0:05

Today's guest is the first of

0:07

his type on first principles. he's

0:09

a venture capitalist sorry he was

0:11

a venture capitalist. While the I

0:13

do what sorts of founders or

0:15

leaders would make for great guess

0:17

has been involved and since August

0:19

Twenty twenty two when we first

0:21

started I was clear about one

0:23

thing they would not be venture

0:25

capitalists. Why? Because I wanted to

0:27

bring founders and leaders who had

0:29

Skyn in the game will all

0:31

in on their beliefs, who are

0:33

committed to building products. Teams brands

0:35

an organization's against all the

0:38

odds against the odds of

0:40

fi you. Know. With

0:42

all due respect venture capitalists,

0:44

the facilitators Or in Nablus

0:46

not Builders on Doors. So.

0:49

When I reconnected with a look middle

0:52

the Go founder and Chairman of Small

0:54

Business Lending Platform in defeat. I.

0:56

Was really interesting. Because. Alu,

0:58

who have known for nearly a

1:00

decade know is a rare entrepreneur

1:02

who's also a former venture capitalist.

1:05

He. Set up going on partners in India

1:07

and run it for nearly a decade

1:09

before starting in defeat. his second started.

1:12

Back. In Ninety Ninety Four. Fresh out of

1:14

Id Delhi where he was a gold medalist,

1:17

Arlo was struck by the idea of being

1:19

your own boss and the lifestyle that came

1:21

with it. So. Much so he

1:23

was sure early on and his time in

1:25

I do daily that he wanted to be

1:27

a start up Fonda. He

1:30

explained how he jumped into his

1:32

first started zip ahead which later

1:34

became Jobs Ahead early on in

1:36

life, fueled by the promise of

1:38

the found a lifestyle. Jobs.

1:40

That was an interesting story. There's a

1:42

friend of mine who needs a bulldozer

1:44

and glad you're together and. I.

1:48

Decided. I think I'm halfway through

1:50

my duty. As to that, I

1:52

wanted to be an entrepreneur. i

1:55

remember what the trigger on not your inspiration

1:57

went on a very clearly so i'd i'd

1:59

I turned at a company called

2:01

CMR Design Automation in Greater Kailash.

2:05

And there was another IT alumna, Shandarai, recently

2:07

reconnected with him. So

2:10

he was running his own company in his basement, top

2:14

quality work. And I

2:16

loved the lifestyle. He could walk down and work

2:19

in the basement when he wanted, and he could walk up for lunch. So I

2:21

said, this is what I want to be. So

2:23

it was a very, very 19-year-old view

2:26

to what you want to be. But

2:29

that stuck. And in 1997-98, I

2:32

was beginning to get anxious about what I need to do

2:34

this now. And

2:39

I was in Bangalore. I was living

2:41

in Bangalore at that point. And

2:43

Puneet happened to come there, and he said, hey,

2:45

I'm looking at starting an internet

2:47

business, and we should chat. And

2:52

literally, he came over to my house in

2:54

the evening. We sat through the night, and

2:56

somewhere during the course of that night, we said, yes, we're

2:58

going to do this. Interestingly

3:01

enough, we didn't have the idea kind of baked in at that

3:03

time. We just said, we're going to do a startup in the

3:05

internet space. I came back to Delhi then. And

3:08

then we kind of first put our

3:10

head to what the idea should be. We

3:14

launched a business called Zipperhead in

3:17

November of 1999. Those

3:19

are also in the careers space. So that

3:21

had four services for all Indians. All Indians

3:24

were all a million Indians

3:26

at that time. And that

3:28

had four channels, careers, fashion,

3:31

e-commerce, selling books, and

3:33

dating. So we said we're covering all

3:35

the names of all Indians. And

3:37

then as soon as we launched within literally the next 15

3:39

days, the users told

3:42

us that they were only interested in careers. So

3:44

85% of our traffic was going to the careers page.

3:47

So then over subsequently over the next couple of

3:49

months, we just pulled out the careers piece, branded

3:52

the jobs in, and focused all

3:54

our resources on that. So

3:56

that was in some sense in the idea

3:58

emerged as the execution. out it. The

4:01

idea emerged as we executed. This is a

4:04

great takeaway for all the soon to be

4:06

founders out there who are waiting for that

4:08

one great idea. And it must be said,

4:11

when you're young and hungry and want to

4:13

be your own boss, allow

4:15

yourself to take that shot. There

4:18

was a lot more ground that Alok and

4:20

I covered over our conversation at a studio

4:22

in Gurgaon where we recorded this episode. Another

4:25

thing he told me and that stuck

4:27

with me was how he saw failure

4:29

and learnings. I'll not reveal what he

4:32

said just now, but you will surely

4:34

find it interesting as you go through

4:36

my conversation with guest number 39,

4:39

Alok Mehta. Welcome to First Principles.

