your personal journey a little bit because
#
you're basically the same age as me right we're both in our 40s and you know we've kind
#
of grown up through that very interesting period when one is intellectually curious
#
but there is a limit to how much information you take in and like you pointed out maybe
#
working in the times of India is an interesting step because you're meeting you know people
#
with different kinds of specializations in the corridors and having those what a cooler
#
conversations and then one day everything just explodes open like the whole world of
#
information is at your fingertips and so what was that sort of process like in a dual way
#
one from making sense of the country as it was changing and evolving very rapidly through
#
the late 90s and onwards and two from a sense of your own personal growth as you begin to
#
evolve the frames through which you look at the world like you know between then and now
#
is it possible for you to sort of pick those aha moments which kind of change the way you
#
It's such a hard one I don't know if there were specific aha moments but yeah like so
#
clearly I'm a big beneficiary of liberalization but what happened in 91-92 certainly was had
#
a big role to play even though I graduated like six years later because the certain the
#
economy had opened up and there was a lot more and a lot more consumer spending beginning
#
to kind of if you unlike what's this like the 70s where you know it was relatively more
#
socialist so certainly that was a big kind of a tailwind to my life joining times of
#
course and I was fortunate to get to work with Sameer Jain the incredibly maverick eccentric
#
owner of the group and I sort of became one of his EAs and every time he used to come
#
to Bombay he used to come to Bombay in winters because Delhi pollution etc. he used to call
#
for me and my bosses would make me drop whatever I was doing and say okay you can manage it
#
let's go and I think I owe a lot to him in the sense that he's a fascinating personality
#
and a lot of the conversation a lot of the insights so that certainly helped so he was
#
a big influence as well even though of course you do move on now and the next was I think
#
in the early 2010s I tried to start right and I started newsletters etc. and I think
#
I was trying to kind of distill the world so to say and I think it came out of a and
#
genuinely I felt that I was getting left behind when I kind of compared myself to you know
#
it's mid-30s sort of maybe had male menopause early like you have these existential things
#
what am I doing I'm not earning as well as my friends etc. and I kind of got the sense
#
at that point that increasingly and I don't know if it came out of a specific article
#
or something that I felt like I needed to take greater control of my destiny and I sort
#
of needed to because and so sort of like 37 38 I started writing a lot more and I kind
#
of set up a website I started writing I tried newsletters I did multiple things but I mean
#
effectively every month or so one or two articles would come out and that helped I think so
#
these were certainly arcs to my life so to say and sort of if you kind of look to a lot
#
of the hits that I've had I've really come in the last two three years I mean the first
#
60 70 pieces I wrote I mean I don't think 10 people read each of those and I would send
#
it to people and I'm sure none of them touched it they were saying very nice very nice like
#
so I think a bunch of this certainly inform my worldview and the more you try to write
#
the more you distill etc that certainly helps so I think again so these are kind of the
#
arcs or the tailwinds that have kind of propelled my life forward so to say which finally led
#
to Karthik Reddy reaching out etc and which kind of brought me here.
#
Did you feel the writing helped your thinking like I often for example in my writing class
#
which you participated in in fact I did talk about Orwell's conception of how it is not
#
just a case that a clear thinker is more likely to write clearly but it is also the case that
#
forcing yourself to write clearly helps you think better was was that kind of the case
#
with you that did you become a different person because you forced yourself to write so much
#
absolutely I think that's so true I don't think I have that quote readily in mind now
#
that you've mentioned it I'll go back and research it and keep it I do think that writing
#
I mean writing of a certain kind of quality does help your thinking so then I'm the part
#
there was a very interesting course and if you actually go and talk to all the IMA guys
#
they actually talk to you about this course called WAC written analysis and communication
#
all it teaches you and you actually get grades for that it's very simple the trick is that
#
each sentence has to be connected to the previous sentence in the last that's all you can actually
#
kind of the writing can be infelicitous right it can be very poor and and what surprises
#
you that the people who write the most flowery prose get the lowest grades and then very
#
quickly you need to go and work out talk to them what happened then you look at patterns
#
and any sense that was it actually doesn't matter you can write in telegraphies but each
#
sentence has to just connect to that so that's the first time I kind of felt that thinking
#
because structured thinking and structured writing seem to be like linked and certainly
#
in the mid 2010s I started writing I could actually see that better writing helped because
#
there is writing which is persuasive but also writing that is analytical and when you do
#
analytical writing you try to break things down etc. certainly it helps it writing is
#
hard it's painful and I think writing is so to say but thinking is even harder so writing
#
is the medium in which you can do thinking it's an easier medium than just pure thinking
#
so I'm kind of in me and I'm kind of scared by mathematicians because they have no medium
#
other than like pure thinking right so that must be really hard or maybe even coding I
#
don't know but writing is a much more comfortable medium in which you can express your thinking
#
and I've taken huge advantage of that and even now when folks write tell me that I want
#
to talk to you for 15 minutes I just tell them please write out what you want to and
#
I have the standard default things I send them like you know that I find that typically
#
writing it out helps you get more clarity and typically they always turn back and say
#
thank you for making me do that you know so I totally agree with you and thank you for
#
that quote I'm going to kind of file that for future yeah I'll send you a few more
#
quotes like you know I've been adding slides on that theme to my course so I don't know
#
if when if you were in an early batch you might have missed it but you know Joan Didion
#
talks about how she does her thinking by writing you know the other McCloskey the great economist
#
and author also wrote how writing was an essential part of that and just an aside for my readers
#
because this is something that I find myself having to repeat to more and more people is
#
that what you said about you know that no one perhaps read your first 60 pieces and
#
then it's only in the last couple of years that they've started becoming popular strikes
#
a chord because one of the things I notice among young people sometimes is that their
#
approach is that they want to start doing something and if it doesn't work they want
#
to drop it and I'm not sure that's a good approach my advice would be that if you love
#
doing something you've got to stick at it because whenever we start doing anything we
#
will be bad at it obviously you cannot be good at anything from the get-go and it's
#
just by repeated iteration that you eventually achieve excellence which is like a non-negotiable
#
like I remember this video by the YouTube productivity coach Ali Abdal guy in his mid
#
20s and excellent video where he talks about you know he basically reached 1 million subscribers
#
took him a few years but he said that at the end of the sixth month he had made two videos
#
a week and he reached exactly 1000 subscribers on the day of the 50th video so if any of
#
us was to you know hit that lack of response we might be disheartened enough to give it
#
up but he kept on and got to where he is and his advice was if you're starting a YouTube
#
channel just make two videos a week for two years flat which is you know 200 videos and
#
only then look at the subscriber count which frankly I think is a fantastic advice so I
#
think people sometimes get you know and it's incredible that I'm actually saying this to
#
a VC because typically VCs are considered to think in terms of where are the metrics
#
and show me the progress but no that's that's a stereotype we'll get to that so since we
#
were talking Ali Abdal and productivity I also want to ask about that because one of
#
the things that strikes me is that in all your public facing communication you give
#
your email ID out and you say you actually invite people to write to you with ideas or
#
thoughts or whatever they might have and you tell them you'll respond to them soon and
#
you've also elsewhere said that a VC like you has 12 hour days so like were you always
#
someone who was very organized in terms of work or did you have to put a thought into
#
how do I become more productive because it's something I personally struggle with so I'm
#
very fascinated by how you managed.
#
Yeah it's a great question I'm going to enjoy answering this because one thing with VCs
#
other than curiosity is that obsession with productivity hacks because every VC early
#
stage VCs especially and so sort of early stage VCs struggle with what's called deep
#
flow everybody is trying to reach out to them everybody wants 15 minutes and everybody is
#
like etc so and it is challenging and I must tell you that it just hit me head on I did
#
kind of before entering VC I was actually I think I had this huge anthropological interest
#
in VC and a lot of people used to actually tell me that hey how come you're not in VC
#
17 16 I used to get this oh I didn't you there I thought you were there because but still
#
it didn't prepare me for this kind of enormous assault on my time so typically you know email
#
is one challenge you'll end up going to email these days whatsapps and you do stuff like
#
time boxing that's what it's called where you have specific hours of the week but hey
#
not everything goes according to plan and I do stuff like today I knew that there were
#
four things I had to do one of which was to send you a particular email which did get
#
done by like 12 or 2 or something but it got done so you need to have a very clear idea
#
of the five things you want to do four three or four things you want to do but other than
#
that I think you know so you do also need to react a lot and I think the best thing
#
I've found is the single best advice I've found and one that it's an advice but at
#
the same time it's something that I also worked out myself was that anything that you need
#
to do you need to calendarize it and so that's what I do I just calendarize everything and
#
if it doesn't get on the calendar sadly it'll not get done but the challenge is also that
#
you also need to give some free time time where people can reach you some serendipity
#
happens you can read what you want to so I do plan for that as well but it is tough you
#
have all the usual hacks I have Alfred for example it's a life altering software where
#
with a brief touch like you know for example I've kind of lot of templated emails so for
#
example if somebody kind of writes to me and I have a bitly link for certain FAQs and I
#
just type like you know exclamation BI and that just appears and then I just send it
#
off so a lot of these hacks and different VCs have different things VCs you're superhuman
#
which is again a lot of templates I have a lot of cool Gmail hacks etc so time hacking
#
is what a lot of VCs do you're trying to get more out of it you're trying to read more
#
interestingly you must hear this and that I actually pay people I have three freelancers
#
I pay to transcribe podcasts so that I don't have to listen to it I pay them like 200 rupees
#
for a thousand words and typically a 50 minute podcast is it's like what six thousand seven
#
thousand words and end up paying them you know like fifteen hundred to two thousand
#
twelve hundred and I found that that's actually worth it so I keep doing all of these it also
#
means that one thing you do lose is serendipity and you do need to plan for that that's a
#
challenge but well I don't know if this helps this answers yeah no it's fascinating I'm
#
gonna try out Alfred I haven't used it yet so you know that should be fun and planning
#
for serendipity is such a nice term also you know one can sort of lose track of you know
#
those free moments when pleasant accidents happen so before we sort of get to the startup
#
space tell me a bit about your time in media for example what was that like because you
#
know I've been a journalist for a long time as well I used to be and you know one of the
#
things I've realized in all this time is that journalism has changed so completely and yet
#
most mainstream organizations simply don't realize it simply don't get it and especially
#
over the last ten years people are filtering content and consuming content and discovering
#
content in completely different ways and yet pretty much all media organizations are stuck
#
in the same sort of ways of gathering information and disseminating information and all of that
#
so what was your time in media like how did you see that space kind of evolve and what
#
do you think of when you look at the Indian media ecosystem today so I worked in the times
#
late 90s but 2002 was when I joined the economic times I was in the music business before that
#
and so 2002 to I think late 2018 like you know 16 years I saw Indian media and I worked
#
for a long time in print I did work in other divisions but print was where and because
#
Times of India made a lot of money from print I do feel that Indian media is historically
#
I think has systematically seen erosion of talent like the best and brightest I mean
#
sort of a cliché again I don't think they ever worked in media so to say but at least
#
you had a fair amount of bright people coming in but over the years I think the quality
#
of people coming in has historically not kind of been the same the other one is that print
#
specifically because the Times of India and because of English typically the Indian newspapers
#
which were in English historically got a huge advantage and I remember coming in early 2000s
#
etc. look at the Nabarath Times at that time had like one fourth or one third the reader
#
base of the Times of India but their ad revenue was like one twelfth you know so the Times
#
of India had a disproportionate English premium so to say so specifically the media business
#
was largely a monopoly business and typically that's when you end up making a lot more money
#
so they were fattened on the monopoly profits the Times of India and all of that and that
#
kind of continued what happened is I think a lot of folks in the Times of India groups
#
saw the warning signs there were enough notes etc. in fact it's very strange that 1996 I
#
sort of discovered this old pamphlet or something like that belongs to 1996 1996 they were seeing
#
the internet and threat to print like you know like but in the US finally took the 2008
#
financial crisis to really kind of ram down a print thing and in India it took Covid sort
#
of so I think put a long story short they were largely monopolies they were not necessarily
#
well run hence but that's fine Times of India's genius was to discover that monopoly and just
#
milk it forward to work the other ones weren't as even as well run the other parts of the
#
business the TV one was reasonably well run because Star became a monopoly and they exploited
#
it first under Peter Mukherjee and then under Uday Shankar so but over time kind of all
#
the bad habits set in and what has happened now is that the print business got eviscerated
#
I'm hearing like horror stories from the Times etc. so TV is a little better but OTT is creating
#
problems there too so yeah so can double click if you want into specific aspects but sort
#
of yeah double click into one aspect for me like you know you're obviously someone it's
#
part of your job to kind of keep gazing into the future 10 years from now how will we be
#
consuming media because like you said Covid has changed things things were changing before
#
this the whole sort of landscape is fragmenting and splintering and everything is changed
#
completely like what is a day 10 years later from now how is one getting one's information
#
what does one mean when one talks of journalism or the media yeah 10 years is hard but I can
#
talk to you about a few trends we're seeing so one trend is sort of the death of the rapper
#
so to say or creation of new rappers so for example the newspaper is a rapper the newspaper
#
kind of said look we'll give you sports I'll give you a kind of fashion I'll give you cartoons
#
I'll give you everything and the national news they'll wrap it up and you know sing
#
so like for example if you actually now go back and look at Esquire or GQ it's a strange
#
compulsion they have this fantastic three or four stories which are like incredibly
#
well written they take six months to produce they pay the writer like 25-30 thousand dollars
#
just to and also to travel that's extra what is it doing there and it's free and I read every one
#
of those stories free and of course that's because there was a subscription base which kind of meant
#
a ad rate which and and so on but as the business declines as advertising flees
#
suddenly the rappers don't make sense anymore so what you see now the last few years is the rapper
#
kind of breaking up and stories unbounded so today you can for example you see something
#
on twitter you click on it you go to some site after if I come out of the site and you ask me
#
hey Sajith where do you read this I'll tell you I don't even know like you know so you don't even remember but
