#DamaniTalks – Episode 1 with Harsh Shah, Co-founder of Fynd

Having Harsh Shah as the first entrepreneur we had on #DamaniTalks, and I couldn’t have asked for a better founder to get us kicked off! Here’s our conversation below. You can catch the interview on IGTV.

 

Summary of topics:

  • Harsh’s history and the Fynd journey
  • Being acquired by Reliance Jio
  • Harsh’s monthly ‘newsletter’ updates
  • Being transparent with investors about failures
  • Different types of investors in Fynd
  • How has COVID affected Fynd
  • Fynd’s business model in a nutshell
  • How has being a part of Jio been different
  • Is it restrictive or empowering to have one investor
  • Tips for entrepreneurs who want to get acquired
  • Harsh’s personal interests
  • Being a founder investing in other founders
  • Recapping a round of funding with investors
  • Going from the idea phase to execution
  • Rapid Fire Round

 

Transcription

Anirudh: Hi everybody, welcome to the first edition of DamaniTalks (every Thursday at 9:00 pm on IG Live). It’s always been my thought that most VC events talk about raising money, but very few people talk about what happens after you raise money. I’ve (thankfully) been a part of the Fynd journey with Harsh for almost 5 years now. Let’s talk about your history and experience for a minute, Harsh.

Harsh: It’s great to be here as well, aD! I did my engineering from IIT Bombay, worked for a couple of years in consulting and then analytics. In college, I was a part of the Entrepreneurship cell, and I had a startup in my final year, but I joined a consulting company. My co-founder and I quit our jobs in July 2012, came back to Bombay and started the Fynd journey. It’s been eight years, and I don’t think the journey is anywhere close to completion. Our focus has always been to work with technology in the retail space. Since then (touch wood), the 3 of us have been lumbering on together. 

 

 

Anirudh: I’m guessing part of having each other shoulders would also be smacking each other’s backs when you got the Reliance acquisition in August 2019.

Harsh: It’s been almost 10 months since the transaction, and initially we thought “that moment” would be when you sign, or when the money is wired to your account. It’s a much longer process that took 5 months to go through the whole transaction, and at the end of that, the main feeling was not happiness, it was relief. 

 

 

Anirudh: One of the things I like about the kind of entrepreneurs you were, was the monthly updates you would voluntarily send us. What inspired that “newsletter?”

Harsh: Firstly, a big thanks to Sakshat, who ingrained this is us. When he asked us for updates, we started with ppts, but quickly figured out that we also need to tell our investors what we required from them. At that point, we had around 20 investors, and since we wanted to give them all an update, the “newsletter” was born. We thought it was essential to get their thoughts and feedback on how we were running Fynd. No matter how many shares you owned in Fynd, you would get our update. 

 

 

Anirudh: You were also very transparent and candid about your failures in the updates. Did you ever feel like this could hurt you, and maybe you shouldn’t? 

Harsh: I always believed that our investors were on our side of the ring. All I thought was, “here’s a bunch of people who are working with us to make the company better.” We were doing this for the first time, and we can always use the help. Hiding failures would be more detrimental to us than just being honest. 

 

 

Anirudh: How has the journey been different from the different sets of investors you’ve had? 

Harsh: The insight of our investors on how to run a company at every stage was brilliant. We had 86 investors, three founders, and some ESOP holders before we got acquired by Reliance. Overall, I would categorize my investors into five categories:

  1. The angel investors and founders knew us personally, so the mindset going into those investments was they thought we could do something interesting and decided to back us. 
  2. The family offices like Artha are patient investors, who just made sure that things were going well. 
  3. Google told us that they thought Fynd’s problem was a tough one and understood that we didn’t scale up in the best way. But they believed in our idea and its long-lasting strategic value. 
  4. Jio has been different from every other investor. Their questions are similar to early-stage investors. They want to know how fast we can grow and scale-up, and only when we scale the idea, x1000 was it worth talking about it to them.

 

 

Anirudh: Let’s talk about current events. There’s an exit in August 2019, 4 months later a pandemic, another 4 months, and we’re in lockdown. What’s been happening at Fynd at that time? 

Harsh: We’ve been continuing with our roadmap, and now we have a partner who can give us access to an extensive use case, especially within retail. Our focus has always been to bring technology to retail, and now we have access to these doors to test out a lot of the ideas we were building. Before Jio, our focus has almost always been towards Fashion & Lifestyle, but we’ve been looking at other categories as well. Our top line and the number of transactions came down by a significant margin because of COVID, but the company and services we built received a massive demand. Many brands have pulled the trigger, saying that they want Fynd’s omnichannel platform to help them power their web stores, marketplace listings, etc. As a team, we’ve been super overworked, COVID has shaken us into accepting this reality immediately. 

 

 

Anirudh: What does Fynd do from a consumer angle as well as a brand angle? 