4:41

I'm your host, Rohan Dhamma Kaur. Let's

4:44

get started.

5:15

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stage investing is a risky business. If

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you are not making the wrong calls,

7:00

you are not taking risks perhaps. Alok,

7:03

this is something that you said around

7:05

the risks and the bets that a

7:07

venture capitalist must make. And

7:09

of course you've been a venture capitalist for a

7:11

significant amount of time in your career. Around

7:14

the time that you started Indify, what do you

7:17

think were the risks? In

7:20

the Indify business. Yeah, I mean

7:22

you starting a new startup, what

7:25

were the risks? So

7:28

I think the

7:32

disruption in the market space, which is

7:34

what was causing the opportunity but also

7:36

represented some of the risks, were

7:39

around digitization of

7:41

small businesses. Remember this is

7:44

pre-UPI days. Yeah,

7:47

you started in 2015. 15 years. So

7:51

I think pretty much

7:53

the only segment of small

7:56

businesses that were reasonably digitized at

7:58

that point. were

8:00

sellers on e-commerce platforms, probably

8:04

just that. And

8:06

hence, it was

8:09

unclear how fast small businesses will

8:11

digitize and

8:13

how fast the rest of the lending ecosystem

8:15

will digitize. Now

8:17

clearly we've come a long way since then, right?

8:21

I think demonetization was

8:23

the first lever

8:25

for digitization as much as

8:28

it was disruptive to small businesses from a cashflow

8:30

standpoint, but it did

8:32

ensure that every small business had

8:34

an electronic payment acceptance. The precursor to

8:37

that would have been also the GST

8:39

introduction, right? GST kind of kicked in

8:41

later. So demon was

8:43

December 2016. The

8:46

GST wave came in more like 2018. And

8:50

that clearly has been again, a

8:52

big driver to formalization. The

8:56

balance between the cash business for a

8:58

small entrepreneur

9:00

versus what flows through

9:02

their balance sheet has

9:05

changed significantly. COVID,

9:10

the overall rise of internet

9:12

as it relates to small businesses. And

9:15

one of the key insights that we built

9:18

Indifi around initially was this.

9:20

Indifi, I pronounce it as Indifi,

9:22

my bad. One

9:25

key insight was that

9:28

most of the internet platforms,

9:30

even in 2014, 15,

9:34

while they looked like consumer businesses, they had

9:36

small businesses on their supply side. So

9:40

whether it was a Make

9:42

My Trip, which was selling hotels, whether

9:45

it was an Amazon or Flipkart, of course, which

9:47

had small business sellers, whether

9:50

it was India Mart, which was

9:52

a B2B listings marketplace. And

9:56

we thought that all these businesses are trying

9:59

to provide a market. marketing channel to SMEs,

10:02

what about layering credit on top of that? So

10:06

that thesis has over time

10:08

played out and that

10:10

has both led to digitization but also allowed

10:12

us to build a business leveraging

10:14

that digitization. But sitting back in 2015, all of

10:17

those are risks. So

10:20

was that like what you saw as

10:22

like a secular inevitability that an economy

10:24

the size of India and the kind

10:26

of internet business that are getting built,

10:28

it was only inevitable that this would

10:30

get digitized? Yes, yes. So, you know,

10:33

you could argue that maybe the only

10:35

risk is the timing risk. But

10:40

certainly, I think in

10:42

the last eight, nine years that we've been around, the

10:47

digitization has been faster than what we would have

10:49

imagined in 2015. So

10:53

today, you know, I would argue that at least 20, 25

10:55

million of Indian businesses are

10:58

reasonably well digitized where their businesses

11:00

would lend themselves to digital finance.

11:03

Why is digitization so important

11:05

for lending? So if

11:07

you look at the whole notion of

11:09

digital lending and one,

11:13

you know, it is interesting because it's a fad. But

11:16

I think from a core business standpoint, it's really

11:18

interesting for maybe three

11:20

different reasons. Right. And

11:23

I'll take a pure

11:25

banya view of this, right? Start from the P&L.