#
so certainly a relationship with the writer and that is what leads to Substack so people are
#
saying that people follow writers and people don't follow magazines and that makes sense but
#
they're also very interesting so one trend on Substack is like the new magazine so there's a
#
very interesting product called Every EVRY they call it collective of the collective of
#
writers or journalists who are making a new magazine so the joke that goes is hey they've discovered a
#
magazine like you know so so we thanks to the internet we are kind of bundling and unbundling
#
to kind of to make sense of the word so certainly I feel but the fundamental thing is that people
#
are going to kind of the written word people are going to kind of consume in so to say the
#
basic unit will be the writer we're certainly seeing the death of gatekeepers so again you
#
know about the tech versus media battle that's going on Balaji versus everyone you know
#
so yeah it's great fun so increasingly and they're being interesting kind of brands like oh my news
#
I think that's what's called in korea so what citizen journalism so we're going to kind of see
#
more and more kind of vehicles which kind of make more and more of us writers and producers not
#
necessarily text but it could be multiple things and that's a trend we're seeing as well more and
#
more creators and without editorial gatekeepers and if you look at tiktok if you look at india
#
chingari or josh or whatever you call it you're really seeing those folks I also feel that I think
#
it's called the Gutenberg parenthesis or there's maybe a better word but the fact that historically
#
we're all about morality a culture of you know morality but Gutenberg meant that we became
#
word first and so we're likely to see enough a lot more innovation and clubhouse is one like you know
#
but there'll be many more around audio visual media like you know so sort of what McLuhan said
#
and he's an interesting one to look at the shift from hot to cold so we're actually going to see
#
a lot more cold communication and if hot print is largely hot because there's no context loss
#
when you read print but we're going to see a lot more kind of stuff in memes and cartoons if you
#
look at it the most critical part of the times of india is sandeep adhwaryu the cartoonist because
#
and that's where today to actually see what the journalists think and what the the the liberal
#
folks at times think go to his cartoonist son on twitter and see what he is it is brutal but the
#
entire times of india the way it reads because the owners are looking at it it's very tame so today
#
as we kind of enter this really strange world I think a lot more communication is going to go to
#
memes it's going to go to like cartoons and stuff like that as opposed to the word which can be
#
actually reduced to something very cold and people can actually poke holes so this is sort of
#
uh what kind of feel uh I cannot give you more trends there but to probably summarize
#
oral memes the rapper being broken up and maybe rewrapped uh yeah yeah no that's fascinating and
#
just kind of thinking aloud from sort of my own learnings over the past few months you know on
#
the one hand there is it's very hopeful that the creator economy has bloomed that creators
#
uh no longer have to depend on platforms or advertising and they can reach readers directly
#
and substack is of course one way of doing that and you can reach what kevin kelly called your
#
thousand true fans but on the other hand the flip side of it is that that's true for creators who've
#
uh sort of you know who in a sense are the top one percent of creators people who've kind of built a
#
brand for themselves even someone like me that i'm fortunate to be in a position after all these
#
years where i have the kind of brand that i can you know monetize that a little bit i'm thinking
#
of the young people starting out and the average person who is discovering news now from the point
#
of view of the young person starting out at least for all its flaws what the earlier system gave
#
them was that there was an institution where you could join where you could imbibe certain
#
values that this is how you do editing and this is how you do fact checking and all of that and
#
this is how you do reporting and all of that and there is that institutional structure which gives
#
them all of that which seems to me to be a good thing because then there is a structured way in
#
which they can grow rather than necessarily have to be self-motivated and find their own way
#
because the incentives of being a creator who nobody knows is that you have to do things to
#
somehow get noticed and to stand out and those might not necessarily be the best incentives
#
towards personal intellectual growth and the other aspect of it is that you know in the sense that
#
earlier there was a consensus of the truth you know you read every day the times of india is
#
coming to your home or the new york times depending on where you are and you know it might have one
#
slant or the other NYT might be slightly left WSJ might be slightly right and both of them were
#
only that on their opinion pages the reporting has you know certain standards and there is a
#
broad consensus on the truth today there's nothing today it's you believe whatever narrative you want
#
all your information is through discrete links on social media and you know we've seen the worst of
#
twitter but you know whatever i hear about these alternative whatsapp universes is completely crazy
#
and like you've pointed out in one of your very insightful comments that you've made on this
#
youtube talk you gave which i was watching where you divided india 1 india 2 india 3 and you pointed
#
out that none of these apps or businesses that we recognize are actually reaching india 3 which is
#
you know more than a billion people which you equated to sub-saharan africa but whatsapp is there
#
because they cater to the most basic need of simple communication which is also kind of scary
#
in in a sense that you know whatsapp is basically the biggest i mean they are obviously not a media
#
house but effectively it's the biggest source of media for everybody kind of in the country
#
but this is just a ramble i was just kind of responding to you i don't know if you have
#
anything to say to this yeah no i probably didn't double click on it but uh point i think i want to
#
say is i think historically we got the rappers we didn't select w-r-a-p-p-e-r-s not r-a-p-p-e-r-s but
#
sorry sir yeah so uh so but today and you can actually wrap it in the way you want and that's
#
scary because uh certainly uh there is the splinter net today i don't think there's any doubt on that
#
um it's it's very hard and i actually uh do try and follow people of different persuasions
#
uh i didn't want to kind of be cocoon so i do follow people who i wouldn't probably spend an
#
evening with uh on twitter uh but i don't see very many people doing that it's hard like you know so
#
i do think that uh there's no doubt about it that uh we are splintering and people are selecting
#
the media that they want to consume i don't think there's an easy solution here i historically uh i
#
think the u.s uh kind of platforms uh largely u.s but also china have kind of said look it's user
#
generated content and the section 230 which says we're not responsible for it etc but i think uh
#
that kind of works in a context uh where uh you know it's a country where uh they've had uh their
#
first amendment uh in in where were the 19th century was about you know about freedom of speech
#
whereas our first amendment was actually curtailing the freedom of speech in the 1950s etc
#
so the very different countries and they have the institutions which can kind of can handle this
#
but we don't have those institutions right and which is why whatsapp for example actually had
#
to kind of create friction in its product if you actually see in the u.s you can actually forward
#
it into multiple people whereas in india and some other countries like maybe in africa because of
#
how rumors can spread you can only forward it to five people so it's the first time in a product
#
to go back and change features to create friction and you know so uh and there is this joke that i
#
say that hey uh all of these platforms said user generated content we don't need editors but hey
#
all the editors that you lost uh in user generated content you spend on the moderators that you need
#
now like you know and tiktok has some 40 000 moderators apparently you know filtering out
#
in china it's going to end there everything from child born or whatever it is to you know
#
references to Tiananmen or whatever so i think these trends are there and i don't think uh there
#
are easy answers um and you can actually see some of those tensions come to light yeah so
#
yeah and one rumble to your rumble so yeah yeah you know this is a show of rambles as it were and
#
and of course you won't be listening to this episode you'll be reading it once you get it
#
transcribed so which is fascinating and the other thought that strikes me and again just to ramble
#
i mean you mentioned tech versus the tech media world which is kind of happening and there i'm
#
completely on the side of the tech guys because it seems to me that the big media there which
#
covers tech does not get it at all they are completely clueless and there's a word for this
#
particular syndrome i've forgotten what it is maybe you'll know it but i think it's a three
#
word term and the last one is amnesia where essentially what happens is that when you read
#
a media story on something on a subject that you know a lot about you realize how bad it is
#
because it is of course written by a generalist but when you read everything else in the newspaper
#
and subjects you don't know about you assume that it is the truth it is the word of god
#
you know without realizing that if these generalists have so badly messed up a subject
#
that you know so well then chances are they've messed up everything and from whatever subjects
#
that i might know uh you know whenever i read media coverage of that whether it's you know
#
poker or podcasting or whatever and i'm like oh my god you know and at least an honest journalist
#
will get a lot of quotes from specialists and you know will not try to make too many assumptions
#
themselves but otherwise it is so messy and the delightful thing about you know what the internet
#
did was that it made so many specialists available to us so we don't have to listen to these
#
generalists we can just go uh straight to this specialist and therefore have someone like you
#
explain the vc business to us instead of some random journalist who's researched it for two hours
#
so um i think it's time to kind of move on to that part of the show but before we do that
#
let's take a quick commercial break on the scene and the unseen i often speak about positive some
#
games well if you want to be surrounded by beauty and you love fine art i have a win-win proposition
#
for you head on over to indian colors dot com indian colors licenses images of fine art from
#
some of the best contemporary artists in india and adapts them to objects of everyday use like
#
tote bags pouches and home decor items you get to surround yourself with the finest modern indian
#
art at affordable prices and artists get royalties for every product you buy win-win game the indian
#
colors new range is in and includes elegant yet comfortable dresses for women and casual shirts
#
for men with standout motifs by artists such as tanmoy samanta manisha gara baswati shruti nelson
#
pradeep mishra and jaideep mehrotra stay home but dress smart and if you're missing your friends
#
in these lockdown days worry not you can show them your thinking of them by buying gifts for
#
them from indian colors corporate gifting is also available so head on over to indian colors dot
#
com there's colors with an ou and make art a part of your life and hey for a 15 discount use the
#
code unseen that's right unseen for 15 percent off at indian colors dot com welcome back to the scene
#
and the unseen i'm chatting with sajith bhai about about a whole bunch of things but about
#
the venture capital ecosystem in india something that he's been observing keenly for a long time
#
and has only recently joined and he wrote the superb 7 000 word essay which are linked from
#
the show notes about you know right from the origin story in 1985 all the way to the different
#
waves the first wave the second wave the third wave and so on and so forth so tell me a little
#
bit about sort of the origin of venture capital in india the mid 80s is really where it all started
#
and really the term i don't know if the term venture capital was very popular then it sort
#
of was called risk capital and the icici had a small unit which kind of kicked us off
#
i think it's probably called risk capital and it wasn't even the typical vc as we know it since
#
that they kind of invested they had a kind of a quasi debt product which i write about and then
#
a bunch of those folks kind of moved out to start what became tdici technology development
#
and investment company of india which today is actually icici a venture which is not exactly
#
even though the name is ventures it's more of a late stage investment firm and but really the
#
late 80s with the start of tdici is really the origin of the indian venture capital as we know
#
it the businesses like mastek software kale consultants are all businesses that today exist
#
because of venture capital unfortunately fortunately they didn't invest in dcs which
#
was incubated by the tatas in forces they didn't and not even vipro so they missed the big three
#
but they got a few of the others i think the most famous might well be iflex which i think i missed
#
out in my piece but later on a reader wrote to me and said that probably was and i said oops
#
uh yeah that's true so so that's when it started and uh to the 90s nothing really much happened in
#
india but in the u.s the late 90s was when the internet revolution really began amazon 97 and
#
there were all of this e-commerce boom which also kind of go bust but late 98 99 people got excited
#
in india and that's when there was a mini boom in venture capital but after the crash they all kind
#
of left the country a few remained and then slowly in the mid-noughts and the late-noughts
#
some of the companies that we kind of know founded so make my trip ptm red bus nokri
#
they all kind of kind of originated in that period and slowly and suddenly a small flourishing
#
venture capital industry kind of originated and in my kind of essay that i write about i talk about
#
the waves of venture capital and sort of talk about wave zero being up till 2004 in 2004 to
#
10 was the second wave and then thanks to flipkart and a few of the others we had the wave two as i
#
call it sort of and and that's when i think we started seeing headlines about big funding
#
rounds etc so all of our memory of venture capital really comes from that wave of flipkart
#
and you know mintra and you know amazon launching at the competition and the last few years i think
#
i do call it wave three kind of a new wave which is like mobile first companies and that's an
#
academies of the world you know so even sharechat for example so these are all companies that have
#
really beneficiaries of the geo kind of launch and geo democratizing internet access to india too
#
so and you know 2015-16 it's only people like us who use internet mobile internet is expensive
#
and 2016 is when like everybody started consuming content drivers uh you know plumbers carpenters
#
and that meant like an explosion and content consumption and a wave of startups came to kind
#
of that so uh so that's sort of the history of the indian venture ecosystem but it's interesting
#
and i kind of look at different countries and i do feel for the income level that we have
#
two thousand dollars uh per capita of course a lot of us are you know five x seven x that
#
we have an oversized venture industry so i kind of looked at mexico which is five times just per
#
capita income and uh really uh it's a lower ranks of oe cd i looked at turkey eight thousand dollars
#
per capita income and all of us when you go to turkey feel like it's uh it's it's almost like
#
europe like of course we go to istanbul and we don't necessarily go to the poorer parts but but
#
when you look at for example india in the indian venture capital industry i found was 22x that
#
size so i said like wow like how's this why are we so over-ventured and of course a lot of that has
#
to do with brain drain of nehru's creation of iits which meant you created this extraordinary
#
institution which was uh too extraordinary for the for the for the country and they couldn't
#
absorb them so those guys went out they became big folks there in the valley and they all said look
#
hey uh now there's so much talent raw talent here ospar and a lot of their friends in venture
#
capital to say oh all the indians are like you we should invest there like no uh so so this is what
#
i kind of found that venture capital and the startup ecosystem is kind of overdeveloped for
#
the nation as we have it but thanks to that you know there are jobs for people like me and
#
not so yeah yeah no that that that's fascinating and in this time as sort of the kind of companies
#
have evolved and the market has evolved has the mentality of vcs evolved like you know 20 years
#
ago if you were a vc would you have been looking for the same things or you know has it become
#
fundamentally uh kind of uh did different the approach no it has changed a lot 20 years to now
#
there's like a sea change uh there's a lot of change in the state that we take for example
#
how we work with top quality the founders uh in terms of what we're looking for i do think that
#
uh i think um if you look at for example the way valley evolved historically the valley evolved
#
out of semiconductor investments okay and so necessarily investing in older people
#
late 40s 30s etc right or very strong business to business use cases uh which could have took
#
advantage of technology but it's really the this cult of the young 20s early 20s uh engineering
#
grad dropout all kind of began like in the late 80s bill gates and of course there have been