Harsh: Fynd provides a technology platform for brands to merge their offline and online channels. Our B2C business is most accessible to consumers, which has been used by around 20 million users. Funnily enough, that’s the smallest part of our business. As we started building websites for brands, we realized that many features could be made to be modular. The vision is that brands come to us; we build their store and give them the tools to build an ecommerce store and have it running within 4-5 days. And Fynd manages all the payments and logistics for sellers as well. 

 

 

Anirudh: What’s it like to be part of something as massive as Reliance Jio, and is it everything it’s made out to be?

Harsh: When we were in talks with Jio, everyone told us we would get lost and pushed around by the conglomerate, but kudos to Reliance, we’ve been quite happy. They respected our capabilities in what we’ve done and what we can do. They recognized what we brought to the table and how we built our company and culture. They want us to remain in that high-performing comfort zone, as long as our goals and interests were aligned. We talk to them often, and apart from being an investor, they play a significant role as a client too.

 

 

Anirudh: Now, you’ve gone from managing 86 investors to 1. Does that change the way things are right now – is it constrictive, or is it more creatively empowering? 

Harsh: I’d say it’s more creatively empowering since they’ve given us the independence to do things our way. We have a fairly large playground to experiment in. If an idea doesn’t work, we can go back to the drawing board, but if it works, then we have the resources to scale up massively. 

 

 

Anirudh: I’m glad we finally have someone in India willing to acquire entrepreneurs and let them be. What are some tips for entrepreneurs who want to get acquired by companies like Jio?

Harsh: None of us founders were looking to sell when Jio acquired our investors’ shares (87%). As a founder, if you’re just looking to get sold, that’s probably not the right mindset.

 

 

Anirudh: There’s a common misconception that entrepreneurs should always be thinking about their business. I did some research and learned that you’re an advanced open water diver, an avid reader, you travel, and you’re also into running.

Harsh: Haha, I went diving in the Galapagos in December, and my co-founder, Farouq, introduced me to it. Luckily, my wife and our friends are also into diving. It was magical to be inside the water where you hear nothing but the sound of your bubbles, and you can just forget about everything. 

 

 

Anirudh: That’s true, every time you go underwater, it’s just you, the surroundings and your bubbles and you’re one of the fishes. 

Now, you, too, are a founder investing in other founders. We’re about to close investing in one of the deals you referred to us. What was your inspiration to start investing, and what are some of your investments? 

Harsh: I don’t have any specific sector or typecast founder. It started as payback; I didn’t think about making money or returns. I respected the help I got from Zishan, Gagan Goel, Rohit and Kunal, Ramakant Sharma, etc. At some point, I decided that I’d love to be a part of the journey and put my money where my mouth is. I have about 16 investments right now, which are sourced through our networks of juniors, seniors, etc. in the industry. It’s about backing a founder who has ambition combined with the potential and capability. If you want to pitch to me, you can connect with me at harsh@fynd.com.

 

 

Anirudh: How did you go from building a business plan to getting that show on the road? When do you stop doing the research and start the execution? 

 Harsh: I think you do research continually on the market, but you should mainly focus on the problem and the competition. I think the moment you have identified a problem; then you can build a solution or a product. Don’t try to do anything too fast – take your time to perfect the product. Don’t overthink it; the product will keep changing. 

 

 

Anirudh: There’s a lean startup mentality – you go to market, then you learn and then build further. 

Harsh: You are never going to stop building. There is no version 0.5. Your product keeps changing! So just start making a lot of version 1’s.

 

 

Anirudh: What are 3 pieces of advice that you could think of that were beneficial to you? 

Harsh

  1. Kunal once said, “Know the organization you are trying to build – build it in line with your personality.” You need to think about the kind of organization you want to build at what scale, and how you’re going to develop that.  

 

  1. Vikram, currently the CEO of NSE, told me, “Maintain an organization chart and reassess your team at every stage.” He helped reorganize and gave us a meticulous structure and told us what we need to follow. We experimented with what he said, and his ideas made us a better company.  

 

  1. Sasha said, “It’s okay to pivot away from what you’ve got, even if it’s successful and profitable but not growing.” He shares many stories about different startups he’s worked with. Before we pivoted away from Shopsense, he said don’t give me my money back – come back in 3 months and tell us what you would do instead. 

 

 

Anirudh: What are 2 pieces of advice that you got that you thought was initially brilliant, but have now realized its non-sense?  

 Harsh

  1. Hey, this is happening in China – you guys should do it.  
  2. Just figure out growth, revenue can come later  

 

 

Anirudh: Fynd, at one point, has taken a hit on your evaluation but convinced your investors to recap. Investors gave equity back but were still willing to continue backing your efforts. What was that like? 

