Summarizing my exit interview with a venture capital intern 

Two interns finished their learning cycle with Artha this week. One of them wanted to speak to me and get my feedback on his performance during his 4month internshipThe schedule short feedback session went on much longer, and at the end of it, we got into an exciting topic – the importance of forming an opinion.  

I believe our discussion applies to anyone who wants to work in the investment business, especially earlystage venture capital. I am sharing a synopsis of that conversation with the permission of the intern.  

 

Intern: What is one piece of advice for me? 

Me: Form an opinion and be vocal about it. It is acceptable to be wrong, completely wrong, and heinously wrong. However, it is cardinal mistake to have the ability to accumulate and analyze data but lack the courage to form a decisive opinion. The best investors have often sought out views from their peers and from people who could provide them with a fresh perspective. In fact, the investors I emulate often seek out contrarian views to their own to test their hypothesis.  

 

Intern: Why is the trait of forming and communicating our opinions so important? 

believe that investing is the ability to predict future outcomes of current decisions, and an investor’s brilliant foresight finds appreciation only in hindsight. That is why I consider investing more of an art than scienceA room full of experienced appreciators of art would almost inevitably have deep-felt disagreements on the value of Van Gogh. They could all be right or be wrong – we would only find out once the money gets transferred into the sellers account 

 

What should an intern do?  

fondly remember eyeopening realizations I have had during discussions (sometimes heated) with interns, associates, principalspartners, coinvestors, and even entrepreneurs over the last 10 years in venture capital. Initially, it was intimidating for me to showcase my opinions in front of the experienced hands of this game. But I realized that I wasnt learning anything by keeping them to myself. I learned more by expressing my incorrect opinions and recognizing the gaps in my understanding, over keeping my opinion to myself for fear of getting called out.  

A newcomer to the investment industry should seek out experiences where they can form these opinions. Join investment clubs, seek out investors who have strong opinions, even if they are contrarians to their own, but learn how to build and present your investment viewpoint. 

 

Don’t be afraid of being wrong; we learn best through the mistakes we make. Expressing your opinion is a win-win situation. You either get called out and learn where you went wrong, or your opinion contributes valuably to the discussion. Most importantly, you grow with each interaction and learn to receive constructive criticism. 

Be The Best Of Whatever You Are

It is increasingly clear that India will get back to work in the next 2-4 weeks. However, it won’t be business as usual. Some will get back to work earlier than others. Many of us will be out looking for jobs as the companies we worked for will try to rebuild themselves without us. The road to recovery will be long and hard, but each of us will have an important role to play as we help rebuild the economy.

The biggest lesson we’ve learned from this lockdown is that we are more resilient and self-sufficient than we give ourselves credit for. Another big lesson we’ve all learned is that when we are faced with impossible odds, the best response is to act – don’t stop to dwell on spilled milk.

There is a beautiful Douglas Malloch poem that I read in How to Stop Worrying and Start Living written by Dale Carnegie that captures the essence of that I would like to convey to those that are getting ready to get back to work or to look for a job:

 

If you can’t be a pine on the top of the hill,

Be a scrub in the valley — but be

The best little scrub by the side of the rill;

Be a bush if you can’t be a tree.

 

If you can’t be a bush be a bit of the grass,

And some highway happier make;

If you can’t be a muskie then just be a bass —

But the liveliest bass in the lake!

 

We can’t all be captains, we’ve got to be crew,

There’s something for all of us here,

There’s big work to do, and there’s lesser to do,

And the task you must do is the near.

 

If you can’t be a highway then just be a trail,

If you can’t be the sun be a star;

It isn’t by size that you win or you fail —

Be the best of whatever you are!

Family & Friends – Please Save Your Capital!