#
dropouts ever since but the bill gates steve jobs etc there were exceptions last vast majority was
#
really experienced seasoned founders because you needed to know your technical chops you needed
#
to work with those customers understand those problems today for example what happened is thanks
#
to aws okay 2006 thanks to the rise of software uh so you don't necessarily need to build all of
#
it yourself you can use apis so like for example just like readers that in uber for example all
#
the sms's are uh kind of sent through a service called twilio all you need to do is your engineer
#
needs to is know which apis to grab connect and it's done so as a result of aws making it
#
you don't necessarily need to set up your own data rack or anything like that you know your service
#
space you can just take aws and start off or google cloud ready access to software tools open
#
source software etc it's become easier for two kids out of college or this thing to kind of come
#
and start so one and start with the u.s and it's come to india and so i would say that a lot of
#
the founders that we're looking at are today young are in their 20s they do have insights into
#
certain tech but they're not necessarily the deepest certain b2b founders that tend to be older
#
but a lot of the consumer tech founders are younger and the way we have kind of evolved
#
venture capital and this changed as well we play what are called long games because and and this
#
wonderful book long or infinite games by james kaas called finite and infinite games and uh and
#
if you actually see venture capital it's an infinite game because uh you're fundamentally
#
when you partner with a founder you try not to take as much stake as possible it's very interesting
#
so uh i kind of read valuation take when i'm writing this piece on valuation now and when
#
i read for example ashwath damodaran i find it like like you know like obviously i don't think
#
you spend time in the industry as much so uh if you try not to take a lot of stake because we know
#
we're going to leave it for the next round where we need the founder to have incentives so we're
#
kind of saying that hey uh what does it take to keep him or her motivated the founder uh for the
#
next round we're thinking of okay how do we get the next round investor excited so we're playing
#
and what happened and we don't for example punish the founder if things go back in fact there is a
#
very little stigma to failing and that's come to india as well we are actually investing now in
#
founders who have failed like you know so and i sort of find these things fascinating and if i
#
were to go back in the late swans india at least was a very different ecosystem i don't think we
#
respected these things even in the u.s for example this intense founder friendliness this desire to
#
kind of uh display this infinite game a lot of the realization uh has come out of their experience
#
and haven't done this so these are some of the changes that have happened in the industry
#
i certainly think the power balance has shifted to the founder now immensely and the good vcs
#
recognize that and they tailor the strategy for that the bad vcs of course get selected out of
#
the business uh yeah that's fascinating now before we go on to talking about some of your insights
#
from that piece particularly the forcing functions within india as you call them
#
uh and so on you know what you wrote about india 1 india 2 india 3 and india 1 alpha
#
uh to be a fascinating frame which i think is essential before one begins talking about all
#
of this so tell me a bit about these different categories and sort of how you came up with them
#
yeah yeah um so um i think it's original um so i came across the term india 1 and india 2
#
in kishore biani's book it happened in india and then i think before me harish shabla wrote about
#
this uh but i do uh think that uh when the startup industry talks of india 1 india 2 india 3 they
#
kind of refer to my framework because i did put a lot of data into it uh so i looked at a bunch of
#
reports and i kind of came up with this insight that uh you know everybody talks about india as
#
this one monolith exciting layer of india 400 million middle class and i found there's nothing
#
like that every time i stopped the founders and i kind of wrote this as the entire interview
#
process was bloom was working and i was looking at it every single app every single product in
#
india would kind of hit this eight to ten million user milestone and just fall so i said what's
#
happening here like and all the vcs have to stop to this like it's a market now this is the real
#
market and sort of like it's not like the vcs didn't know it but i kind of gave it this framework
#
and i kind of articulated what they're not internalized and what i said was there are
#
three indias there is the india of you and me people who use smartphones who live in two bhk's
#
or etc of course there's a rarefied version of that people who use apple netflix starbucks etc
#
so that i call india 1a india 1 i said is about 100 million uh about 20 25 million households
#
and their per capita income is like 10 000 dollars roughly and roughly i said this like a mexico
#
one trillion gdp etc and increasingly all of uh the internet uh spends were coming out of this
#
segment that's the geo uh something called india 2 had emerged and india 2 is a world of our
#
drivers our plumbers and uh you know people who and and when i say india 2 it doesn't mean that
#
india 1 is bombay and india 2 is mirat no every city has an india 1 india 2 india 3 there is an
#
india 2 in kandamar nagar in bombay or dharavi uh there is like uh like an india 1 in in bandra
#
india 1a probably in bandra west or gaff parade or whatever we call it and india 3 of course is uh
#
we're not even on the internet for example slowly just maybe just getting there that number keeps
#
going down and i said that there is 100 million india 1 and that's like a trillion dollars of
#
gdp out of the two and a half trillion dollars gdp that we have and this is about kind of just under
#
10 percent of the population india 2 is another 8 10 percent of the population but the per capita
#
income is like one third or one fourth of india 1 so i kind of called it like a philippines
#
and finally i said india 3 this is uh like really people who have less than thousand dollars but
#
that's a huge number so it kind of adds up to about a trillion and uh this i said is uh like
#
sub-saharan africa and sort of a metaphor which i think for a framework which resonated with a lot
#
of people and the story was you know very popular and i think i think i said the real challenge is
#
that uh for the indian industry to evolve india 1 is who pays your bills but india 2 is what
#
everybody is betting on that the market of india 1 and india 2 will merge but and i pointed out
#
certain kind of important uh fissures or uh or challenges or frictions i said india 1 is
#
largely english but india 2 is largely vernacular and you may need to change your uxs or uis or
#
rails etc and increasingly it looks to me that you may actually need to change your business model
#
a lot of the companies that are coming to cater to india 2 are very different in dna from india 1
#
companies and increasingly it looks to me that there is a real market comfortable market for india
#
1a where they launch in india 1a they kind of get a sense of this thing and they can quickly
#
expand to the u.s i'm beginning to see a lot of interesting startups which launch in india just
#
kind of such the market and then expand to the u.s now so this is sort of the framework and i can
#
double click more if you want but this kind of gives your listeners a sense of the kind of lay
#
of the land so to say yeah yeah i'll ask you to double click in different directions but before
#
that i wanted to double click in a direction which you didn't actually mention in your essay
#
and i wonder if you're or in the multiple pieces you've written on this and i wonder if you have
#
any thoughts on that which is i'm just wondering at uh how this division would have played out in
#
terms of numbers around liberalization like what happened what were the transitions and at what
#
speed are people from india 3 coming into india 2 i mean that's what we would like to see happening
#
at the very least i mean to think that 80 percent of our country sub-saharan africa like is is
#
depressing it's something that you know people like you and me you know certainly people like
#
me who live in a bubble we just we ignore it it's it's invisible and so what are those long-term
#
trends what happened after liberalization how big was india 1 then how big was india 2
#
and what have been the trends over time do you have a sense of this i don't know it's like it
#
specifically have liberalization in data but i can point to one interesting fact is that we
#
haven't expanded india 1 as fast as we should a good proxy for this is car sales come what do we
#
talk about environment etc end of the day a great uh proxy for middle classness uh of wealth what
#
do we call it as cars and india is actually a very tiny car market and you can actually look
#
at the number of cars that are driven in india and the size of india one household it's a close enough
#
proxy early 30 millions late 20 you know why isn't it growing and actually i studied economics and i
#
do end up following economists and i remember reading i don't know who it was but who said
#
that india's biggest success has actually been in reducing the absolute poor and not in growing the
#
uh the middle poor or the upper ranks of the poor into middle class and that's something that struck
#
with me and in fact even if you look at covid for example um the real growth in covid and a lot of
#
the startups are doing really well uh sort of it's the matthew effect to her to he that has more
#
more will be given so all the startups and i'm beginning to see this really sad thing where the
#
startups doing really well barring a few categories like uh like the travel uh and there actually
#
seeing off-tape growth and when we actually kind of double click deconstructed it we said
#
that uh if you actually see growth and let's say it's 55 growth and we can have said uh
#
there's been 55 growth since pre-covid to now monthly 40 percent of that 55 percent has come
#
from the user spending more so people are saying hey i should go out and get my groceries from this
#
groceries from this let's say if you're in bandra this kachi store or if you are in delhi gurga
#
this mall or whatever but you say i'll just order it on big basket or milk basket or what have you
#
like you know 10 has come from frequency you buy a little bit more maybe uh you're you're
#
increasing the cons because it's easier for example and five percent has come from new users
#
that is the person was not consuming it consuming it okay so there are many reasons for this but i
#
think it's to do with the fact that the real middle class this thing is to do with uh and
#
this comes through very well in poor economics this wonderful book is about uh uh regularity of
#
income and i feel that uh the one big privilege we enjoy is we can we actually can see our income
#
streams if you're the middle class here's regular salary coming which is why government jobs are so
#
prized in india the future is so uncertain when you don't have that and go and give a massive shock
#
to that people suddenly like jan they were happy and then suddenly they heard so much virus and
#
mass they had no jobs of course a lot of them have got jobs back but the entire experience has
#
shaken them and they're saying hey let me hold on to what i have so but whereas people like us uh and
#
there's wonderful temple to zoom generation i mean my life didn't change my life improved i got more
#
time with my family uh like i got to eat really good food like you know so i i got to like uh
#
whatever like you know so the air improved so uh i didn't have to travel uh so the quality of my
#
life improved and uh so the point i think i kind of want to say is uh that i don't think the speed
#
of india 2 to india 1 is happening as fast as it should be i don't have answers there uh but
#
the continuing success of indian startups in the vc ecosystem depends on that yes india 3 is
#
reducing which is a good sign and india 2 is growing but the challenge is india 2 is not
#
someone who can sustain a very large business on hence when startups in india are actually
#
looking at abroad in a big way b2b startups animated that consumer startups are beginning
#
to think that too so so we see these are like macro patterns that you're seeing yeah yeah no
#
just thinking aloud and if any listener has interesting statistics by which uh you know
#
you can shed more light kindly share them because my assumption would have been that around liberalization
#
you would have a tiny sliver of elites which would have been your india 1 or even your india 1 uh
#
alpha in relative terms and then you know more than 90 or 95 percent would have been basically
#
what we call india 3 today and just that growth of that middle class india 2 and india 1 uh i
#
think there was sort of a lot of that happening but what those of us who benefited didn't realize
#
that you know in general terms yes the absolute poor were lifted you know there are statistics
#
like some 300 400 million lifted out of absolute poverty and at least knew where the next meal
#
was coming from which is a staggering achievement but it is still a matter of great worry if 80
#
percent of the country subside in africa now there are a number of counter-intuitive uh uh sort of
#
insights you've shared in your different pieces about these india so i'll ask you about them one
#
by one and one you kind of referred to earlier which is you spoke about how many entrepreneurs
#
are now say building for india 1 or even india 1 alpha and then expanding abroad instead of
#
expanding to india 2 because that direction of expansion from india 1 to india 2 seems to be
#
very difficult you know i think you've spoken about how as far as b2c is concerned in you know
#
india 1 is like the 51st state of the u.s so it's easier to go into the other 50 states and
#
otherwise and similarly uh you know you've spoken about like the english tax and i think that's a
#
context in which you shared those three starbucks photographs that is someone from india 2 goes into
#
a store where they only see signs in english it's intimidating they don't belong there it's a
#
different country for them right so tell me a little bit more about how harsh this gap is and
#
why many people don't realize this gap is even there and therefore can make mistakes in investing
#
or starting businesses and so on yeah uh i think over the last few years i think there's been a
#
lot more education within the startup industry because uh sort of uh there are very bright young
#
men and women who come in and sort of study this like say margaret me study samoa for example uh so
#
there are writings uh there are interesting blog posts etc but um you but yes uh there is a gap
#
for example there's this uh for example a lot of times in the e-credit uh kind of credit card
#
transactions is to fail because there's actually an intermediary page uh where you there's a handshake
#
with the bank where you need to enter and that's always in english so a lot of startups actually
#
went to uh through the payment guys and said can you just change it and they said no should we go
#
to the bank bank doesn't listen to us and uh one thing that startups are good at is removing
#
friction to payment right that's that's why we're world class that that if there is friction we try
#
and find ways to remove it reduce it at least uh and uh and one way in which we're trying to kind
#
of do that is looking at vernacular and this is an interesting learning uh so it is entirely
#
vernacular app is actually not needed apparently indian readers they have an intuitive sense of
#
what this english word means etc and uh so uh to my uh this way and i was like this big proponent
#
i got a lot of interesting product managers and designers saying that hey uh english apps work
#
if it's in english but there are certain things that you need to do to kind of give them comfort
#
like for example some of the iconography like a shopping cart it's a very western concept right
#
so i mean uh we probably have taken those design rails and kind of uh kind of used in india you
#
probably don't need to and this is very interesting uh kind of piece i read in i think that a lot of
#
the people the search bar for example it's magnifying glass is a symbol that a lot of
#
indians don't relate to people just didn't know what it meant and some people got a ping-pong bat
#
whatever so uh i think uh the big learning for me is that it's not so much english and uh and i
#
kind of railed a lot about that but it's sort of about english design rails so to say uh and that
#
sort of the need to kind of rethink those rails from a kind of work so very interesting so there's
#
a parallel to this in the times and if you see the times for example versus uh the wsj wsj or new
#
york times very clean there's a lot less stories etc the times is a complete kind of kitschity so
#
to say this was actually driven by samir jane because you say that the french or the americans
#
eat in courses one after the other the indians eat in a thali which is all at once so they like
#
to have like this smorgasbord of offerings and they like to pick and dip and sort of she said
#
the types of india front page should be like that there should be so many little little little
#
pieces so so that i thought was i mean we talk about uh you know clever design in terms of
#
startups but this is a 150 year old company which is actually thinking uh very cleverly about this
#
so i think uh today i would actually rework the english tax to an english design tax
#
and i would say that i think uh the way you lay it out the way you give comfort to a person
#
and sometimes it may mean just rethinking the very format of the of the channel like for example
#
live streaming in china live streaming is hugely popular in china because it uh it when china has
#
a china one china two china three right like you know uh so of course not china three isn't as