Harsh: In conversation with Abhishek – He suggested asking K Capital if they were okay with doing a recap; even Artha did this. We would rather do this than see our money go down the drain. The hit could be less than a write-off. They were never in the dark – the communication lines were always open. We shared a live dashboard with our investors instead of a presentation to see what was going on anytime they wanted.

 

 

Anirudh: Have your work hours changed since Reliance has acquired you? 

Harsh: Not really, but since Reliance works at a different timezone, there are more late-night calls. We’re the early risers who get into office at 8 am and out by 4/4:30. I still work 6 days a week, 7 days mentally, but the advantage now is I’ve got free time in the afternoon to spend time with my wife or nap. 

 

 

Anirudh: What’s a book you are currently reading?  

Harsh: Being a massive history buff, I’m reading ‘A Little History Of the World.’ I would also recommend ‘Range’ by David Epstein, which talks about how generalists can win in a specialized world. I look at myself as a generalist, which helped me figure out whether I’m doing something right or not.  

 

 

Anirudh: Revenue VS Valuation?  

Harsh: Revenue comes first, except when you’re raising funds – then valuation comes first.  

 

 

Anirudh: What was the feeling like when the exit was done? Now the journey at least with these investors is over?  

Harsh: Some Investors wanted to continue, and almost all the investors asked us why we were selling. I think all the investors were making decent returns as investors – the lowest IRR was 30% – Artha made 62%. People wanted to stay invested, but we had to do the right thing for the company – if there was a better option, we would have taken it. It was one of the proudest moments of our lives when we were able to give back positive returns to our investors. The fact that we were able to give back the trust they put in us was very satisfying. When we first got our money – we put the money back in our company to pay salaries, etc. We went for dinner to celebrate, and then we started figuring out how to save on capital gain stats.

 

 

Anirudh: One piece of advice you would like to give to any Entrepreneur?

Harsh: Figure out how to make profits – what are the moving pieces that help you make returns. Figure out the equation and factors that are going to make you profitable. If you have already figured that out – then great, read a book! 

Silver linings: Lighting up a revolution (with a pair of binoculars)

I am continuing on the same thread upon which I wrote last week, i.e., Finding Silver Linings in this lockdown.

Yesterday we completed 40 days of working from home. Amongst several pivotal moments that define the turning points for Artha, sparking off a blogging revolution is definitely the most satisfying one.

For a very long time, I tried to convince my team to start blogging. I tried several approaches, showed them how my own blogs helped me express myself creatively and develop a robust network & following. However, the fear of getting criticized publicly made the team members shy away from expressing themselves – whether I offered them a carrot or the stick in return.

I could have got their blogs ghostwritten, but I wanted our blog to be genuine expressions that resonate. After several frustrating failed attempts, I threw in the towel. I stopped pushing the team to write because even when they wrote blogs due to the fear of disappointing me, they were half baked as the attempt to writing them was.

Then the lockdown took place. With commute times dropping to a few seconds from the hours endured earlier, a few members decided to utilize the extra time to creatively express themselves.

As the editor to our blog pages on Medium, any team member that completed a blog for publishing would assign a task to me. I had to review, make final edits, and approve their blog to publish from our Medium publications. Most of the time, it would be weeks, and even months before I would see assigned tasks in my editorial bucket. But things changed quickly.

Within the first week of working from home, I got notifications that I was assigned 2 blogs for publishing! This is interesting, I thought.

The first blog was published on Artha Venture Fund’s blog page. Farhan wrote a playbook for anyone that wants a VC job, i.e., Breaking into VC.  He frankly shared his personal journey of hounding my inboxes until he got me into meeting him face to face. He impressed me enough with his enthusiasm to secure an internship at Artha. With a foot in the door, Farhan converted the opportunity into a full-time role.  Farhan offered his playbook as a model for others to emulate. His post received a fantastic response with 300+ views in 3 days on our otherwise dormant blog page.

Unbeknownst to me, Deepanshu wrote and published a fantastic blog while sitting on his la-z-boy chair at his home in Delhi. Deepanshu’s take on the new work paradigm aptly called Corona: Ghar se Kaam KaroNa, We did it, did you? got published at the appropriate time and it lit up the Artha India Ventures blog page on the same day that the AVF blog saw a massive spike in its activity.

Farhan & Deepanshu’s unrelated but perfectly timed efforts sparked off a content creation race in Artha. They (thankfully) weren’t shy about the attention that their blogging debuts brought to their LinkedIn inboxes. It made others jealous and smashed the glass ceiling that kept the team from expressing themselves. All of a sudden, every person at Artha was lining up to write whether it was partners, principals, legal associates, junior analysts, even our interns!

There was so much content to review & publish that our internal PR team had to put everyone on a publishing calendar. Every team member got assigned 1 day a week to post their efforts on the company blog. I blocked out an hour a day to review the final drafts before publishing. But when I look at the list of blogs waiting for my review, even a couple of hours a day will not do justice.