11:29

You know, one increasing

11:32

digitization should allow you more efficient

11:34

access to customers. So

11:36

just your tax should come down. And

11:40

the more you can access by that, you mean for

11:43

a lender, for being able to find SMEs,

11:45

the cost of acquisition comes down. Yeah.

11:48

Yeah. Right. So

11:50

the same method of branch based origination is

11:52

essentially knocking on doors physically and

11:55

then generating demand through that. businesses

12:01

through their natural business channels. You

12:04

have context, you have information on

12:06

when to approach whom digital marketing,

12:08

inherently the lower cost marketing channel

12:11

than people walking on the streets. Second,

12:15

your quality of underwriting

12:18

through availability of digital data should go

12:20

up both

12:23

in terms of the standard of underwriting, but also in standardization

12:27

of underwriting, right? So

12:30

one of our beliefs, and we are seeing more and more

12:32

of that than out now, is

12:35

that you explain underwriting. It's

12:37

the risk of, so underwriting

12:40

essentially selecting your customers, right?

12:43

If a hundred people walk through the door, who

12:46

amongst those are you going to give credit

12:48

to versus who you're not? And

12:52

in some sense it's equivalent of

12:54

what credit, assessing credit, yeah, yeah,

12:56

yeah. And the trick

12:58

is that, you know,

13:01

out of hundred that you give out credit to, just

13:04

normatively speaking, 95 of those should

13:07

return you money. Maybe it's 97, maybe

13:09

it's 93, but if the

13:11

number of people who are returning back your money goes below

13:13

90, then by and large you don't have a business, right?

13:16

So the ability to discriminate

13:18

credit at that level is

13:21

something that has been done for decades using

13:24

human beings. But

13:26

it's very hard to standardize that. So,

13:28

you know, large NBSC's in India would

13:30

have different standard of underwriting in

13:33

branches five kilometers away. And

13:37

in some sense those companies take pride in

13:39

that because, you know, at some

13:41

level they are localizing their risk assessment.

13:45

We think that as a business scales up, that

13:47

becomes a disadvantage because then the control on what

13:49

kind of risk as a company

13:52

you are undertaking goes

13:54

away. And

13:56

hence if you're underwriting basis data driven models, if

13:59

your fraud assess. is technology driven,

14:02

then you have a solid foundation on which you can start

14:04

to build the business. The

14:08

third piece is the operational cost, right?

14:11

And through the

14:13

use of digital technologies, you can improve

14:16

the self-serve behavior of customers, thereby bring

14:18

down the operational cost, right?

14:20

So if I start to look at the profit

14:22

and loss stack for a lending company,

14:26

these three are three significant costs

14:28

in doing the business. They

14:31

are three significant hurdles in

14:33

scalability of the business. So that

14:35

is really the founding hypothesis of

14:37

NDFE on saying, you

14:40

know, if you can use

14:42

data and technology, which

14:45

we kind of compose into

14:47

saying if you can use digitization to

14:49

lend, then these benefits can

14:51

accrue to the business and in turn to the

14:53

customers, right? So today 85% of Indian MSM don't

14:56

have access to financing because as an industry,

14:59

we haven't solved for these three elements. For

15:01

now. While you were

15:04

speaking, I couldn't but help notice

15:06

the contrast in Alok Mittal as

15:09

a VC and Alok Mittal as

15:11

an entrepreneur now, which

15:13

is as a VC, you're essentially trying to

15:15

figure out, I mean, both

15:17

as a VC and as a lender, you're trying to figure

15:19

out how to deploy capital in some ways. But

15:21

as a VC, you're not looking

15:24

for credit worthiness. You're not looking at

15:26

how many people will be

15:28

able to return the money, right? You're

15:30

essentially looking for those multi-baggers where you're

15:32

accounting for a certain amount of failure

15:35

and saying it's all right if there's a

15:37

high failure rate, just as long as some

15:39

of them are multi-baggers and they will return.

15:41

And it's almost like a contrast with

15:44

what you're doing with lending, which is you're

15:46

saying, look, I don't want multi-baggers. I

15:48

want most of them to return

15:50

my money safely. Therefore, I'm looking

15:52

at credit worthiness. That's exactly true.