#
poor as india three so there live streaming has actually helped people get more trust and uh get
#
uh kind of consume very kind of uh readily buy those products and india has been to see very
#
interesting models like the misho model which is a reseller model uh so e-commerce the way it is
#
where everything is laid out i click on this i don't know if india three is comfortable india
#
three is going to shop and saying so what is going to happen is you may very well have distribution
#
channels emerging distinct for india one which is internet and modern retail india two uh you know
#
or india three for example so think of microcredit uh telephone so some handset guys have had a lot of
#
success selling phones through those microcredit guys right uh and we're beginning to see microcredit
#
and in my view resellers uh the misho kind of thing so we're actually evaluating a company
#
which sells uh misho sells apparel and they've started selling other things too but this company
#
sells fmcg goods to resellers so beginning to see very interesting distribution channels emerge
#
to remove frictions so they come to the conclusion that it's not the website that matters okay uh
#
you may actually need to rethink the very way in which the consumers interacted with so the reseller
#
model whereby your neighborhood auntie sells your product may actually work better than making you
#
look at a screen flat screen and click on it so so yeah some interesting learnings there yeah many
#
many interesting thoughts and especially you know in one of your articles you wrote about how many
#
people thought that that magnifying glass was a ping pong bat which it's one of those moments
#
where you sit back and realize how much you take for granted and and and there is this sort of
#
design term which once at least for me used to be a pejorative called skeuomorphic design which is
#
basically that you make something online a representation of something that is offline
#
so people are familiar with it like the worst example of it which was really ugly was i think
#
when apple did an ebook reader or something and they made it look like a physical bookshelf so
#
that's how the screen looked and i thought that that was just too ugly and there was no need for
#
that and it strikes me that even if you that one you might need skeuomorphic design where language
#
is a problem so you have a symbol which tells a person what it is but that symbol for a shopping
#
card for you know in a small town india will not be a shopping card because you've probably never
#
seen a shopping cart so see there's a there's a need to rethink that my other question to you is
#
this that i would imagine that that listen we solve for problems which we experience and which we know
#
right and i would imagine that a lot of startup founders would come from india one even india one
#
alpha as it were so the problems that they would be intimately familiar with or would have experienced
#
viscerally and want to solve would be would be more likely to be problems of india one and india
#
one alpha and therefore any understanding they have of india two would uh you know be a little
#
deficient and and equally i guess i mean you need a fair amount of privilege to become a founder in
#
the first place you need some kinds of networks you need to have access to books and information
#
and knowledge and all of that so as a vc when you're looking at founders is this something that
#
bothers you that you wish you had a way to get past or is it the case that there are india one
#
founders who have the humility and who apply themselves to these problems so i think you hit
#
upon this and you explained really well to startup requires privilege you're absolutely right there
#
i don't think startup is something where you should get into if you know your family is
#
worried about you know the next paycheck and certainly the founders that we have are certainly
#
privileged in every sense socially economically education of course that said they don't come
#
from diverse backgrounds and a lot of them have and the like india two founders and like there's
#
a fascinating india to start up which caters to farmers called jay kisan in our portfolio
#
and the founders are like the one is a filipino and the other is a south bombay like pure south
#
bombay like you know and so arjun and they both met at xnm and they kind of want to start this up
#
so you get very interesting kind of these pattern busting kind of founders as well and the one thing
#
in the vc industry there are patterns but you shouldn't be prisoners of your patterns so strong
#
views weekly held is certainly one of the month as i go by you know and so this was a pattern
#
for example which was very interesting but yes there are a lot of founders who grow up in smaller
#
towns who get into a great engineering college typically one of the iit's and they've seen like
#
the world of their fathers or grandfathers they have like relatives who are working in small
#
businesses sitting in a wholesale market etc so they're able to marry these two worlds together
#
that oh this is like how my grandfather used to work it's a family business etc
#
they've been privileged in that but that's sort of an old world and then this is tech and so
#
there are those founders as well so if you look at the founders of these what are called
#
ducan tech apps you know kirana tech like ducan, bikai, khata book etc there's a lot of those
#
founders there as well like people who have grown up seeing their family businesses and who
#
understand tech solutions etc so you get both diversity and when i would like to say that
#
you know india one founders are doing india one problems not necessarily so i think the indian
#
engineering college is a great unifier and you can actually come into it from a small town of
#
course you're socially privileged you're upper caste of all of that you're quickly able to kind
#
of understand what it takes to kind of succeed and so you see very interesting patterns and
#
and yeah so i hope that gives you a sense of the founder profile yeah yeah pretty good just
#
elaborate on that phrase for the sake of my listeners which you used earlier strong views
#
weakly held yeah so in fact i can have a joke that if i were to get a phrase that would probably be
#
that so you do need a strong view going into a meeting going into a swat because end of the day
#
my views are what make me uh you know but at the same time i don't want to be a prisoner of those
#
views so i change those views uh and i think that's been a superpower for me i have no and in fact
#
i've done um kind of uh where people are actually calling me out saying the past meeting you said
#
this but this meeting is saying this and i tell them that look it's like this old nasirin horcha
#
joke that uh you came and asked me at 12 o'clock what the time was and now you come and ask me at
#
three o'clock of the time of course of course you can't say that you give me different times
#
so data and perspective i'm very happy to change my views to that and one of the things i've trained
#
myself is to not be afraid to say you're wrong like you know and i don't think i'm i'm very
#
very logically wrong because i do but but i'm wrong because i don't have data and i quickly change my
#
views and that's sort of something i've trained myself for and i think uh that helps so uh and
#
i've kind of interesting i remember reading talib and talib talks about this very interesting uh
#
george soros story about george soros talking to someone saying that hey he said the dollar will
#
fall and i'm betting everything the dollar will fall and next day the dollar rises like and so
#
the person who was talking to george soros says hey george you get wiped out he said no i i
#
changed my strategy entirely he said why what happened no i spoke to you and after that i
#
felt like i was wrong and i mean i kind of did that or something like that so so i think this
#
is a key requirement in our industry that you do need to have a forward-looking thesis but you do
#
need to have the humility to kind of revisit that because don't have all the data like end of the
#
day founders have much more data than we have if you're on the ground and things change right
#
so there are a bunch of things that have changed and had to kind of revisit my views for example
#
very early on very interesting that white hat jr kind of reached out to us and while there
#
were multiple reasons but one reason where we were not as strongly committed to the deal was
#
we felt who will look at coding in india like you know coding is so small and so kind of very india
#
won a and how did it expand beyond this but what we kind of didn't factor in was the momentum of
#
those early wins and who would of course give it a like a joke is given pandemic market fit more
#
than product market fit so so so so of course help but more than that the momentum that winning in
#
india one game would help them actually get more money and could help to also expand into other
#
categories we never saw that they could expand to the u.s so every incident teaches you something
#
and one of the things i've said is like and you don't learn different things from that but that's
#
a perfect example of where two strong views could lead you so this is talib also talks about this
#
interesting surgeon effect that if you see a surgeon who looks like a barber or like a plumber
#
or something like that that's a surgeon should go with because that person has beaten so many
#
patterns to get there so i think you need to kind of keep all of these in mind
#
you do get most things wrong at the same time if you don't have a strong thesis strong view then
#
you don't get that respect and you don't get the you miss out on provoking someone like if you
#
have a strong you're a founder you have a strong view and i have a strong view through that
#
something interesting emerges but if i don't have a strong view and if i can change everything then
#
you lack the respect for me i'm not able to inform you of something etc so these are this is i think
#
a core core philosophy of mine about having strong views but very weakly held yeah yeah i
#
know very wise words and sort of an analog of this i mean my my approach to for example politics or
#
ideology or whatever really is that i am completely open to changing my views on facts if you show me
#
my facts are wrong i'll accept that i'll have that humility but my views on values are strongly held
#
and they're non-negotiable so there will be certain principles i will value and i will not budge from
#
those like the importance of individual autonomy and freedom and all of that but as far as facts
#
are concerned you know i'm always open to being shown a different way of approaching the same
#
problem in order to sort of get back to that frame of these different indias another thing
#
that fascinated me was where you pointed out that it's likelier for a foreign app to make an inroad
#
into india 3 than it is for an india app and and the examples of course you gave was gave a whatsapp
#
which solved a very universal problem which you know really could have been founded anywhere and
#
started anywhere didn't need an india start and also tiktok i mean i i think you also participated
#
in the course i taught on tiktok so and indian society and tiktok also just hit that nerve of
#
course it came at that time when geo exploded and all of that but it sort of uh hit that nerve so
#
tell me a little bit about this that india 3 is a whole different ball game where it is 80 percent
#
of the country but they have no money how does one think about this talking about tiktok and
#
uh there's a fascinating essay uh by eugene way uh one of my favorite thinkers about how tiktok
#
abstracts culture like you know you don't necessarily have to understand a lot and this
#
is utterly fascinating essay which and i'll kind of share the link with you which you can hear the
#
readers which ends with a line that there are like this 40 guys moderators or whatever in beijing
#
and they're all actually working on an indian app and it's actually a very successful app news app
#
and none of them have any clue of what the language is and anything so it's it's something
#
which kind of has kind of burnt itself into my memory and so one reason for that is verbs
#
become very important when i say verbs a lot of the apps which are serving india 3 are really
#
verb apps watch uh you know like uh which is youtube talk which is like whatsapp etc they're
#
very simple and very interesting i think whatsapp is very good at removing friction around things
#
like whatsapp pays the easiest pay apps to use and it's also because it's built into whatsapp
#
so uh so i think a lot of the platforms they're able to spend a lot more on
#
artificial intelligence design uh saying that maybe that helps and these are universal use
#
cases they've solved it in many other countries and they can now see india 3 as a special case
#
of that uh being solved for it the fact that uh they have very deep pockets also helps
#
because indian companies at some point want to make money but these apps are universal apps and
#
because they can take the profits of what they earned in the us and invest it in india so it
#
sort of gives an indian app can't do that really so our uh but this is that if there's an indian app
#
that has to work in india 3 it has to be something which helps them earn so uh it could be something
#
which gets them a job something which helps them sell and get better prices so we have one company
#
that's called Kali Duffin and it sort of works with microcredit uh but microcredit guys give
#
credit these guys say you you do give credit but their lives is not really about credit right they
#
also make some money and we want to make sure that they're able to earn so they have mutual funds for
#
the extreme poor and i've actually been to these uh bihar i went there and i spent about three
#
days with them and i actually met a family which earns the poorest family on their thing 32 000
#
rupees a year wow like i went to the house and and they actually are i think they must be
#
the poorest family in india to uh to actually transact and actually transact on the app i mean
#
it's a very different kind of transaction sense that like there's someone who does it for you
#
but they actually have a savings product on Kali Duffin so uh and they also have insurance etc
#
so i think these are ways in which you'll have to so uh i think the india 3 app which will kind of
#
be a hit will be something which helps them earn extra money it could be by selling reselling we
#
don't see how it is but uh i don't think there is very little capacity for india 3 to spend
#
so it won't be a spend app it will be help me earn more money app uh what it is i don't know
#
it could be something like a craft system where they create craft and they're able to someone is
#
able to take that and sell it to people like us and some money reaches them etc so there'll be
#
variants of this or it could be getting them gig jobs or getting them jobs or getting better
#
money for their agricultural produce it'll be that uh short of that i can't see very many startup
#
opportunities in india 3 because it's challenging yeah fair enough and this frame of india 1 2 3 is
#
quite fascinating to me because many of these insights that come up are counter-intuitive
#
and they're not only relevant to uh venture capital or investing i think there's you know even if one
#
has no interest in that itself i mean this is our society and there's a lot in there that's uh
#
fascinating now to sort of go back to your essay about the indus valley indus valley is of course
#
your term for india's you know uh you know startup ecosystem so which you say is you know you you've
#
spoken about how it's spread out in bangalore gurgaon noida pune powai blah blah and uh you've
#
said it's it's not just geography it's an attitude of mindset quote of invention jogaar or dekhi
#
jaayegi and chutzpah uh stop quote uh tell me about uh sort of again to sharpen the frame for
#
my listeners tell me about the five uh sort of forcing functions which define uh the venture
#
capital ecosystem in this space if you look at uh i think i alluded to one of them uh which is this
#
how uh the indian venture ecosystem is over ventured when i said and i described how uh there is uh
#
it is thanks to the fact that uh overdeveloped tertiary education infrastructure uh specifically
#
the iit is you know resulted in a brain drain which has had very interesting consequences people
#
going there uh kind of uh settling down and then coming back etc so certainly uh the uh the fact
#
that there is a sizable tech experience or what do we call it uh you know a workforce uh who's good
#
at english uh and who can actually walk into any silicon valley firm or who have that who will be
#
out of place there so that's really helped so that's certainly one of the forcing functions
#
then i also talk a little bit about uh the fact that india we evaluated this it is fundamentally
#
a poor country and the consuming class is not very very very large it's about 25 to 30 40 million
#
households uh which is really india one plus maybe the top realm of india too so this is we
#
talked about uh two of the forcing functions then i kind of talk a little bit about um the fact that
#
not just the uh the consumer buyers but even the business uh segments which kind of could adopt
#
technology are not very large so there's actually a great interview which the print had with mani
#
sabarwal uh somewhere in the middle of go in june or july etc and very quotes like stats it just
#
statues pull out of him and he talks about how for example there are only about uh close to 20
#
thousand businesses which have paid up capital more than 10 crores so if you actually look at it
#
even for business products you can't really build a large subscription sass product in india you
#
know so uh we very under formalized that way and and this is something that uh comes to mind as
#
another forcing function so these are some of the forcing functions that i can allude to uh and sort
#
of the way to look at forcing these are the constraints uh within which the indian startup
#
economy is hemmed uh i described five of them and uh they're there they say but uh it's sort of the