In the end, I learned a valuable lesson. The thrill of competition drives a person harder than the fear of retribution. I tried igniting a creative explosion within Artha with the right intentions but the wrong strategy. Eventually, the age-old tactic of replacing my stick with a pair of binocular to keep up with the joneses got me to my long-held goal of creating a thriving blogging culture at Artha. That is a silver lining for me to cherish!

Here is the list of the 25 blogs we have published on our blog pages in the last 33 days

Date Blog Name Author
24-03-2020 Breaking into venture capital: A brief playbook Farhan Merchant
24-03-2020 Corona: Ghar se Kaam KaroNa, We did it, did you? Deepanshu Sidhanti
27-03-2020 From Polo to Venture Capital Dhruv Thadani
31-03-2020 21 Point Action Plan to Corona-Proof Your Startup Dream Anirudh A Damani
01-04-2020 Book Review: ‘Start with Why’ by Simon Sinek Gauri Kuchhal
02-04-2020 Humanity First: Hyderabad Man Distributes Free Food Outside Hospital Sandesha Jaitapkar
04-04-2020 3 Takeaways After Evaluating 200 Startups Farhan Merchant
07-04-2020 Book Review: ‘How to Stop Worrying and Start Living’ by Dale Carnegie Gauri Kuchhal
07-04-2020 Week #14: What are our investee companies doing this week? AIV Team
10-04-2020 Silver lining in the dark cloud — Looking up after 22 days of home arrest Shweta Tripathi
10-04-2020 From selling my startup dreams to buying into the startup dreams of many more like me Deepanshu Sidhanti
13-04-2020 MERC Listens — Part 1: Impact on Industrial & Commercial consumers Animesh Damani
15-04-2020 5 things I have learned after 365 days in Venture Capital Dhruv Thadani
17-04-2020 Gordon Ramsay Would’ve Been a Top Tier VC Farhan Merchant
17-04-2020 Flashback Friday: My first startup investment — United Mobile Apps AIV Team
18-04-2020 Week #16 Investment Update: The coming of age for Farm to Fork startups? AIV Team
20-04-2020 Finding silver linings Anirudh A Damani
21-04-2020 My experience of lockdown & work from home Piyali Das
22-04-2020 Book Review — ‘The 21 irrefutable laws of leadership’ by John Maxwell Gauri Kuchhal
21-04-2020 Drawing parallels. Similarities between parenting and investing in early-stage startups Deepanshu Sidhanti
23-04-2020 Impact of the lockdown on the power sector Animesh Damani
24-04-2020 Work from Home — Boon or Curse? Aakash Javeri
24-04-2020 Flashback Friday: CarveNiche Technologies Anirudh Damani
25-04-2020 Week #17: AIV expands funding to SEA AIV Team
27-04-2020 10 things I learned from my 5-year startup journey — Executive Assistant to COO Sandesha Jaitapkar

Flashback Friday: CarveNiche Technologies

As I approach my personal goal of personally investing in 100 startups within 10 years, it was time to reminisce. Each new investment gave me a new experience, sometimes good, sometimes bad and sometimes ugly. Last week I wrote about my first angel investment, United Mobile Apps. This week is its investment #2!

CarveNiche is an innovative EdTech startup. They developed advanced EdTech products such as beGalileo (India’s largest personalized after school math learning program for K-12 education), Wisdom Leap (free online source for K-12 education), and Concept Tutors (personalized 1:1 tutoring focussed on the international market).

CarveNiche created a niche in the EdTech space. It is the first to develop a product using the latest technology, such as Artificial Intelligence (AI), to teach a subject like Maths. The flagship brand, beGalileo, recently became India’s first after school Math learning program to be available as a Windows App.

At present, they have over 750 women entrepreneurs who are running their centers through CarveNiche. The renewal rates exceed 90 percent, which shows the value they provide to the students and parents.

Founder: Avneet Makkar Total funding raised INR 5.5 crore
2020 status: Operational with HQ in Bengaluru Number of rounds 3
Co-investors: Lead Angels, Mumbai Angels, Calcutta Angels

 

  1. Why did we invest in CarveNiche?

CarveNiche’s initial business model was to deliver a superior classroom experience for the school students by utilizing the latest digital hardware with a customized software platform. The platform provided instructors the ability to track the progress of each student and personalize the student’s teaching plan based on how well the student grasped the subject. The platform also offered a messaging service to connect parents & teachers so that they could track the progress of their students at school & home.

I liked the founders. It was a known fact that Indian schools lacked modern equipment to upgrade the delivery of instruction in the classroom. Looking at the massive size of the market, I decided to invest based on the broad target market, solid team, and their clear understanding of the problem and its solution.