15:56

In the lending business, your income

15:58

is... your

16:01

losses are uncapped. In

16:03

the venture business your losses are capped 1x

16:06

of capital but your

16:09

upside can be several times the

16:12

capital deployed. So the ratio

16:14

between the positive side upside and the

16:16

downside is completely inverted between

16:20

venture investment business and a lending business. So

16:23

fascinating right like you know that mirror inversion

16:25

that you've done. How

16:30

would you describe Indifi in

16:32

a line or two? So I

16:34

think our core mission is to be able

16:37

to solve for this under penetration

16:39

of credit among small businesses. The

16:43

core lever that we are deploying or leveraging

16:46

is a digitization. But

16:49

end of the day we are a lending business and

16:52

to that extent you know the

16:54

kind of trade-offs that we just

16:57

talked about are the

16:59

heart of the business risk management is the heart

17:01

of the business. So when you say you're a

17:03

lending business you're a lending platform. What

17:05

does that mean? So we

17:07

call ourselves a lending platform because

17:09

on the supply of

17:11

capital side we don't deploy all

17:13

of our capital. So traditionally

17:15

banks and nbscs have deployed all of their

17:18

capital. Their capital being itself a mix of

17:20

equity and debt. Our

17:24

view is that our balance sheet is not the

17:26

most efficient balance sheet out there. My

17:30

cost of borrowing today would be more than

17:32

twice of the cost of funds

17:34

of large banks and to

17:36

that extent what we do is we

17:39

also allow other banks and nbscs to

17:41

participate through our technology platform and

17:44

lend to businesses that we are originating. So today

17:47

as we speak about 60% of our business

17:49

happens on our balance sheet. However

17:51

40% of our business is through

17:53

such partnerships where we are not participating in the loan

17:55

but we are enabling the loan and we are managing

17:58

the loan. Bringing the advantage is of

18:00

credit underwriting, operating cost, origination

18:03

to other lenders. Is that,

18:05

I mean, to a layperson, it looks like

18:07

doesn't that create internal conflict if by your

18:10

own admission, if you said that your cost

18:12

of capital is higher versus a much larger

18:14

bank that comes and deploys, isn't

18:17

there a risk that they're able to lend

18:19

at a much more competitive rate and thus crowd

18:22

you out from your own platform? Yeah.

18:24

So the reason why their cost of

18:26

capital is lower and the reason why

18:28

85% of the market is unserved is

18:31

because their risk criteria are also much tighter.

18:34

So in the example I gave earlier, they

18:36

would not even tolerate 95% people paying that they

18:38

want 99% of the people to be paid back.