A couple of months ago, I found my jaw hitting the floor during a start-up pitch. The founder of an early-stage B2C startup revealed that he had previously raised a family and friends’ round of the princely sum of 5+ crores (~$900k). That capital was exhausted in less than 18 months; the monthly burn was over 50L per month with a double-digit staff strength. All this effort was delivered less than 25 lakhs in sales – since inception!
Runaway spending, low traction, running out of cash are situations that I regularly encounter as an early-stage investor. What worried me was the lack of oversight the family and friends had on how the founder invested their capital and their lack of experience steering the founder from avoidable expenses.
For example, precious and expensive capital found itself funneled into:

  • A massive PR & Branding campaign which wasn’t delivery but continued to burn a hole every month
  • Lobbying for international “paid awards” that cost a bomb but did not deliver results.
  • Massive allocation on R&D, but it was a ruse. The money got spent on traveling to different countries to find manufacturers to white label their products to the company
    • I have seen others do it at 1/10th the cost & time

I cannot hold the founding team entirely at fault here too – part of the blame should be on the investor class. They infused excess capital into the business, thereby encouraging the founder to burn the money on things that don’t matter, ultimately setting up things to fail.
My presentation of these entrepreneurial misadventures is not an attempt to rub salt on the wounds of the family and friends’ investors or the founders.
I want to point out something fundamental. Except for unusual situations* family and friends must limit the amount of capital they commit to an entrepreneur. Leave the larger rounds of capital to the professionals. Not only will it save capital for generous family and friends, but it will also save founders from committing hara-kiri with their startup ambitions.
If this were a one-off situation, I would not have written about it, but I am witnessing a marked increase in the number of ventures backed by family and friends and coming to us for a seed round. We like family and friends supported investments because it shows that those closest to the founder also believe in them, but like healthy foods – too much green can be injurious to health.
Most of the time, family and friends judiciously put in a small amount of capital, just enough to get the venture started. However, there were many examples where family & friends have drowned a lean start-up culture with a deluge of capital – killing the enterprise and blowing away the capital.

So, the obvious question that arises is, how much should a family or friend commit to an entrepreneurial family member or friend?
The good news is that a family or friend need not look too far.

The best accelerator programs in the world, i.e., Y-Combinator or TechStars, commit $150,000 (~₹1 crore) for a 7-10% equity stake in pre-seed ventures. Similar programs in India like 100x.vc, Indian Angel Network accelerator, or VentureNursery (in the past) invested between 25-75 lakhs for a similar equity position.
All the branded investors mentioned above have many good and bad investments; therefore, with their experience, they can guide founders on promoting the right and shunning wrong behaviors in their start-ups. So, for inexperienced family and friends’ teams, the correct amount of capital would be between 50% to 75% of what these guys invest, i.e. anything in 40-75 lakh range.
Family and friends can decide where to invest in this range based on the domicile of the venture but ensuring that the founder has 6-9 months to find a professional investor while they continue to grow their start-up. It is the founders’ responsibility to consistently update their investors whether things are going well (or not). Developing this habit is vital but critical in case things are going well, but finding a professional investor is taking time. Family and friends could opt to put in some more capital IF they are comfortable with the start-up’s progress and are objectively taking the additional risk.
However, the family & friends’ capital tap must end at that.
 
* While It is still advisable to leave the more giant cheques to a professional but in certain situations, it makes sense for a more significant allocation from family and friends. These are exceptional situations, not the norm.

  1. If the family and/or friends have in-depth domain knowledge and are objectively backing one of their own
  2. In Meditech or Healthtech like start-ups that require more massive upfront investments and the family and friends’ investors have in-depth domain knowledge

The passionate vs the obstinate founder

Recently, I had a long conversation with someone about the challenges I faced working with an obstinate founder that they referred to me. The person countered that the founder was passionate about their business idea, and I misunderstood their passion. I disagreed with their assessment.

During the week, I have contemplated the difference between obstinate and passionate. I realize that it was difficult to separate the two. Obstinate is often misunderstood to be obsessive; a term often used to describe Mark Zuckerberg, Jeff Bezos, Brian Chesky, Elon Musk or Jack Ma.

I love obsessive founders. I considered myself an obsessive founder. I am probably even more obsessive as an investor. Why VCs love obsessive founders is well explained by Mark Suster in this Medium post titled Why I Look for Obsessive and Competitive Founders. If you are a VC investor, then you should read this post.

Moral: Obsessive is good, but obsessive is not obstinate.