 

  1. What were the risks involved with an investment in CarveNiche?

The risks presented themselves in three ways.

    • Long sales cycles: The company had a tiny window to sell its offering to school administrators, their boards, and their trustees. Next, their team must negotiate contracts, find financing to help the school purchase the required equipment. After that, CarveNiche would implement the solution and train the instructors on how to use their platform. If the company could not complete all these steps before the start of the school (academic) year, the sales decision, the invoicing, and the revenues from it would get postponed to the following year. The company must continue to fund its sales team for long periods before they could see the results of their efforts or get feedback to innovate on the product.
    • Providing subprime debt: Most Indian schools do not have a profitable business model. They must regularly fundraise to meet their budgetary needs. Therefore, most schools could not afford the hardware for CarveNiche’s solution – unless provided with equipment financing.

With most of these schools running operating deficits funded by government grants, donations, and trustees, these schools had an inferior debt profile.

To survive, the company had to come up with an equipment leasing/purchasing plan, and they approached us for that financing. We gave subprime debt to a few schools to evaluate their ability to repay, but most of the schools defaulted on their obligations to CarveNiche and us. That experience burned a severe hole in CarveNiche’s bank account, forcing them to abandon this product offering and the selling to schools’ business model.

 

  1. How long did you plan to invest in CarveNiche?

At the time of the investment, it seemed like CarveNiche would scale quickly and get acquired by a larger player like Educomp. However, our investment coincided with the start of the demise of Educomp, and even though the company raised a couple of follow-on funding rounds, they had to (thankfully) pivot to a B2C business model.

 

  1. Would you invest in a similar startup today?

I learned from CarveNiche’s experience that trying to build a massive business that sells to institutions that possess inherently unprofitable business models is like living in a fool’s paradise. The Modi government invests 4.6% of GDP in education, so I know there is money to be made in EdTech.

However, I find that the B2C plays must spend a lot to acquire a customer, and their LTV / CAC ratios stay <1.

In B2B, I have not found a group of founders that understand the pain that CarveNiche went through and have developed a business model that addresses those issues; therefore, we have cautiously stayed out of this space.

CarveNiche’s new business model providing online tutoring has promised, even if it was a bit niche. However, it has scaled beautifully in the COVID19 era. The company has turned around and raised a new round to aid its growth. Avneet has stayed the course despite several setbacks, so she deserves every bit of the luck that comes her way.

In conclusion, I would not invest in the original CarveNiche business model – but I would invest in Avneet.

 

  1. What are your learnings from the pivots that CarveNiche has made over the years?

CarveNiche was my 2nd angel investment, and it taught me many lessons that continue to guide me today. I’ll share a couple of them:

    • Follow-the-money: It is essential to understand how long it will take a business to convert billed revenue into money in its bank account. If the path to getting the money is long and fuzzy – avoid that business model. As a founder or an investor.
    • Avoid investments in long working capital plays: If it takes a long time to close a sale, then a long time for to invoice for sale, and an even longer wait to get the money from that invoice into your bank account – what is getting utilized to keep the lights on today?

If the answer is venture capital, then I would not invest in that business.

My atrocious car buying experience is a lesson in after sales treatment for all founders!

I am re-reading How to Sell Anything to Anybody by Joe Girard (book review coming soon).
Earlier today, I finished his chapter on Winning After the Close wherein Joe talks about the importance of ensuring customer satisfaction AFTER completing a sale. He gives examples of how he goes out of his way to ensure that his customers sing his praises to their friends and family. He links the importance of satisfying his customer to the Girard’s Law of 250, i.e., each person has a direct connect to 250 people; therefore, an unhappy customer can directly influence 250 people. Consequently a salesperson or a business that disappoints two customers a week will have 26,000 negative influence every year!
Why is it important to follow what Joe Girard says? For starters, the man still holds the Guinness Book of World Records for being the most successful car salesman in history. This man was selling six cars a day (on average) while the average salesman struggled to sell one. He was out making $500,000 a year selling cars in the 1970s, i.e., eight times the per capita income in the US of A – TODAY!
So yes, when that man says something – it is worth our time and attention.
I am coming back to my point for the post today.
I just bought my first car in India. It was an important moment for my team and me. We were ecstatic on getting the car delivered on Tuesday evening. However, instead of reveling that moment and remembering it for the years to come, all we cannot forget is how the salespeople delivered the car with just enough fuel to get the vehicle to the closest petrol pump!
The saleswoman blamed the empty fuel tank on some dealership policy of ensuring that customers get a bone dry fuel tank. I could not disagree more with her firm, her firm’s strategy, and finally with the saleswoman herself. If she was so embarrassed about her firm’s stingy policy, she could have ensured a happy customer by filling up the tank herself – she would make more than the Rs. 2200 it cost me to fill the tank.
Buying a car is one of the most important purchases in one’s life. I can still remember, like yesterday, the first car I bought with the money I earned by working during the first summer semester in college – a 1996 Mercury Sable with a v6 engine. I was so proud of the car even though it was six years old at the time of purchase. The moment gives me goosebumps even today.
Then 17 years later I buy my first car in India, a Honda Civic, and it is an expensive car (for my standards), but it was delivered as though the dealership was running out of money. It left a sour taste and you won’t have to think hard whether this dealership (Arya Honda) will be recommended by me to anyone. The answer is no.
I must re-emphasize that a happy customer is the best salesperson. He/she will boast about his/her positive experiences to their closest network. On the other hand, an unhappy customer will tell anyone that would like to hear him/her of their negative experiences and feeling cheated by a car dealership. Unfortunately, these car dealerships operate under old maxims therefore continue to misread their customers. Any start-up founder that is reading this post should not.
Your customer whether they are B2C, B2B, B2B2C or B2B2B or B2B2B2C (and so on) must be happy with their purchase of your goods or services. To hide behind the veil of corporate policies is the old way of doing business, and you must ensure that your salespeople are sufficiently empowered to ensure post-sales customer satisfaction, at all costs! It is just as important that those negative experiences are corrected by changing policies and processes.
The process in which the company acquires a customer, gives them lousy experience, and allows the salespeople to blame an insane corporate policy is a sure indication of a deeper rot settled in that organisation.
A rot that every entrepreneur should guard their companies against the cost of all their corporate policies.