#
fact that i think if you have to kind of look at it fact that we are not very rich as a country we
#
have a undersized consuming class and a business consuming class too but hey we are like uh we have
#
like a large enough elite even though absolute percentage is small but they're sizable so 25 to
#
30 million is like uh i don't know and if you look at english for example uh we have uh i would say
#
about what 140 150 million people speak the okay english possible english but they probably can't
#
write good english but about 25 to 30 40 million of us can actually write good english decent
#
english and uh so that's actually makes us uh what i think the after us and after us uk maybe canada
#
with canada we have like the third largest english population in the world and uh so sort of these
#
are what i can have described and of course uh the diaspora the fact that there are a lot of indians
#
and diaspora who can easily navigate between silicon valley and us and and specifically i
#
think a lot of these should be seen in light of the startup ecosystem i mean i don't for there
#
are probably more other forcing functions which have implications for the reliance of the world
#
etc right but that's fine okay but i'm talking about the forcing functions that impact the
#
startup world and i can now identify these five and i said these create certain constraints and
#
drivers uh and opportunities as well like for example english uh it's interesting that delhi
#
crime won an emmy like but tomorrow nothing's going to stop an indian person come saying here
#
i can have seen all these soaps i've seen friends i've seen hundred other things i want to create
#
like this thing uh which is universal which is a story about saying i don't want to set it abroad
#
and i think we'll have these directors coming out they won't take only indian stories
#
so i don't know if there is a writer who's like that i think a lot of the great indian writers
#
have told uniquely indian stories like a chumpa larry for example and she said i think they're
#
universal in theme but they are set in the indian blue uh but at some point you're going to see a
#
someone who writes like like like a story which is uh uh which could be like like something that
#
abdaiq is written for example and that's going to happen and i feel that that's going to happen out
#
of in the next 10-15 years we're going to have breakthrough art fiction writing that's coming
#
out of india um already for example saman subramaniam he writes for the guardian and
#
sort of like i mean it could be anyone but for example and at least wrote vaccines etc writing
#
so a lot of the non-fiction stuff is beginning to go out in that and so i certainly see opportunities
#
like that coming out thanks to our large kind of english base yeah yeah no no that's fascinating
#
and saman of course is a fellow quizzer who was on the show so uh you know a note for my listeners
#
before we started recording sajit told me that he first met me at uh you know maybe 12-13 years
#
ago then it must have been at meetings of the bombay quiz club where i was a founding member
#
and we used to have quizzes every sunday till i kind of retired from that scene because my
#
memory already then was getting kind of poor and as far as sort of indian writers writing in english
#
is concerned i mean there are people like jhumpa lari or the fine pakistani writer danial muniuddin
#
who hasn't written for many years i wonder what happened to him who you know write about maybe
#
local circumstances and local characters but using a sort of form which is very western you know
#
jhumpa lari may write about bengali characters but her short stories for example i would consider
#
classic american short stories in that sense and i guess part of that comes because you write what
#
you know so a lot of the diaspora will write about the immigrant experience it's not really
#
a cliche you write what you know and that's perfectly fine but you're right that you know
#
there is nothing that stops um anyone from here from making something universal which again feeds
#
into that whole thing of if you can make a product for india 1a there's no reason it um you know
#
can't translate to the rest of the world now quick question you pointed out earlier that
#
you know given that this india 1 is kind of like mexico and yet we have 22 times
#
the amount of venture capital that is in there because of various reasons diaspora english
#
speaking the notion that india is a counterbalance to china and people just look at the overall
#
numbers of india and don't really do the kind of division that you've done into india 1 2 3 so
#
is so much of venture capital also a problem for people such as yourselves like what has certainly
#
happened in the last decade or so is that there's been a lot of easy money coming in from the west
#
with the you know the low interest rates and all of that in the u.s and a lot of that easy some of
#
that easy money i mean it's it's it's a small amount relatively but in overall terms it amounts
#
to quite a lot has uh has come this way and does that distort the system for you guys like you said
#
that you know venture capitalists like you have to compete for founders does that distort the system
#
in some way and does it distort it in harmful ways where a founder who might have gotten a good deal
#
and been able to grow in a slow way instead gets a lot of money pumped in and then has to find ways
#
to spend it and go for hyper growth and all of that which actually harm in what would otherwise
#
have been the sort of the organic route as it were i mean i'm sure those pressures also must apply
#
so so what's your sense of three questions there so i'll just take it one by one uh so yes uh in
#
fact i was joking with someone that uh the single biggest factor that's influencing my life uh how
#
good i am how successful i am it's not my picking skills but the quantitative easing that's happening
#
in the u.s so i keep telling that all vcs should put a photograph of janet yellen and do arati in
#
the morning like or who are the fed this one is because the easy money policy of that is what is
#
driving a lot there is another factor too which is that there is a as the u.s and western countries
#
each their pension are struggling to kind of meet contributions so what is happening in the pension
#
fund is very interesting that all of them are saying can we invest in treasury bills or like
#
you know safer ones but we actually have to get higher returns and they're actually saying some
#
of their uh you know uh family officers endowments universities suddenly doing very well because they
#
invest in venture so suddenly so they're saying let's just balance it out so that more money goes
#
to venture now these are like large pension funds ontario teachers scalpers texas firemen like they're
#
like 400 500 billion and if they're rebalanced by one person that's four billion dollars not venture
#
industry is not that big like you know so uh i think the venture industry every quarter i think
#
is about 150 billion dollars so i don't know i don't know the exact numbers will probably kind
#
of have to find out but uh it's it's very small and that actually does as you put in the second
#
point does create certain and now to be very careful with the word yet uh i won't say indigestion
#
problems but sort of it does create a situation where there's a lot more money flowing in
#
and that creates one interesting situation so now uh in our industry valuation is not
#
a absolute number valuation is a function of what the startup needs and the state that we need so
#
to say a lot of people say oh the startup is valued at 100 million dollars etc okay so uh but
#
actually nobody's sitting and saying oh let's do the mathematics required to value it at 100 and
#
then we'll take 10 percent what has happened is that let's say the startup needed uh 10 million
#
dollars and i needed a 10% stake so 10 million by 10 percent gives us 100 so uh so certainly
#
what the startup needs or what i give is one important factor in valuation the second is a
#
stake what has happened is as a result of the money coming in there's also been a competition
#
for good quality founders and there just aren't that many good quality founders so assets do get
#
messed up so a lot more venture capitals have come in and part of the founder this thing hasn't
#
doing it's not easy right like you know and so good assets have got a lot more premium
#
than in an ideal world but look an ideal world doesn't mean anything you know so it's just a
#
hypothetical theory of the world that yes we do feel oh wow like you know so it's that much so for
#
example um 2010 when bloom started to 10 11 bloom started the seed round was uh like uh 250k to 500k
#
seed round and then of course series a was a million today a seed round uh when i joined became
#
like a million uh and series a became five million but very fast in the last two three years high
#
quality companies are getting even two million seed rounds so what's happening here and if you
#
actually look at it the cost to start a business has actually gone down tremendously aws software
#
tools etc of course wages have gone up price of high quality founders and tech talent has gone up
#
so there are these these countervailing forces like even though the cost to start you know pure
#
tech's gone down labor costs have gone up but there's a lot more money coming in but the
#
founder pool hasn't expanded so much does lead to i think pricing up of assets but it's
#
something that we have to kind of live with the way i think the industry has tried to invent and
#
i mean to be very honest with you it's not only to do with venture capital it's to do with public
#
markets too if you look at public markets for example i mean i think certain public market
#
assets are even more overvalued than venture and that's been one of the challenges as well that
#
the last few years what's been happening is quantitative easing has created a world where
#
interest rates are effectively net negative right like you know inflation isn't very high etc
#
so it's actually led to a search for and of course there's been a wave into like this space
#
private investments tech specifically because tech has demonstrated great returns so as a result i
#
have to agree with you on the second one that it has created kind of a bidding up of asset prices
#
the third question is that creating distortions yes and no i mean one thing i would say is that
#
sometimes you get these very universal statements that oh you know venture capital is like giving
#
money in the hands of giving guns to kids effectively and you know i mean i understand
#
where it's coming from but i would have to say that founders are smart end of the day founders are
#
ambitious as well and they do use money wisely but there are cases where if you give too much
#
money early it can lead to kind of specific issues there are examples like raw pressery i think
#
there's a small market they've got a lot more money they should have expanded abroad much faster
#
i feel but so harder it's a it's a it's a beverage and the cold chain and a lot of issues so i think
#
there are cases where careful husbanding of money or carefully kind of calibrating the
#
flow would have helped hard to come up with universal themes but i think i broadly answered
#
all three of your questions yeah yeah yeah very illuminating and i have a couple of sort of follow
#
up questions like i've done an episode with deepak shinoy on investing and his thoughts on investing
#
and life recently which gave me lots of food for thought and one of the themes of course that
#
emerged from there was that one easy money is funding what is the stock market boom that's why
#
it's kind of happening and you know my sort of line of inquiry there was that listen there is
#
so much easy money there should be inflation there hasn't been that much inflation in the real world
#
to which deepak ceases of course was that what has also happened is that technology has been
#
growing and all of that and you know rises in productivity and all of that have kept the prices
#
of things seemingly the same but they would have been cheaper had there not been all this easy money
#
around now it seems to me and i'm thinking aloud here and uh i'm sort of a noob on this so correct
#
me if you've got more nuanced perspectives but then it what it seems to me is that one what this
#
easy money is doing is that it's not about raising the cost of things it's about lowering the value
#
of money which is where it starts from and there is something called the cantillon effect which
#
kicks in which is the first people to receive such easy money benefit more from it than people who
#
receive it later down the line and it seems to me that what is happening is that because this money
#
goes into say stock markets or venture capital or whatever that if you uh you know everybody else
#
who is not a participant in uh these specific domains are actually losing money by doing nothing
#
because a rupee in their wallet is diminishing in value and therefore they have no choice but
#
to get involved like that's why you know you mentioned the pension funds abroad who are now
#
saying that hey we have to get into this market and it's a rational thing to do because there's
#
no choice because the money that they have is just losing value and all the value is coming
#
in these particular domains now you know and what therefore it strikes me is that you know as a
#
normal person who is not part of these markets let's say one if you don't want what you have
#
to lose value you have to figure out a way to take part which becomes difficult because it is of course
#
you know dangerous to randomly enter the stock market when you haven't studied it enough and
#
who has that kind of time and it seems to me that that increases a pernicious kind of inequality
#
like very often when people talk of inequality in the economic domain they actually mean poverty
#
that you know inequality can often come from the rich getting richer and the poor also getting
#
richer but at a slower rate which is not a bad thing i only care about whether poverty is going
#
up or down inequality can be whatever and there often you'll find that poverty reduces but
#
inequality goes up but what it strikes me in this domain is that it's a little more zero sum than
#
that in the sense that there is inequality here in the sense that it's a cantillon effect the first
#
you know these domains where this easy money comes in benefits more and if you're not part of it
#
you're kind of you're losing out by default these are just sort of rambling thoughts but i thought
#
i'll get you to respond because i'm sure you've also thought deeply about the stuff yeah so
#
lots of nuances there so let me just try and unpack one or two strands
#
i do think that we're veering towards and sort of if i kind of see from a very macro perspective
#
a world where there are a few winners and a lot more like for example i think like in america
#
for example they've actually actually seen the hollowing out of the middle class that's happening
#
i think increasing you know happened because of the nature of tech because it's very interesting
#
tech allows scalability tech is a microphone right it allows me to screen and if you have a good voice
#
it's like the same thing like live performances when the when the lp came the lp meant that you
#
only wanted to listen to the top performer shervin rosen drops about the superstar effect and that's
#
effectively what's happening today a good accounting teacher can scale to the whole world
#
right everyone in the world is known as ashrut damodaran if he's right or wrong doesn't matter
#
but they've all heard of him right so the number two accounting professor will always struggle you
#
don't know the number two valuations guy who's he like who is she like no one knows so i think
#
this tech's role as enabling easy scaling and uh is a big factor and uh it's increasingly creating
#
a world where i feel uh i think it's a highly unequal but i also think there's a poverty of
#
opportunities it's sort of an unequal world of opportunities the same opportunities don't come
#
to you so it's led to kind of very interesting things that like for example uh like the huge
#
advantage that if you know coding and if you not just know coding but if you know uh what it means
#
to code in a certain way what it means to kind of communicate build a profile on github etc etc
#
you get outside riches so i don't think there's a lot of talk about you know so basic income and
#
all of that i think i think it's badly needed because i don't think there are any easy solutions
#
the creator economy has no middle class probably there will be uh outsells winners i don't think
#
it's uh historically i think uh the 40s 50s 60s 70s were kind to the middle class they kind of
#
help for example a large middle class to emerge and even for example when you give the wonderful
#
example of fact checkers and all that it sustained all of that today for example like like it's just
#
one person or two people sitting and creating something so they're just not enough to do it
#
so they're just not enough jobs uh so and this is something that uh is a challenge uh you know
#
these answers so if you kind of look at you describe the scantillon effect etc and what
#
has happened is uh there is increasing desire because tech and tech stocks have been delivering
#
the most outsized returns to get into it and it's created interesting distortions like i talked to
#
you about how pension funds are investing in venture capital there's also hedge funds historically
#
invested in stock markets who are actually coming and saying let's invest in the hot startups and
#
for example softbank is a great example if you actually looked at for example amazon is launched
#
in 94 97 ipo three years if you look at what amazon probably was i think 430 or 440 million
#
dollars was the value when they listed today 1.5 trillion so the entire value has been captured
#
with the public market right but if you look at uber google almost similar number will come more
#
than like 20x 30x 50x the value will be captured by i think the 23 billion and today is again 1.