Obstinate is what Oxford defines as stubbornly refusing to change one’s opinion or chosen course of action, despite attempts to persuade one to do so.

Obstinate founders can take a fantastic thing and reduce it to rubble because their need to be right is more important than their need to win. It is the classic winning the battle but losing the war syndrome.

Gordon Tredgold wrote a wonderful article explaining the difference between stubbornness and determination, aptly titled Don’t Confuse Stubbornness with Determination.

In it, he provided a list of signs that can warn a founder whether their stubbornness is becoming an issue.

  • If you never win and you never quit, you’re an idiot
  • Will power vs. Won’t power
  • Remember that your goals must be measurable
  • Think about results
  • Consider adaptability
  • Your goal will remain the same, but your plan for achieving it will be different

His suggestions are absolutely banging on. I encourage you to read the article if you constantly find yourself butting heads with prospective and/or current investors.

Scheduling a Weekly Visit to Menlo Park

I have inculcated a new habit of listening to podcasts during my morning routine replacing my old one of playing loud music to get me charged up for the day.  
Today I heard Robin Sharma’s podcast – The Secret of Massively Creative People and loved his suggestion to create a “Menlo Park” i.e. a place where one can disconnect from the world and give way for the creative side to express itself.  
When I started thinking about it I realised that my best work, especially the things that require me to concentrate viz. investor updates, blog posts, long emails, developing or understanding complex financial models, etc. have all come while I was completely disconnected from the world. I was either on a long flight or holed up in a hotel room.  
This powerful suggestion has me deeply enveloped in thought and I am strongly motivated (and encouraging entrepreneurs) to schedule a visit to Menlo Park every week. 
Would love to hear if anyone has tried doing this and what results they were able to accomplish.  
92/2018

Perfecting the Vacation Auto-Response

I have been finding ways to manage the dual stress of entrepreneur and venture capitalist through 7-day breaks with the simple objective to ensure that

  • I am (almost) completely off my digital devices
  • I have time earmarked every day to read books
  • I am disconnected from work, especially my emails
  • I am pursuing a hobby or spending quality time with family

So, as I write this blog post from the departure lounge at the airport, embarking on my 4th 7-day quarterly break I am excited about the benefits these breaks have provided me. I return from these breaks with my creative batteries recharged, armed fresh perspectives on solving issues within Artha or the portfolio we manage and (most importantly) my energy levels are renewed and restored to 100%.
However, a major stress factor for me before (and after) these breaks is the massive pile-up of emails that I am supposed to go through once I am back. I thought that my auto-response emails that inform the sender that I am out of network and my replies will be limited until I am back would reduce the influx. However, I would also come back to a bigger email problem than I had assumed and I would get hounded by people in the first 2-3 days after I was back in the matrix.
I realised that the issue was that the auto-response implied that as I soon as I was back I would be responding to those that had sent emails in my absence which wasn’t going to be the case. Therefore I needed to try something new. So when I read a post from Brad Feld from 2015 wherein he talked about dealing with the same issue that was plaguing me, I was all ears!
Brad’s post was refreshing because it puts the onus of being on top of my priority list, on the sender of the email, not the receiver. I believe that the approach is brilliant but for someone of Brad’s stature especially as Indians are highly affected by the tone of something more than its intent. I deliberated over this for most of the evening and I decided that I should test whether my fears are grounded in reality. Therefore if you are one of the people that emails me in the next 9 days you will receive an immediate response that will say:

I’m checking out for a vacation until the 24th of September, 2018. I’ll be completely off the grid.

When I return, I’m going to archive my inbox so I’ll never see this email. If you’d like me to read it, please resend it after the 25th of September, 2018.

If you need something urgently, please email sandesha@artha.group and she’ll either help you or get you to the right person at Artha Group to give you a hand.

Cheers!

Anirudh A Damani

I am going to test out the hypothesis that those that really wanted to reach out to me will make the effort to reach out to me on the 25th of September and if their issue requires an urgent resolution the competent hands of Sandesha will be available. In essence, I have made the decision that the renewed energy I bring from the 7-day breaks should be expended on my portfolio companies and my team instead of cleaning up my inbox!