Would you rather hear me or read me?

Yesterday I was in Lucknow attending SIDBI’s first Investor Day in honor of their foundation’s 29th anniversary. Over 40 fund managers were present, representing thousands of crores in capital available for investment. Considering the dry powder that was going to be available in the room, the SIDBI team sourced 20 start-ups to pitch to the captive audience. The standard of the start-ups, the quality of their pitches, the professionalism and punctuality with which the event was carried out was truly unique. I have congratulated the SIDBI team privately for executing such a well-organized event but would also like to do so once again publicly through my loudspeaker (read: blog).

After the event, a few of us (fund managers) got together to catch up over drinks and hunt for Lucknowi kebabs. Since we rarely get the time or occasion to meet outside events, we took this opportunity to share several things with each other, from the books we were reading to the morning routines we were following. One of the heavily discussed topics was the podcasts that each one of us was listening to. The list includes; Joe Rogan Experience, The Skeptics’ Guide to the Universe, Dan Carlin’s Hardcore History amongst others.

By the time I got back to my room, it was midnight. I had a full stomach and my mind had been stretched in many new directions. All in all, it had been a day well invested!

This morning on my flight back to Mumbai I replayed last night’s conversations about the podcasts that my fellow fund managers were listening to. It got me thinking whether I should move my own blog to a podcast – or have it co-exist with the writing?

There are few (if hardly any) podcasts that capture the perspective of an early stage VC in India. I was wondering if it would be more convenient for the 9,000+ followers of showmedamani.com to hear my podcast instead of reading my blog. The biggest benefit for me (and my team) would be that, it will be easier to project my dry sense of humour (accurately) through voice modulation over prose. So, my question is…

38/2019

My PR Experiment

Yesterday was an interesting day. I started off by tasting different blends of single shot coffee made by a start-up that we have been eyeing for a while now. They have been some gaining significant traction and the tasting culminated in the issuance of a term-sheet. In my next appointment, I visited several branches of a food aggregator that provides home cooked meals in an IoT enabled device. The heavy dose of caffeine from the morning helped me stay awake after an extraordinarily heavy lunch, but I really liked what the company was doing, and so we issued them a term-sheet too. In the last meeting of the day, I was with two entrepreneurs who are looking to fill the niche left open by Bira in the beer industry, and so I ended up tasting their different beers. Their product, taste, packaging and brand positioning are all unique and I’ll be honest, we are contemplating issuing them a term-sheet too. But no, this blog isn’t about tasting and issuing term-sheets, it’s about the commonality I observed in all three funding outlays, which I asked the founders to rectify i.e. instead of outsourcing it to an external agency, build an in-house marketing team to manage social media channels, PR and internal-external communication.

I used to erroneously advocate outsourcing PR and media management, but that viewpoint was permanently altered. I conducted a yearlong experiment in which I discontinued the services of our external PR agency and brought those functions in-house. Not only did I gain more control on what Artha (and I) wanted to communicate, but we also got more media mentions, got covered by the top journalists and were invited to renowned events around the globe. We also started publishing separate monthly and quarterly newsletters for our LPs and well-wishers.  All this effort has paid off through a marked increase in business for all the Artha entities, but most importantly, we achieved all these objective at 60% off our previous costs.