#
something trillion so 50x if you look at for example uber i think 110 percent of the value
#
has been captured by private actually after listing it's gone down like you know so what has happened
#
is capital has come in to hot startups and helped them stay late and late and late because they're
#
saying look amazon made the mistake of going for an ipo i mean i don't think they made any mistakes
#
but they made the mistake of an ipo fast as is that you didn't capture any of the value now let's
#
just get in fast capture more and more of the value so uh these this is another force that's
#
coming in and it's actually creating um i mean distortion i'm not saying distortion is negative
#
or positive it is creating a distortion in the way like for example it's getting certain attitudes
#
to risk founders feel that they can stay later for an ipo uh but there's also a lot of innovation
#
coming in ipo we're talking about direct listings packs as a way out so uh so i do feel uh that i
#
kind of get what you're saying uh and fundamentally i agree with you uh i think not only is inequality
#
growing there's also inequality opportunity that is growing the if today people like us are able
#
to take advantage the tech tools that we're using are almost free we're able to use them combine them
#
to create brands like you know like like you can actually i mean you have these business in a box
#
tools like you know scorecast for example what we're using or whatever you use so you're able
#
to kind of create a business on it at very cheap prices whereas uh the poor probably have access
#
to this but they don't even know what they can do with it so i do agree with you and uh don't have
#
easy answers but these are worryings and the governments of the world tomorrow will have to
#
kind of focus on some of these and the ubi or things may actually be a temporary solution or
#
what if it is to kind of sustain uh the the the hollowed out middle class and the poor
#
i mean ideally what should happen and what you see happening is that you see new technology you know
#
anytime there's some new technology there's fear that hey jobs are going to go and what's going to
#
happen and who's going to whatever but inevitably all new technology raises productivity so much
#
and create so many more opportunities that it works out in the long runs but you know whether
#
or not there might be a temporary solution and how do we get past some of these distortions which
#
are being created by a lot by quantitative easing is you know something that i do think about i mean
#
you know there's a dude called pompliano on twitter i think he's at pom so he put out a
#
tweet today about you know that bitcoin has reached 50 000 and what will the 1.9 trillion
#
quantity be using due to bitcoin so uh you know and uh so another question for you based on uh
#
again something that came up in deepak and i were chatting where you know george soros coined this
#
term called reflexivity where he pointed out that the perception of something can change the reality
#
of something and one example that uh deepak and i agreed with or at least i think he agreed with
#
me but this is certainly what i feel is that flipkart is an example of that that you know at one
#
point a really shitty company but so much money goes into it goes into it goes into it and that
#
money is eventually used to make it a much more solid company than it was now it strikes me that
#
even in this business where there is so much money chasing what you said they aren't enough quality
#
founders i think you mentioned at one point but whatever there's a lot of money uh chasing these
#
sort of founders is that also a possible effect that someone who whose company may not merit the
#
valuation you're giving it to begin with because you pump in that money he can then use that money
#
with of course your guidance because then you're part of the equation use that money to actually
#
build something that merits that valuation or much more and therefore uh you know when you choose
#
out of a and b you are not only choosing the necessarily the better company but you are
#
actually by the act of choosing making them the better company because now they're going to have
#
money to play with yeah this is great yeah so venture capital uh is a signal as much as capital
#
and you could also call it venture signal because um you're absolutely right when you get uh capital
#
from say sequoia or uh like an x so light speed or bloom or work uh and us are probably use other
#
examples as well like a benchmark where a16 said it's also setting on a big signal out there so uh
#
it's sort of the signal that hey uh the high priests of the venture capital world have kind of
#
kind of giving a signal that this company could be like a like a big one right and yes that signal
#
then effectively there is huge path dependence in our business path dependence in many things not
#
just in how the vc selects so you could also say that if a particular startup could have succeeded
#
only because like large vc invested in them yes i would say possible you get lucky by vc selecting
#
you because of the vc says hey this interesting etc but the very fact that the vc thinks you're
#
worth it and the market now thinks gives you a higher valuation uh that also means great talent
#
comes and joins you right uh and which means you because you kind of interact with the talent and
#
you say that oh let me not ruin it now and then you probably you cannot improve with that and
#
hundred percent venture capital i think if this is reflexivity uh then i think venture capital
#
uh is a great example of reflexivity there probably are many examples so signaling and
#
signaling theory is a great uh kind of uh and i always joke that uh ecology is the one field
#
where i think we have a lot to learn from so i keep trying to read about ecological principles
#
and signaling came out of ecology uh and and i think economics is a lot to learn from ecology
#
and so signaling certainly is something that i think we do and i think signaling uh to capital
#
invested uh and the fact that uh prestigious name brand vc is putting in this thing can actually
#
kind of create like that uh like the virtuous cycle so to say of more money better talent uh
#
better experiments uh better metrics money and so on and so on and so on and uh yeah i completely
#
buy what you're saying let's actually talk about investing and uh sort of this almost implicit
#
assumption that many people seem to have that startup is a startup all startups are the same
#
which is of course not the case now it strikes me that because of the vc model you're doing in a
#
sense what i used to do in poker where you have an edge but it's a very slight edge so to realize
#
the edge you have to put in volume and you don't know you know and in poker an interesting uh study
#
in um a couple of online sites once looked at a sample set of a few million hands and found that
#
the people who win the most hands uh lose the most money because it's not about how many hands you
#
win it's about how much you make of the winning hands and that's a little bit like um it's a
#
little bit like uh the vc model where you're investing in 20 firms and you know 12 of them
#
may die four of them may do okay it's one of them that will go 100 200 x and make some money and
#
therefore all of them have to be chosen according to their capacity to make a 100 x so what you're
#
looking for is that sort of that super scalability as it were that this has to be able to grow 100
#
x i loved in one of your presentations you used a quote by benedict evans where he talks about how
#
that bc money is like rocket fuel and so if you're building a rocket ship you need the rocket fuel
#
but if you're building a lawn mower you don't and your whole point was that listen we are funding
#
a particular kind of startup which can only scale that much and therefore you should not judge us
#
by the standards of other startups how we do valuation how we kind of figure out whether
#
investing in them makes sense or not our parameters are completely different and most people especially
#
in the media for example do not get this so can you elaborate on this a little bit for me yeah of
#
course there are many founders out there many entrepreneurs you know so if you start a restaurant
#
you are an entrepreneur you are a founder and full credit to you it's a tough business however
#
there's a difference between founder that we fund and a kind of a restaurateur okay for an example
#
so the one difference is that we are trying to discover scale so we are trying to bet on someone
#
who will grow very big and who will also take advantage of tech and that's the reason these
#
two combine the reason they combine is tech has very interesting property once you write code then
#
you don't have to necessarily write more code to serve so when facebook today now a new joins
#
facebook mark Zuckerberg's minions are not sitting and writing hey let me write one more line of code
#
because this new person is coming in that code written in code scales whereas if you
#
walk to a restaurant and if you ask for a dosa there is someone who's actually taking out the
#
batter and putting it under the same level and making your dosa so what is interesting is tech
#
businesses have high fixed costs but the variable cost of serving next customers next to zero so
#
there's a tendency to drive scale because scale brings huge profits because your variable costs
#
are mostly nothing the other interesting thing tech business have is the cost of acquiring the
#
next customer tends to zero effectively because like network effects everybody is on whatsapp so
#
i'll be on whatsapp too so whatsapp is not spending money on the next customer the more customers it
#
has the more easy it gets to acquire so these two necessarily mean that tech typically tends to scale
#
and as created up scales both at the service end and the customer acquisition end so as a result
#
tech businesses grow very fast very large and sometimes there are winner take all effects that
#
one company just runs away to success sometimes two to three companies can survive now the fact
#
is venture capital as an asset class got product market fit in its own way for these kind of tech
#
companies there were semiconductor companies or software companies etc so as a result venture
#
capital serves and it's for high growth and like high scale you know high tech startups
#
now there's a now along the way in the 60s 70s when venture capital was being discovered in the
#
US they hit upon one very interesting kind of i don't know what the word is but kind of they
#
discovered venture capital as a very interesting protocol at if you invest in 2025 companies
#
and all 25 should succeed but i end up ends up that five or six just fail 10 15 just muddle
#
along and five six will do really well so one or two companies out of that do so well that they
#
make up for the sins of all of that so basis these two venture capital kind of started
#
so the and the finance gets fundamentally once it discovers something interesting something that
#
works then there's more of the same now they can have said that hey this is this interesting asset
#
class that has this property that if you go after these kind of high tech companies and hence now
#
it has to scale very fast scale is very important to us because that one company has to grow so
#
fast that it makes so much revenue and so much money that it pays for everything else so scale
#
matters if this scale property is there then the power lock and apply one can do well and pay for
#
all the sins which means every company we select for has to have that and i love how you said about
#
poker that it's not the number of hands you win but that one hand almost you win it's absolutely
#
right so there are actually very interesting models made out there that which talk about how
#
the most successful funds and typical fund is for 10 years we raise funds every three to four years
#
the investing cycle is three years and then you launch the next fund but typically every fund is
#
for 10 years in every fund typically in using 25 to 30 companies sometimes more sometimes less
#
they found one very interesting thing which is very similar to what you said that the most
#
successful funds actually had very few winners but they had concentrated winners so like the
#
facebook one the excel fund which was in facebook made so much money from facebook that they could
#
have just lost two extra amount of money on the others we really lose one extra one you understand
#
and yet would have delivered would have been the most successful fund of all time so and i'm
#
completely in agreement with what you're saying and so now coming back hence venture capital is
#
a protocol to discover scale venture capital is a set of rules norms whatever you call it
#
by which we kind of discover high scale companies and that means that there are very good business
#
out there which probably make money like a printing press or whatever quality but they
#
don't have this high scale quality and which means they're not suitable for venture capital
#
so we do get a lot of pictures like 20 25 percent of my pictures are very interesting businesses
#
language schools publishing houses and i kind of once in a while kind of it's very hard to
#
explain once in a while i write this out but maybe i haven't yet made a templated reply
#
but maybe i should make a templated reply now which says that hey user is a great business but
#
these are the qualities of the business that we're looking for and so on so i would say amongst all
#
the things venture capital is a very narrow subset of high tech and high scale if i were to add up
#
this 2d thing kind of a two dimensional chart which i can kind of share with you and which you
#
can kind of link to and venture capital is just that one narrow sliver and but as there's a lot
#
of interesting innovation is now coming in into like for example new models of venture capital or
#
not exactly venture capital but allied to that which are about revenue based financing for
#
example so they're saying that hey how do you know how do you create how do you make it easy
#
for a small business to get capital they only have to go to the bank or they go to get debt how do
#
you make it easy and so there are interesting innovations coming out of the fact that venture
#
capital is kind of it's like grown very fast but it's not relevant for that so we're going to see
#
a lot more innovations in these allied spheres so to say so i hope i've kind of given you a sense of
#
the industry and yeah i know that that's kind of absolutely fascinating and you've also you know
#
you wrote a controversial twitter thread recently where you spoke about valuations and you pointed
#
out that because of this facet of you know what a venture fund does and the kind of startups that
#
it looks for that traditional accounting has to go out of the window you have to figure out a new
#
way to sort of value a startup tell me a little bit about this because there is this conventional
#
foxy wisdom out there that you know that there's just too much money out there venture funds have
#
gone mad they are just funding companies which have absolutely fundamentally they don't make
#
any money they don't do anything why are they doing this you're creating these massive unicorns
#
it's all a big scam but it's the truth is not quite that so tell me a little bit about uh you
#
know how you look at it yeah the fact is that it is hard for us to take a set of protocols rules
#
norms that came up in the 1940s when capital was scarce and the kind of company that you uh was
#
not necessarily high scale it's like a cement company started small or had enough capital
#
and capex for example can be capitalized right that's that's the thing so you know it doesn't
#
show up on the profit and loss account shows in the balance sheet but what has happened
#
historically over the last 30 years is there has been more and more spend on intangibles
#
now the problem with intangibles is you can't capitalize it like for example there is a company
#
that we've invested in which sells to for example certain corporates and certain kind of institutions
#
but the fact is when the company adopts it the data of its users has comes on this now they
#
can have given interesting stat that and synthetic and that they got data on 73 percent of all
#
computer science engineers graduating out of india and i was like blown wow and they're saying if we
#
onboard few more of these companies will get hundred percent now that has value and but sort
#
of like i can't show that with the balance sheet there's nothing on the balance sheet says is
#
because we know in our industry that if if you own 100 percent of all data on all the students
#
that can be monetized by selling them new products or selling the data of course ethically but
#
unfortunately the way our accounting industry has evolved it doesn't allow me to kind of capture
#
this so as a result the venture capital industry said let us develop our own norms metrics etc
#
but hey we don't want to publish it because just all of us right we understand it and it's actually
#
very interesting it's called poker but alex dunco wrote this wonderful piece called vc should play
#
bridge which is the one thing i'm jealous about because this i tried learning bridge in the middle
#
and and i actually said that he vc and bridge is very similar like you know but he wrote this
#
piece and i'm immensely jealous of him and that kind of says kind of something very interesting
#
that if you have to kind of look at the bridge convention the bidding conventions in many
#
respects vcs have also developed these conventions so to say to kind of evaluate and bid and this
#
thing and the way we've kind of evolved that is to create an entirely different kind of framework
#
so we use metrics like arr which is annualized revenue because look if a business is growing
#
50 percent month on month right today it was 10 lakhs for next month it's 15 lakhs month after
#
that is 22 lakhs maybe slows down to 40 lakhs that uh if i were to look at last year's figures
#
it's zero so i mean how relevant is that but if you actually go to a company like lhc
#
lnt last year's figures and this year's figures are largely similar they don't change as much
#
so industry where so much is changing we develop this concept of annualized revenue where you pick
#
this month's revenue and multiply it by 12 to get an annualized revenue so i mean i'm simplifying it
#
but there's a lot of these metrics that are emerging da you daily active user monthly active user
#
so vcs have kind of uh kind of uh kind of created a parallel language parallel set of frameworks
#
to evaluate and understand these companies unfortunately what is shown in p and l and
#
balance sheet is not terribly useful going forward because entire venture capital is actually a kind
#
of uh like like fundamentally it's a better the future when i'm investing in a company and i'm
#
saying that 18 months from now it will be at this stage so what it was passed of course matters but
#
not terribly right okay so probably rambling a bit much but there is a venture so we kind of first
#
said that venture capital is not all businesses venture capital is a specific set of high scale
#
high tech high growth businesses which means venture capital is then we talked about how
#
when venture capital companies have a lot of intangible investments which are not easily
#
apparent the language of accounting as it was developed can't capture it as a result we said