88/2018

When is the Best Time to Reveal that Your Cofounder is Related to You?

It is important that founding teams declare if two of the co-founders are married to each other, blood relatives or cousins. The team can choose to reveal that after the pitch, but I prefer if the team takes the bull by the horns and reveals the full extent of the relationship before they start the pitch. Investors that have apprehensions about investing in founding teams where the members are related, should decide if they will be willing to look over those issues before the pitch, not after.
Unfortunately, many founding teams are advised to withhold such information or to mislead investors by playing around with the last names to avoid detection, but such sneaky tactics only reinforce the fear that the founding team with familial ties drown out the ethical voice that should discourage actions that shake investor confidence.
To allay the fear of those investors that have the first-hand experience of watching their investment value destroyed due to factors like, family feuds, withholding important information or the family member opening a competing venture, founding teams should be as communicative as possible so that these fears aren’t allowed to fester.
The investor may still decide not to invest in the company but at least the founding team does not lose face when investors find out that the founding team used diversionary tactics to slip one by them!
85/2018

Video of the Week: The Undisputed King of Bollywood

I must be honest that I was not a big fan of Akshay Kumar through most of my teens. His movies centred around his martial arts abilities and he had typecast himself into a brand of cinema which I did not identify with. Then something happened 10 years ago that altered the actor’s career and this transformation & success formula should be a case study at the top management & entrepreneurial schools in India as it pole-vaulted him to highest paid Bollywood actor (7th highest in the world).
Akshay has been a vocal critic of movie schedules that can take 300-400 days and he adopted a simple success formula which I found is on the lines of the lean start-up mentality.

  1. Akshay completes his movie schedules in 60 days (Housefull 3 was done in 38 days!) which significantly reduces the carrying cost of the movie i.e. the path to profitability is significantly reduced.
  2. He releases 4 movies a year, therefore, increasing the number of shots he has at delivering a hit. Compare that to the competition that does 1-2 movies a year, therefore, has to maintain a near perfect record.
  3. The more releases per year also means that Akshay gets to read the audiences’ pulse regularly and he can adjust/alter/update his next product iteration thereby catering to his customer’s (read: audience) preferences much faster.
  4. The success of this simple success formula can be gauged by the fact that Akshay has delivered 100+ crores in box office collections every single year since 2007

The inspiration to do this research came from two videos wherein the actor provide an insight into his journey, both are must watch videos!
The first one is in Hindi

The second one in English

84/2018

Why did we Invest in Haazri?