All of our PR (yes, all of it) was organic and genuine i.e. unpaid for. We did not sponsor events, pay for advertising in publications or authored articles. Things are moving so well that this year we are expanding the internal team by bringing in a Social Media Head that can move us from prose to video. Since we understand that the entire process isn’t a one-man job, we are allocating him/her a budget to recruit a team to facilitate this transition.

This massive cost saving got me questioning the PR/Media management agency model and whether it really works for an early-stage startup. I am afraid it does not. It takes many months and a lot of effort to get a brand new startup relevant and unpaid media attention. Unfortunately, early stage start-ups do not have the budget to compensate top-level agencies for their effort or even tier 2 or tier 3 players (unless they can secure a strong referral). Therefore, start-ups end up working with PR firms that themselves are starting up.  These PR firms overload their staff with multiple projects, to make ends meet, distributing the employee cost over the projects to make operations profitable. However, that divided cost also means divided time and focus on each project – a situation that does not bode well for start-ups trying to make a dollar for every penny invested in marketing. In fact, I have seen PR agents pitch 4-5 ideas to the same journalist in a single bid hoping to get any of them published. Is that really how you want your start-up to be pitched?

Another issue that works against the interest of the start-up is when a PR agency works hard to meet the KPIs they have promised and manages to do so in the first 15 days of the month. Having met their KPIs, they go radio silent for the rest of the month. This essentially means that their promised KPIs are the limit and not the base on which the agency works – completely opposite to how founders set KPIs for their internal team. After all, you can only create value for your company when you get more value than you pay for, isn’t it?

Therefore, I have come to a conclusion that PR agencies are useful for short sprints or Big Bang announcements, but the marathon work of building an image and brand for your startup should be done by an in-house team. In fact, even the 22 Immutable Laws of Marketing recommends the same!

37/2019

Video Of The Week: Vishal Krishna Interviews Confirmtkt Founders

A few days ago, I saw a Facebook live interview of Confirmtkt’s founders, Dinesh & Sripad. Early on, I had led a round of investment into Confirmtkt and also sat on their board for a few years along with Pravin Agarwalla.

Back then, we both went through a very tough phase with the founders (and the venture), which the founders recount as something that gave them “sleepless nights” in this interview. While I quit the board last year, my eyes were full while watching the two of them. I’d credit the interviewer, Vishal Krishna for bringing out this story so well.

Vishal’s interviewing style is awesome. He is extremely well read and well-prepared with questions for the people whose venture he is interviewing. This thorough preparation helps him delve into the deeper delicate, intricate details with the interviewee that would otherwise have been missed out. I can vouch for this because he has interviewed me before and dug out some details that even I had long forgotten.

The video focuses on Dinesh and Sripad’s journey of becoming responsible and established leaders who grew Confirmtkt into a category leader and a sustainable enterprise. This is what makes it my video of the week as well as the inspiration for my blog post tomorrow.

24/2019

Aakash, Artha and Designer-as-a-Service

YourStory did a profile on one of Artha’s in-house companies Artha Creative Studio, led by Aakash Jethwani. He is a thought leader in the design thinking space and his thoughts were covered today in this ADC article.

I have known Aakash for almost 5 years since he first sent me a funding proposal for his EdTech start-up that taught ethical hacking to coders. I asked him to provide a hacker’s analysis  for one of the start-ups I was leading a round of investment in. His report was so thorough (and shocking) that I recruited him as the CTO for the company he had analysed!

As the CTO, he taught himself web design and built a fantastic website at only a fraction of the market cost. During the process, he experienced the limitations of an in-house designer first hand and saw a niche in creating innovative web and app designs for start-ups. He reached out to me saying that his work with our investee company was done and that he was ready for a bigger challenge.

Around the same time, I noticed that although many of our investee companies had in-house staff to help them with designs, most of them were mediocre. This did not make any sense and I learnt that:

  1. Start-ups cannot afford experienced designers as they are very expensive
  2. In-house designers that start-ups can afford are juniors with little experience, who need access to several tools to produce unique & innovative designs. Those tools could cost as much as ₹25-40,000 per month – as much or higher than an experienced designer’s salary!
  3. The in-house designer’s design suggestions are overridden by the tech heads because they lead to extra development work. Therefore, designers are instructed to build designs that cater to the needs of the tech team rather than the company’s target customer.  When this design fails, as it should, who gets blamed for it? You guessed right – the designer!
  4. Designers suffer from tunnel vision as they are only working on a single project within limited boundaries drawn by the tech team. Over a period, their enthusiasm dies down or they leave for greener pastures. The new designer that comes, brings in new energy but that dies again soon.

When Aakash proposed creating a design studio where he would…

  • create innovative web/app designs for start-ups
  • work with the tech development team to implement the design
  • monitor the audience’s interaction and make incremental changes

 it was music to my ears.