#
venture capitalists and startups have created a parallel vocabulary a set of intellectual and
#
verbal and mathematical handles to kind of make more sense increasingly the world is now kind of
#
split but what has happened is because venture capital has become this sexy thing you're seeing
#
because all of us are using venture capital's product for startup products etc everybody
#
thinks venture capital companies have to be evaluated by the same metrics that uh not it's
#
a very different world it's just that there have been world changing impacts of these everybody
#
uses google everybody uses facebook etc and we get that i think we get it uh it the coverage
#
really doesn't matter for us how it's covered but and i was really reacting to like uh saying
#
i mean you know it unfortunately got a bit out of hand but uh i was really reacting to the fact that
#
there's two different worlds out there and uh they evolved in different directions and you shouldn't
#
judge this world by the metrics of that world yeah i couldn't agree with you more i think one example
#
you gave at one point was that if the first person who invested in uber was to judge it by the amount
#
of people who did not hail a taxi by raising their hand and saying cabi stop that then you know
#
because there's no prior you're really betting on the future and in that sense it's a lot like
#
poker it's a game of probabilities you're betting on the future and with whatever information you
#
have you make the best bets that you possibly can and it strikes me that it is vital that somebody
#
does that that uh you know otherwise we can't uh you know how do we even progress so i completely
#
buy that now another question now you know i won't go too much through sort of the methodology of
#
sort of the flow of how uh you know a company goes from seed funding all the way to ipo or
#
wherever it goes i mean it i've done an episode before on the startup ecosystem with mohit
#
satyanand he outlined this a fair bit and i'll also link to one of your videos on youtube where
#
you go through the whole process with the powerpoint what struck me there was that in many ways at each
#
phase whether it's if you're the seed funder you're obviously not taking the company to ipo you're
#
taking it to series one if you're the series one guy you want you know five out of your 20 companies
#
to get to series two and so on and so forth now it strikes me that this might in some way affect
#
the incentives as well now obviously in many ways you know if you're a series one guy the series two
#
guy will be looking for all the things that you want the company to do anyway to find that product
#
market fit and so on and so forth but at the same time you might be playing as much to perception
#
as to reality you know like if you have a sense that okay these are the values of say a soft bank
#
or a sequoia or whoever there is for you down the line or whatever the general community might look
#
at while there might be other possibilities that exist for your company in question of growing in
#
a different way do you think these incentives become a problem where you're sort of looking
#
for you know what the next buyer down the line might want like some uncharitable folks have even
#
described the whole thing as a ponzi scheme you just sell to the greater fool down the road now
#
it is obviously not that we live in a world which is shaped by technology and venture capital we are
#
speaking today because of it and everyone who is listening to us will be listening to it because of
#
a world enabled by both of these but are perverse incentives possible and is that something that you
#
keep in mind when you're you know sitting with the founders helping them with strategy do you
#
just keep the ultimate growth of the company in mind or do you keep series two in mind that these
#
this is what we need to do to get series two no this is a great question it's actually a fantastic
#
question and actually writing an essay of trying to you know answer this question so the most
#
interesting thing is that so you talked about seed series a series b series c series d you know
#
all the way to an ipo the fact is you're absolutely right when i invest in it i don't know if this
#
can be an ipo i hope for god's sake it becomes an ipo seven years start the line has worth changing
#
impact makes lots of jobs makes me and the founder lots of money all of that is true but the fact is
#
the way we are structured and there's a reason for that i am the best understander of risk from
#
seed to series a so bloom wants to say that we are fundamentally about understanding and taking a
#
company from seed to series a we understand this world the best we understand series a mindset we
#
know that by series a they need product market fit product market fit means like you know you need
#
like a product which is fits the customer this thing plus there is a clear go to market and a
#
bunch of other things so we know that and we kind of what we're running is we're giving them money
#
only the money that they need to go to series a so we give them one million dollars or two million
#
dollars whatever it is we take our 20 percent stake or 15 percent stake and we say look here
#
is the money go run experiments run growth experiments run scaling experiments run this
#
thing in 18 months we broadly know that you need to hit if it's an ad tech company we know that
#
or sas company you know that around a million dollars in arr will get you a good series a with
#
a certain kind of growth velocity and we know xyz so there are these well accepted norms conventions
#
so to say like bidding conventions like 1c what it means etc so effectively when we give our money
#
we are fundamentally giving a signal so sequoia also has a company that blooms invested in its
#
pipeline so it's saying oh bloom invested in this company so that's a signal that bloom is
#
giving to the market that 12 to 15 months down the line they'll get an arr of one million dollars
#
uh so now the startup then says hey let me take this let me run these experiments
#
suppose the startup various reasons doesn't well the market's not as large etc by 400 500k it's
#
not able to grow etc there isn't enough excitement in the market typically what happens is uh if it's
#
a good founder great founders have high opportunity cost they have earning 12 or 15 lakhs trying to
#
make this work meanwhile their batch mates were in the same batch of computer science at iatd or
#
whatever are earning two and a half crores working in a hedge fund or working in facebook etc so
#
they're saying hey what am i doing here you know so now look at this world we are actually telling
#
you there's no stigma to failure uh if this but we certainly want them to fail fast fail fast is
#
very critical because you save a lot of money in 15 months please fail fast uh and typically a lot
#
of the times when they fail fast we actually uh uh there are cases where some startup founders
#
are growing very slowly and like for example gumroad side lovingia buffer uh which helps you
#
schedule these tweets and all that so in those cases the venture capitalists went and sold it back
#
sold it back uh at one dollar to them or a little bit understand because you're fundamentally saying
#
hey take this it's not for us we don't need money we have already made money in other things because
#
of the power law so you please take it and it's fine and so fail fast fail fast we certainly want
#
them to take those risks and fail fast because they have opportunity costs right like they're
#
earning 12 15 20 lakhs are trying to build something whereas their batch mates and out of the same
#
program let's say i did a computer science program are sitting in uber or facebook or a hedge fund
#
earning like two to one half crores etc and they're saying hey what am i doing with my life etc it's
#
not scaling etc so that point sometimes they come back and tell us hey everything is going
#
anywhere and i want to just take a break i'm mentally tired so during covid we had that a
#
couple of founders came back and said hey you know we've been building this for the last two
#
two and a half years it's been struggling and now covid means another three months i just want to
#
break i want to be with my family and that's perfectly fine we get it why because we're
#
playing the infinite game with them if we make it very hard for these founders if we make their
#
life miserable they'll go to the market and they'll tell their friends blue or someone you know they're
#
like very unfriendly tomorrow for example when their friend is building a great business they
#
don't want to refer it to me so what we do is we then we solve this by removing all kinds of failure
#
stigma and generally making the exit very comfortable in this thing to the extent where
#
like we sometimes give back the business to them for like a rupee or even just you know because
#
it just doesn't make sense now this is very important so there is an infinite game being
#
played with the founders where failure doesn't matter actually and they're very interesting
#
sometimes the founder can actually make no money for you but they give one referral and that's
#
happened to us and that reference turns out to be a unicorn so if you don't play in the infinite game
#
then you will not have this happen the other one is the infinite game being played with vcs down
#
the line like for example for a vc down the line so for either a classic series a vc like a matrix
#
of course we also invest in seed these days but or a sequoia or something like that or even a
#
classic series b guy like a norwest or pessimist they're actually looking at series a guys because
#
the pipeline comes from there historically there is a brand that we've built with them
#
because we've been playing the infinite game with them because they are the best
#
prices of risk and the best understanders of risk to move a company from series b
#
to series cnd so they are the guys who say hey you're a series b now now we need to have a proper
#
this thing you need to have an hr this one place you need to have these policies you need to prepare
#
for an ipo you need to get a cf of this caliber because they know that word we don't know that
#
word well they know what kind of mentoring to being they know how to understand all of that so
#
now what happens is if i overprice something if i bring them a turkey and i give them this thing
#
tomorrow they're going to say we had a bad experience with these guys these guys gave
#
us their single verse deal they missed a minute i'm not going to touch them boom i'm shut out of
#
that because tomorrow i have to take my companies to that so over time protocol has emerged and i
#
keep using the word protocol is my favorite protocol i'm searching for another word by which
#
we have agreed on a bunch of rules saying i will bring the best companies to you i will not
#
overprice it i will not create perverse incentives for founders i will not take a very large stake
#
like 40 percent 30 percent i will take a reasonable stake which has a founder it gives
#
on you know soon in the game so that you have enough capital you to take another 20 percent
#
so that you know because at each stage you typically get directly between 25 percent
#
so that by the time it's an ipu the founder still has eight nine percent seven percent stake
#
so all of these so it's like i don't know jenga is another word where a lot of interlocking things
#
etc there i don't know what the right word is but it is not a ponzi it was a ponzi if i'm just
#
selling to him and then walking away but in this i'm there tomorrow i have another investment
#
coming which i have to give to that person so people who call it ponzi are i don't think
#
understanding how it works these are infinite games being played between two parties and these
#
are the best kind of games where we want them to win and they want us to win as well so i would
#
say that and typically for your readers i do not think but typically from at every stage from a
#
seed to series a typically there are clearly agreed metrics like a series says about five to
#
seven million dollars series b is about 10 to 50 million dollars etc typically there is a clear
#
benchmark for what kind of valuation bump-up happens there are clearly agreed arr dau revenue
#
norms you know and there is a very clearly understood set of conventions within the industry
#
and which is very democratized once you come into the industry you quickly get to know these
#
things because everyone says just get educated fast the faster you understand this the lesser
#
time there is unfortunately vcs don't have a lot of time to sit and write it out and a lot of things
#
change very fast so that does create a set of issues so yes if you wrote this out fast and if
#
you spend time communicating it's fine but there are no incentives for the vc to sit and communicate
#
too much outside because really doesn't matter yeah so there you go yeah no no it's all very
#
fascinating and eye-opening instead of protocol i guess another word the word that came to my
#
mind was convention so convention yeah you know i don't know if that no convention is good yeah
#
set of conventions no and and and just thinking aloud what also sort of strikes me is that number
#
one you are right that playing an infinite game changes the incentives radically for example if
#
i am going to the same restaurant for lunch every day i am much more likely to tip well i am much
#
more likely to not misbehave with the waiter so you know he doesn't spit in my food every day
#
all of those incentives are there because it's like an infinite game i'm going back it's a repeated
#
game but equally the interesting thing is that we have evolved where our genes are playing an
#
infinite game even if we aren't as it were every which is why for example when conventions like
#
tipping evolve even if we are in a city where we know we'll never come back to the city we'll
#
never come back to this restaurant we still tip well because it is the right thing to do and it
#
strikes me that there are ecosystems which eventually reinforce such conventions which
#
are the right thing to do and there are ecosystems which don't reinforce them like it strikes me that
#
you know i've often chatted with different guests on the show about how you know in while uh i i
#
think jagdish bhagwati first pointed it out that china has a profit-seeking mentality while india
#
has a rent-seeking mentality and certainly i think it's true in say india 2 or india 3 where you are
#
out you're looking to scam someone you're looking to exploit someone you think of a wealth as a
#
zero-sum game and the point is you can't blame those individuals who think like that or you
#
can't say that this is our culture my own thesis is that these conventions and this way of thinking
#
evolved as a rational way of thinking because of the institutions and our systems of government
#
because for so many decades after independence we had an all-powerful my bob state and really
#
rent-seeking was the optimal way to actually make some money where there weren't other opportunities
#
through you know voluntary interactions but anyway so that's that's a random aside from me as well
#
another question i i know i'm taking a lot of your time but another sort of question i wanted to ask
#
which i think for a lot of listeners who wouldn't already know it would be quite
#
um sort of fascinating is on the on the term product market fit like you've referred earlier
#
to this old essay which of course are linked by mark anderson very which is called the only
#
thing that matters where he talks about how uh you know there are sort of these three aspects
#
that a venture capitalist can look at that what is a team what is a product what is a market
#
and to him only one of those really really matters the others you know don't matter so much so
#
expand a bit on that especially because india is particularly fascinating regarding the aspect
#
that matters as we've already spoken about in terms of india 1 india 2 and so on yeah that's
#
one of the seminal essays uh that's sort of uh there's squarely in the vc startup canon
#
and so firstly double down on product market fit it's it's sort of described and there's no clear
#
definition of it but fundamentally it means two things one that there is a strong customer
#
problem custom problem that is important enough for the customer to be willing to pay
#
this product or the solution that you've created technological solution solves for that well
#
and this is a product to customer part of it then there's a product to market part of it
#
is that this product now can be there's a scalable monetization model in place by which you can say
#
this product fits amidst need very well okay now i'm going to take it and magnify it to the whole
#
of mumbai and whole of west marashtra and whole of india so there's a clear playbook by which i can
#
i can rinse and repeat and i have discovered that these channels this approach so let's say we use
#
a lot of content marketing plus i will use a kind of subscription method and to acquire customers
#
and subscription to monetize them that broadly will help us cover the whole of india so so broadly
#
the product and the playbook both need to be kind of in place for pmf to happen when pmf happens
#
broadly pmf is an important one because at pmf something interesting happens until pmf if i
#
invest one rupee in the growth machine so to say the sales infrastructure and the customer
#
acquisition so there's a customer acquisition customer servicing part you acquire the customer
#
service the customer collect the money and and kind of that loop so the growth machine loop
#
until pmf one rupee invested in the growth machine loop won't necessarily give me 1.1x
#
or 1 plus but once pmf is hit every rupee invested in that gives me incremental money back so that's
#
very important in india so so the second part that you're talking about is to do with three
#
buckets which is team product and market and those are evaluation frameworks for us
#
in the venture capital world and team for example is the single most important one
#
one where team when we say team it means really the founder founder quality how good are they
#
there's also is a team right for the problem like for example if it is something in HR tech for
#
example and these founders know the domain well or they have worked on problems like this before
#
there is like a team founder market founder problem fit or founder market fit
#
it product is really the solution market is actually the most interesting one it has multiple
#
meanings for people i used to be very market first and it's very interesting that there's a whole
#
philosophical divide between founder team first investors and market first investors
#
sequoia famously is about market first and for example arthur rock who invested in apple was
#
we said it's only the founder of course all vcs balance it out but fundamentally a better way to
#
describe the market one would be i would say problem so how big is a problem and can the
#
product that's created for the problem be expanded enough like for example so what it means is
#
sometimes problem itself may be like not as large like white hat jr is a great example coding not
#
necessarily people in merit are not dying to coding but if let's say you this coding thing
#
works and you communicate you're able to communicate to the rest of the world is that and great
#
brands this wonderful tweet which went around and all great brands expand the definition of the