There is a serendipity in deal-making once one summarises the events that lead to its closure. Today, as I announce our investment into Haazri, that is how I feel. My first interaction with Haazri was unbeknownst to me, during the long hours that I spent at Yash’s office ordering numerous cups of the chai that almost immediately gave me a kick. I profusely praised Yash’s peon assuming that it was his magical hands that had prepared the perfect cup of chai every time, when in fact the magic was happening downstairs, at Haazri’s kiosk in the Naman Midtown lobby.
It was at an IIM-Indore event that I realised my praise had been misdirected. Haazri was pitching at this event and had brought in batches of their freshly prepared chai for the investors to enjoy as a part of their presentation. I immediately recognized the flavour and feel of the chai. It was intriguing how the young founding team – Dhruv Agarwal, Karan Shinghal and Arjun Midha had cracked the code of making the exact same awesome cup of tea without having any previous experience in the food industry. To test the product further, I invited them to our office for a follow-on presentation nudging them to bring a batch of their tea. They arrived with a thermos full of the chai that I had grown to love. It tasted the same and gave the same kick which was hard to replicate; I was hooked.
What I found interesting about Haazri’s business model was their approach to standardize and limit each menu item right from the outset. For example, ingredients for the chai are individually weighed at a central warehouse and distributed across their stores, which are then used to make a single batch of fresh chai. Perishable items like milk are procured directly from brand distributors and delivered straight to the store, thereby ensuring that there is no adulteration. A similar practice is also followed for the food items on their menu.
In fact, the founders have gone a step further to train the staff on when to add specific ingredients using a stopwatch. This ensures that there is no alteration in taste and that the final product is identical to the last, every single time.
I have studied and invested in many food plays in the past; my family also owns a couple of restaurants & cafes, but rarely have I ever found the level of preparedness that the Haazri team displayed. In their quest to provide the exact flavour & texture of tea to the nth customer, they have developed robust SOPs which have had an exponential effect, something that they themselves could not have imagined. For example, since each food preparation comes with the raw ingredients weighed and individually packed at the central warehouse, the founding team keeps a tight lid on pilferage. They make sure that the number of packets consumed from the inventory either lead to a sale or have a solid alibi. When there is a discrepancy, the founding team investigates and penalises the store staff responsible, thereby letting them know that they are always watching. This level of granular control is what made me jump out of my chair and pursue them further.
The Haazri team maintains a limited menu of food & beverage items which reduce wastage, inventory, staff requirement & sophistication. Additionally, it reduces the capex investment per store to the sub 5 lakh range (including rental deposits). The low capex, opex and wastage significantly improve their bottom line, allowing them to provide items at a fraction of the cost of Chaipoint or Chaayos but at a slight premium to the roadside food & tea vendors – a premium that people are willing to pay for standardised items with better hygiene. The more we dug into Haazri, the more we realized that this fits perfectly into our fund’s investment strategy. Therefore, we decided to start working with them to gain a better understanding of the team.
First, we asked them to explore a B2B option for small offices that in our opinion run an inefficient pantry and delivered substandard products. With Haazri’s low-cost base and fresh standardized products, they could easily replace the live tea & coffee services, or machines. They made an earnest effort towards this approach and have more than 50 B2B partnerships onboard today. This avenue helps them pay for the stores fixed costs and provides a fixed base revenue each month.
Then I asked all three founders to join me in Kolkata where I had convinced the founders of Wow Momos and Chaibreak (an AIV investee), to share their experiences on finding a niche, building a bootstrapped brand and continuing to innovate & dominate their respective niches. While there is no better teacher than experience, learning from the experiences of others comes in at a close second. I am thoroughly indebted to Sagar Dariynani, Muftir Rahman, Aditya Ladsaria and Anirudh Poddar for taking out the time to guide these young entrepreneurs because these interactions led to a positive change in Haazri’s founders’ attitude towards their business.
Once the boys were back from Kolkata, we were ready to issue Haazri a term sheet. The team decided that the company should raise enough capital to be able to open 20 new stores in the next 12-15 months and produce an MRR of Rs. 2 lakhs from each store, so that they could break even at both a store and central level. The founders immediately subscribed to this advice and were excited about the scale that Haazri could generate. However, the DNA of the company to provide products at a slight premium to the roadside vendor but at a fraction of the cost of competitors was always a priority for us as well as the founders. Our research indicated that people in our target market were increasingly concerned with what they had been consuming and didn’t mind paying a slight premium for the guarantee of a standardised, hygienic product.
The investment committee was happy with the work we had put in so far and suggested that we add a coffee option to go along with the tea so that it catered to the larger palate of the target market. I pursued a vendor from Bangalore to provide the raw material that would allow Haazri to sell filter coffee without having to build the complex infrastructure that is required to deliver the perfect taste of filter coffee. The investment committee was happy with the terms of investment and gave their approval. We were all ready to roll.
After a couple of days, our team noticed that the margins had started to plummet. Since Haazri was on our weekly tracker, we investigated the matter further immediately. This revealed that the founders had expanded their menu options based on customers’ feedback. The number of menu items skyrocketed from under 10 to over 30! Deeper questioning revealed that the founders were trying to increase revenues per store by providing more items. My counter view for them was that: while it is easy to maintain the new menu for 4 stores, it would be a nightmare when they achieve scale, running 25-30 stores. They would either have to raise prices or suffer major losses. So, the founders and I concurred on eliminating the menu items that weren’t selling and introduce new ones.
Their fear that the revenues would drop after this change was quickly dispelled as Haazri’s revenues & margins per store improved within just a couple of weeks. This short experiment convinced the founders even further on the value of staying close to their DNA.
Besides the objective of opening 20 new stores, this round aims to build Haazri’s management team to prepare them for rapid scaling. We are looking for a Marketing Head to build a digital presence for the brand through a quirky marketing campaign and an Operations Head who has the experience of selecting, opening and successfully operating multiple stores. The job descriptions for these positions are almost ready and we will share them soon but if you know someone who could be apt for these roles, please do refer them to us.
In addition, Haazri is on the lookout for store locations within Mumbai’s Metropolitan Region. The ideal location would be in a corporate tower; food court, lobby or next to a cigarette vendor’s store. You can reach out to my team by emailing us on portfolio@artha.vc with leads.
In conclusion, I am excited to add Haazri to the Artha portfolio and see a bright and exciting future for them. Now let’s get back to work!
83/2018