I asked him to test this thesis by working on in-house projects first. He provided the designs for:

Next, I introduced him to my close network who raved about the design as well as the results they received from his work.

I could see that he was onto something big so after all the tests we decided to induct him as the CEO of an Artha brand. Aakash has been baked over hot coals to get this job but I am happy to have him on board.

If you are looking for an innovative design for your company, I would strongly recommend that you reach out to aakash@artha.studio.  

11/2019

Modern retail will choke the life out of (young) consumer brands

A speaker at a recent closed-door conference that I attended, made a presentation on the different kinds of business models and what makes them successful. One very important observation that he pointed out, and that stuck with me was:  

If the key to the success of a restaurant start-up is location, location, location,
Then the key to the success of a consumer goods start-up is distribution, distribution, distribution.”  

Expressing my investment focus on consumer brands in a blog post earlier this year and in the interview with Sudhir Chowdhary of Financial Express, propelled some excellent deals into our pipeline, many of which are in the advanced stages of evaluation. Most of the start-ups that came to us however, were utilising modern retail as a part of their distribution strategy, an expensive approach, that I have some serious doubts about.  

Most modern retailers take 30-35% of the sales price of product as their “cut”. For 90% of start-ups, this massive pay-out is equivalent to the cost price of the product. Over and above this cut, start-ups must shell out money for ATL/BTL marketing, PR, etc which makes the total marketing cost well over 50% of the sales price.  

Although such a large pay-out of the sales price is required at early stages, marketing costs are meant to reduce over time and become a smaller percentage of revenues with scale. Retailers however, continue to ask for a standard 30-35%, causing a massive drag on financials.  

Furthermore, most modern retail stores have terrible payment terms (barring a few) and withhold payments for 45-60 days causing expensive start-up capital to be stuck in working capital. Most retailers also have clauses that force their vendors to take back items that have not been sold and are approaching their expiry date, which could be a function of the store not performing well due to certain issues that the vendor has no control over.  

For the expensive money paid out to modern retailers, they provide very little data on the consumers that are buying a start-ups’ wares, making it difficult for start-ups to get accurate customer insights and improve their offerings or develop new lines of products.  

I have been heavily influenced by a case study that I did in college on how Walmart destroyed Vlasic pickles in the early 2000s by becoming its biggest customer and the reason for the drop in its margins. Vlasic eventually filed for bankruptcy protection.   

In my opinion, selling directly via an online e-commerce platform or through their own website is the way to go. Although this may lead to copious amounts of money spent on marketing and logistics, it pales in comparison to the amount start-ups shell out to modern retail chains. Additionally, direct selling gives the start-up access to direct customer feedback (which is invaluable) which will significantly improve the product & research team’s understanding of the target audience and allow customer service to quickly respond to consumer grievances, suggestions and behavioural changes. Another upside is that the products can be shipped nationwide beyond the geographical boundaries of modern retail stores. This is something that has the necessary “escape velocity” to quickly scale revenues – I cannot impress enough upon the importance of this feature for the investment attractiveness of a venture.  

The point that drives the proverbial final nail in my argument to avoid a massive reliance on modern retail is the emergence of several private label brands. Many retailers (Amazon included) use the sales data of top performing categories and brands and start looking for options to private label them. This means that not only is a new brand paying these modern retail stores 30-35% of their revenues, but they are also acting as the guinea pig to augment the retailer’s private label portfolio and increase its profitability.  

Therefore, I strongly advocate that founders should avoid the modern retail route until they have reached a commanding size or just avoid them (if they can) altogether.  

99/2018

All that Glitter is NOT for a Startup Founder

I find it extremely hard to empathise with founders who want to “maintain” a certain lifestyle with a large team and a swanky office to “feel” like an entrepreneur. Founding a start-up is a messy and dirty affair and there is no amount of sugar coating that can change that fact.
Founders who find motivation in the fluff of being an entrepreneur; a fancy office, a ton of employees and a flashy lifestyle have got it all wrong. Very few businesses start out that way and in fact very few ever reach that size. For every OYO out there, there are millions of no-name companies that are providing a respectable living to the business owner but aren’t making the 30 under 30 Forbes Asia list. In fact, the concept of OYO came to Ritesh because his business (Oravel) could only afford to put him up in shoddy two-star hotels. Today, he heads the world’s largest chain of single brand hotels. Similarly, the founding team of Wow Momos started out by selling momos at a roadside stall. Even I started my career living at $20/night hotels and knocking on people’s doors. And trust me, it wasn’t glamorous at all.
Therefore, individuals that are willing to put their salary as the last pay-out i.e. paying themselves after the salaries of their entire staff; those willing to reduce their lifestyle choices to adopt the ones their businesses can afford; and those who will make a Re 1 business expenditure work like a Rs 5 one, are the ones who should take the plunge into entrepreneurship.  The rest can wait!
95/2018