#
consumer like you know like apple says you are a creator like you know so you want this you know
#
steel grain good looking laptop with that apple logo on it nike says everyone was an athlete so
#
you expand the definition so so if you're able to understand the problem and i think so the better
#
term that i found was the universality of the problem is it a problem that just so there may
#
be no large market but there's a universal need and it absolutely that universal need and then it
#
can be scaled across the world and so i think my learning has come to that and today i would
#
probably kind of define it that way so that these three team product and market are the investment
#
criteria that we employ and increasingly the earlier the stage is largely the team
#
of course the product quality matters but sometimes you're investing ahead of the product
#
so then what matters is the problem and how universal the problem is and yeah so i think
#
these are i hope i've been able to kind of give you that kind of picture yeah you know that's
#
fascinating and you know and anderson's essay of course says that the market is the thing that
#
matters that's a non-negotiable the rest can be solved if there's a product market fit one of the
#
fascinating things that you mentioned was about how a good brand can expand the consumer or fit
#
a universal need and it strikes me that one of the areas in which you've spoken of being
#
of focusing right now and you guys are investing heavily in that is ed tech or education technology
#
so tell me what's your vision of that because on the one hand yeah i mean our education system
#
is kind of broken now it's broken in multiple ways one it is of course broken in delivery which we
#
all know that people throughout india aren't getting good education it also strikes me that
#
it is broken in terms of conception that the conception of what a good education should be
#
is an early 19th century conception that these are the subjects we learn all the way through school
#
and this is how we kind of do it and it seems to me that when i look around at sort of the
#
ed tech startups and all of that they all seem to be solving more for the first which is that
#
you find different ways of delivering the existing conception of education and not so much for the
#
second where you're having something disruptive because to me one of the fundamental problems
#
with education in india and you you are of course a man who's thought a lot lot more about this than
#
i have so forgive me if i sound naive but one of the fundamental problems to me about education
#
in india which goes beyond delivery into conception is that people who do get educated in india
#
do not have any skills that are of any value to them in life which is why you have so many
#
thousands of phds will apply for you know a vacancy for one peon and that seems to be a deeper
#
fundamental problem which also requires disruption so tell me a little bit of your view of the space
#
and what makes you so passionate about it yeah so i think i must say that what makes me passionate
#
about the space is that it's one of the few products where there's a almost universal
#
willingness to pay and and you can't say that about my too many products but it's a one product
#
in a kind of i and many others liken it to what e-commerce is to china so sort of ed tech is the
#
one which can kind of pull the entire economy startup economy up and we've seen like we get
#
about 15 percent of our pitches on education now and it's it's it's interesting i do agree with you
#
that education and the one word i would say is one thing ed tech is doing is largely thus far has
#
been solving for access in new ways you can say of delivering it and sort of like you could i'd say
#
at best leveling or flattening the field so to say okay so to say that classic example is if i'm in
#
delhi or bombay i get access to very good testing but if i'm say growing up in satna or erode then
#
you know i'm really dependent on how good the teacher there is but today thanks to online i
#
can get access to and we saw historically how it the web is a microphone right so you can talk
#
shout louder so one the great teacher can scale so what in an academy or a topper or with on to
#
all of them have done is really make that teacher available and so it's really solved for access
#
and it's solved for access at a decent enough quality sometimes even better quality than what
#
you get but it's online and price much lower price so these access quality price is largely what the
#
most successful indian ed tech companies have been about and what they've done is really take the
#
content structure the content file put it on the phone make it easy etc so all of that is true
#
yes we haven't been able to kind of really rethink education and i think the reason for that is this
#
is a very highly regulated industry and so and i think india in ed tech one of the forcing
#
functions of ed tech is that education india is a gating product and i think it came across
#
in this wonderful podcast and it was professor murlidharan where he talks about how india is
#
you know education is gating you just want x number of people and i can i'm fascinated by this that
#
again you described as a rent economy india is about rent collection and i think it's something
#
to do with the fact that and again in karthik murlidharan's this thing let's talk about how
#
wages are so high that you're not able to employ a lot of police guys the state capacity is not
#
there because friends like wages are so high so i don't know i'm trying to develop like a theory
#
around it but fundamentally it seems to me that india is there's a almost a need to have a kind
#
of certain parts of the economy or certain parts of the job market or certain parts gated and kept
#
out so that we have this for ourselves and we kind of compete and what we've done is use either caste
#
or english as the new caste marker to kind of keep certain parts of the economy to ourselves
#
and we find newer and newer ways to kind of keep the economy out of the huge number of hoards or
#
masses pouring in anyway so for various reasons and the fact is yes there will be innovative
#
indian startups coming but the challenge is the people who are paying are very happy to compete
#
within the boundaries set by the state which is they are competing with gating the moment
#
indian parents and at some point we'll see that they say we want this kind of a product
#
there will be indian founders willing to do that there are indian founders have tried creating some
#
innovative products and we begin to see a wave of india 1a products which are about is very
#
interesting if like for example like my daughters they're of course you know
#
they are in their own way but i can't see them sitting and writing a je exam or a
#
meet exam the energy that is required the hunger that is required i don't know
#
but there is that hunger in small town india but they for example many of them are very many they
#
and their peers are very creative they write well they communicate well they know what memes work
#
etc and when they apply to u.s colleges or uk colleges etc increasingly what is important
#
for them is your entire profile right your whole evaluative holistically and then for example you
#
need a lot of these like you need to be good at ballet you need to be good at math and do the
#
coding etc etc so a lot of the startups that are coming out to serve this community is actually
#
what i call life as a cv they kind of want you they kind of offer you critical thinking and say
#
so there is some innovation happening homeschooling in the u.s for example you're
#
bringing this interesting startup because as much as three percent of the u.s is homeschooling
#
is for religious reasons or safety reasons or whatever like you know so we're beginning to see
#
very interesting innovative products come out where they are saying they're taking unbundling
#
a teacher i forget the name of the startup but they're saying you want to create your own pod
#
and covid has given a boost to that you create your own learning pod of four or five bright kids
#
in your neighborhood we'll get you a teacher that person will come online and talk about interesting
#
stuff etc he'll talk about probably they'll use natgeo as a way to talk about like you know what
#
are like the dinosaurs and stuff like that and make learning interesting but it's sort of like
#
a secession of the rich from what is being taught like you know so education this thing will break
#
down now so homeschooling and this pods really homeschooling and steroids earlier i had to teach
#
the kids but now there's like an interesting teacher the best teachers these are being carved
#
out and they will teach multiple people and sort of this thing is happening much more in the u.s
#
but and india has been relatively far less innovative on this count we are very innovative
#
in distribution we have china china and india great examples that dating countries nine million take
#
that exam every kind of year in china and you know success or failure of you know one mark here in
#
their determines which university you go to and what you become so uh so dating countries have
#
this challenge and in getting countries a lot of the innovation because the state is so strong
#
in india and china a lot of the innovation has been around distribution and access like you
#
rightly said it has not been around the product in countries like u.s where there's a lot more
#
willingness the state is weak in education like relatively like you know so there has been a lot
#
more innovation uh i am very hopeful that in india if the customers are willing to pay we
#
we likely see a lot more innovation so that's what's holding us back is my view um it can only do so
#
much yeah yeah no it's very poignant i mean like you said that you know indian parents are willing
#
to pay but they're willing to pay for something that will get them further within this gated
#
system within the system of selecting and sorting rather than actually educating and that's important
#
because you know for you know years we've had so much literature on how the poorest of uh parents
#
you know definitely from india too and perhaps from india three slum dwellers and so on people
#
who work as domestic help or auto drivers and all of that instead of sending their kid to a free
#
government school they pay a little bit which is still a lot for them in terms of proportion of
#
income to send their kid to a budget private school so there is that hunger so it is at least
#
good if there is you know one wave of uh at tech companies which can figure out a way to solve for
#
that hunger before you can go further and talk about um changing the system entirely now coming
#
back to that about the problems that a big state can create and obviously in the field of education
#
is perfectly obvious because this is the route you have to follow but in general what is the
#
environment like in india for venture capitalists just a regulatory environment and you know having
#
to contend with the state and all of that you know is it harder than elsewhere or do you have
#
to account for it in all the investing and valuations you do that there will be friction
#
with the state is it greater in some areas and others how do you think about that yeah i would
#
say that there is i mean in the sense that there are occasionally irritants which come up like
#
this angel tax was one of them it won't go into too much of the detail but effectively it created
#
a lot of hardship for startups which took money and were faced with like you know like large
#
tax bills and there are occasional challenges with certain sectors which suddenly see regulation
#
like for example mobility is one and but by and large if you are in the digital space you are in
#
largely intangible there is much less kind of regulation it's a little bit more in like fintech
#
is one where but fintech also it's strange that the government actually was an innovator in creating
#
the india stack and like two big innovations both of which happened for a year or so of each other
#
16 17 then geo and the india stack india stack effectively upi built on upi so and if you look
#
at the two the two of them really gave wings to the indian startup economy because if you if you
#
look at it for a economy to take off you need like three conditions i remember this chinese
#
founder talking to me that you need a smartphone in every pocket you need like like great bandwidth
#
so that you can consume and you can watch and finally you need a frictionless payment system
#
so certainly over time the bottom two came thanks to geo and the india stack and the first one was
#
anyway happening in in in in six so so certainly these two really gave wings to the startup economy
#
so the state can also benefit you in that sense and i would say that's that's helped on regulation
#
we do when the startup ecosystem does have regular dialogues in the government because the startup
#
ecosystem has been one of the shining stars so to say and gives a lot of talking points and there
#
are a lot of and i mentioned something very interesting that founders once said that there
#
are a lot of bureaucrats whose kids are in startups or you know and so so they also understand the
#
challenges etc and they understand that something interesting is happening here and sort of startups
#
are to today what narayan murthy and you know like azim premji's you know vikro and infosys work
#
the world so they are supportive there are of course irritants and you know and i mentioned
#
the angel tax is one but on the whole i would say that this is not other than this and certain
#
sectors which are highly regulated like mobility is one fintech is one i don't think there is a lot
#
of regulatory overhang in that sense or at least not negative overhang they've tried to do their
#
best including this gift city that's come up is trying to kind of help us they're encouraging
#
more startups to kind of have an office there so all of that is good so on the whole i would say
#
that thanks to the fact that this is relatively been a success story a lot of it is intangible
#
in digital so it's it's it's hard to kind of as one it's been broadly i would say supportive i
#
mean and i'm probably not the best person to answer on this at least for the sectors that
#
i handle and this one there's very little i have to worry about the government government is trying
#
to reach out i get a lot of mails from invest india and folks like that wanting to kind of
#
engage etc typically handled by a partner of mine like you know colleague so you can get into it but
#
so broadly i would say that the good points and there are some irritants but on the whole i would
#
say broadly good excellent i've taken enough of your time so i'll while and you know we could
#
just continue having this conversation for another hour or two but you know perhaps we'll leave that
#
for a series a episode sometime let's consider this a seed episode yeah a final question you
#
know tell my listeners about what you do you know what you do at bloom what are you interested in
#
what kind of ventures are you looking for uh you know and even you know should they write to you
#
and if so with what kind of ideas so i'd love to hear from your listeners my email id is
#
sp for sajith by sp at blume.vc it's very short you can try to me i'm also you can also dm me on
#
on twitter and linkedin you know so all channels are open so i would say that at bloom and best
#
to kind of preface it what i do at bloom and bloom i'm part of the investment team but i'm also you
#
know involved with certain other functions i think about marketing a lot within bloom i also write
#
a lot so i'm sort of like the content man inside bloom then bloom i invest in a certain set of
#
sectors so i take a certainly one of them agri tech is another and there are a few b2b sectors
#
which i focus on uh you can try to me with any uh any this thing if i'm not the right person i'll
#
forward it internally what uh typically we've seen is ideas uh and there's actually a great
#
farnham street podcast episode which i can share the link with you and i have this saved and i
#
send it on ideas whose execution so ideas actually mean nothing actually so uh we don't fund ideas we
#
fund ideas in action and the reason is that uh it's like it's the actually the part of building
#
that idea getting at least an mvp uh in place at least getting some customer feedback that's
#
the stage at which you know we think we're the right people to talk to if it is just an idea then
#
i think you should just at least build something and i don't think ideas are the stage at which
#
if you write look i'll probably kind of reply to you for sure i try and reply to every meal i get
#
but increasingly uh it'd be great if you reach out to me or or bloom or typically any seed we see
#
when i think you have a minimum viable product when you understand for example let's say uh you
#
there's a problem that i feel referral as a service like you want to hire people but you
#
find that the best thing that works is reference and you want to kind of create a process where
#
i'm hiring this person i want to call someone press three buttons and two referrals will be
#
done and they'll come back to me let's say so you certainly don't want someone coming this is an
#
idea so what like you know you certainly want that person to build a basic product it doesn't have
#
the most detailed product can be embarrassing but at least has interacted with one two customers
#
and one two customers willing to pilot it or something so that's the stage at which i think
#
it's best uh they can write but otherwise you know i'm very happy to answer specific questions
#
sort of people reach out to me with very specific uh you know i have this issue can you help me
#
so sometimes it works uh so that's what i do at bloom a lot of my time is spent writing and
#
thinking and like i said writing is a medium in which i express my thinking and i think i have
#
the most interesting job in the world uh i get every day i wake up and i get mails which are
#
i call them postcards of the future they are visions of possible startup possible worlds
#
and i feel like i'm at this vantage point i look at and see all of these different
#
visions of reality which one will work which one will not i don't know but and uh so sort of uh
#
this uh vantage point into the future is is what makes i think my job so exciting and and so
#
interesting and uh i just wish there were more hours in the day yeah so so there you are thank
#
you so much for red note as a fantastic phrase postcards from the future and i feel like i got
#
a postcard from the future myself during this episode so thanks for your time and insights
#
yeah great i enjoyed the summit thank you so much for having me
#
if you enjoyed listening to this episode head on over to the show notes where i have linked many
#
of sajit's pieces and his website you can follow sajit on twitter at sajit by one word s a j i t h
#
p a i you can follow me at amit varma a m i t v a r m a you can browse past episodes of the scene
#
in the unseen at scene unseen dot i n it is a fantastic investment do it right now spend the
#
rest of the day binging thank you for listening
#
did you enjoy this episode of the scene in the unseen if so would you like to support the
#
production of the show you can go over to scene unseen dot i n slash support and contribute any
#
amount you like to keep this podcast alive and kicking thank you