Book Review: The Maruti Story

Being born in the early 1980s, I have been a witness to Maruti’s slow takeover of the automobile market in India. I faintly remember sitting with my cousins in the trunk of our first Maruti-800 that my father & uncle bought together. It had the glass panel lifted so that we could avoid our heads banging into the glass each time the car hit the brakes or a pothole.  

My family had to sell the car due to a serious loss that the family business suffered, but in 1989 we bought a new car that stayed with us for a decade. A cream coloured Maruti-800 with the registration number MKO-1044. I have vivid memories of sitting in the front seat of that car while my uncle would drive me around town. This was also the car I learnt to drive in and the one I had my first driving mishap in. Once, while trying to park the car, I turned too sharply leaving me only cms (notice how I didn’t say inches because I was that close) away from a wall. In an attempt to help me avoid scraping my car, 4 watchmen from my building picked it up with their bare hands and hauled it into my garage. A few years later, that car got stolen, but by that time the family had bought a Maruti Esteem and also gifted me a Maruti 1000 to drive to junior college. We have owned many a car since then but a Maruti continues to hold a special place in our memory, all of which came flooding back when I read about the painstaking efforts and risks that individuals like RC Bhargava took in bringing a true “people’s car” to India through The Maruti Way 
Book summary: 
The book is narrated from the viewpoint of Maruti’s current Chairman, RC Bhargava, someone who has served the company since its incorporation in 1981. He tells the story of how an impossible project, provided with an impossible timeline was completed in a hostile business environment. The book narrates detailed stories on the various issues that Maruti faced e.g. import constraints, labour issues, political pressures, infrastructure constraints, etc. and how it solved these issues by utilising Japanese management techniques coupled with a dose of Indian pragmatism.  
Maruti’s management was treading on a thin line since it was a government sector company. had Despite being denied the freedom that private companies had, Maruti was expected to churn a profit and grow rapidly.  How Maruti achieved this improbable task and became India’s most valuable automobile company kept me hooked throughout.   
What did I love about this book? 
An automobile company has various moving parts (repair shops, suppliers, spare part stockists etc) within and outside the company, therefore there could be various issues that have conflicting motivations when looked at from different vantage points. The solution to those issues could pit two parties against each other unless the issues were fully understood, and all the stakeholders bought in on providing a solution.  
There are many things to learn through the book as Mr Bhargava divides different issues into specific chapters, explains the problems from various vantage points and exhaustively describes how these problems were successfully resolved by Maruti’s management.  
The chapter on “People” boldly stands out from the rest of the book. It is a chapter I can read again and again.  I rate this book alongside Simply Fly & the Virgin Way in my list of best books for an entrepreneur starting the journey in the Indian entrepreneurship space.  
What did I not like about the book? 
The book provides vivid details on how most of the problems were solved but very little depth on their failures. It felt as if I was reading a management book on the best practices to start an automobile company in India.  

Similarly, there were a lot of details about how Maruti 800 was chosen to be the first car to roll off the production line but surprisingly, provided very little information on the automobile launches that bombed e.g. the revamped Maruti800 in the early 2000s, the Omni, Gypsy, and even the first edition of Baleno.
Who is the book for? 
This book is apt for all entrepreneurs & founders. Since Mr Bhargava was a co-founder of Maruti, most of the challenges that he describes are easily relatable to, by founders. It is the way in which he finds creative solutions to resolve these problems and persistently continues to drive growth, that can be a lesson to all. 
79/2018