18:42

And sure, when we originate, we have a mix

18:44

of people of which some

18:46

we expect 90% to pay back

18:50

and those people expect to get a 15%, 14%

18:52

cost of funds, we would send them to large

18:56

lenders and

18:58

then we would capture the value that is

19:00

represented by our platform in terms of credit

19:03

losses and operating costs. And

19:05

then there are people where we expect 92% people

19:07

to pay back, 8% not to pay back and

19:10

large banks don't want that demand. So

19:12

that is what we would serve using our own balance

19:15

sheet. So it's a risky set of customers, but with

19:17

a higher potential return. I think

19:19

there are two things here. So one, as

19:21

perceived by the market today, they

19:24

are a riskier set of customers. I

19:29

think a core motivation for starting in the fee also came

19:31

from my own experience as an

19:34

entrepreneur. I failed to accept

19:36

that 85% of Indian entrepreneurs

19:40

are non-credit worthy. So

19:42

we think that there is a credit discrimination problem here,

19:44

which is how do we separate the

19:47

good borrowers from the bad. See ultimately, even at

19:49

a 90% payback rate,

19:53

it's only 10 people who are defaulting, 90% are

19:55

still paying back. But

19:58

those 90% don't get... because

20:01

we can't differentiate at the point

20:03

of giving them a loan as

20:05

to who are the 90 or the 10. Now,

20:08

if you can discriminate better and

20:10

we can tell these people apart, then all

20:12

those 90 people are banklentable. So

20:17

the discrimination in current credit risk

20:19

models is what is preventing these

20:22

90 people from getting credit. Now

20:25

what our core expertise

20:27

is and what

20:29

will make us win is

20:31

the ability to say, okay, I'm able to exclude

20:34

20% of

20:37

the population, which captures eight

20:39

people who are risky. So

20:41

now I'm left with 80, Office 78

20:43

are good and two are bad. And

20:47

if you can do that, then that's the arbitrage

20:50

in the market because the bank still believes

20:52

that it's 90 and 10 are

20:55

credit models allow us to take a bet

20:57

that 78 and two. So

21:00

you said your credit models, I mean,

21:02

I'm assuming that your ability to remain

21:04

competitive and ahead of others rests a

21:06

lot on your proprietary credit models. That's

21:11

correct. How were they built and how do they continue

21:13

to be better than others? Because

21:16

assuming it's the overall lucrative market,

21:19

I'm fairly certain others will be trying to

21:21

enter and do what you are doing and

21:23

try to come up with a better credit

21:25

model, so to speak, or a larger

21:28

balance sheet, so to speak. So

21:30

why are your credit models better than others

21:33

and why will they continue to be better

21:35

than others? So

21:39

you know, I

21:41

fundamentally believe that

21:43

competitive differentiation, sustained

21:45

competitive differentiation does

21:47

not come from

21:49

technology, right?

21:51

It comes from business strategy. So

21:55

for example, for lenders, whether banks

21:57

or NBSCs who have extensive branch-based

21:59

infrastructure, Investing

22:01

in digital credit models has a limited

22:03

advantage. They've

22:06

been doing things a certain way. They already

22:08

have people on the ground, the credit officer

22:10

and go and meet every business. Since

22:15

we are remote and that is part

22:17

of the strategic bet that we have taken, it forces

22:20

us to invest in credit models and find

22:22

the better credit models over time. So

22:27

my desire to build a better

22:29

credit model doesn't

22:32

stand as a

22:34

strategic choice in isolation. It

22:37

stands with my belief that this will be a

22:39

remote business. Five years from

22:41

now, all micro-SME lending should be

22:43

digital. If

22:47

I buy that, then I'm investing more here.

22:49

I'm making that choice. The

22:52

reason the large bank won't do it or is not doing

22:54

it is not because they don't have the ability, but just that

22:56

is not a choice that they are willing to make, given

22:58

that they've got 10,000

23:00

branches, given

23:02

that they have lower cost of capital. So they don't usually

23:04

need to solve this problem. There's

23:07

enough of the 98-2 mix, which is

23:09

landing up at their doors, and

23:11

that is affording them 30-40% growth a year. They

23:14

don't need to solve this problem. So

23:17

in some sense, we are surrounding ourselves with the business

23:19

model, which is consistent across

23:23

digitization, across solving for the credit

23:25

model, across lowering operating costs. In

23:28

some sense, all of that is coming out of the fact that

23:30

the cost of funds in the

23:32

foreseeable future will never be lower than theirs. All

23:36

right. Would it be fair

23:39

to say that the way Intifi makes

23:41

money is through the difference between what

23:43

it borrows versus what

23:45

it lends, plus charging

23:47

your other lenders a

23:49

fee for using your platform? Yes.

23:52

So those are two separate streams. When we lend using our

23:54

own balance sheet, we make money

23:56

from the difference between what we borrow versus what

23:59

we lend. And then when other

24:01

lenders are coming and using a platform, they pay us

24:03

a fee for using the platform. How

24:07

many could you give us a sense of how much

24:09

of loans or how many loans has Indifield disbursed today?

24:12

Yeah, so we would have disbursed just in excess of 100,000

24:14

loans, about 50,000 active customers. Some

24:18

of those would be repeat

24:21

customers. In

24:23

terms of dollar value, 6,000, 7,000 crores. What's

24:27

a typical, I mean, I know it must be

24:29

a large range, but what's an average or a

24:31

typical size of a loan? So our average loan

24:33

is a 7,000,000 loan for a 26 month duration.

24:39

Alright, I have a quick couple of questions on

24:41

Indifield before I move on. You

24:44

started in 2015. How many employees are there today? We

24:47

are about 900 people. As

24:50

I mentioned earlier, we are largely remote

24:52

operations. So we have one

24:55

office in Gurgaon and that's it. We

24:59

have a collection infrastructure, which is all across

25:01

the country. So there'll be

25:03

about 50 people who are on the field collecting, but

25:06

850 people are in one location. So

25:10

they work out of an office or like, I mean,

25:12

when you say remote, you mean... Remote

25:14

relative to the branch based model. I mean,

25:16

for a minute I wanted to ask you,

25:18

is it true remote that these 850 people

25:20

are just working out of their homes? No,

25:22

no, no, no. They work out of office.

25:25

They are remote relative to the branch based

25:27

infrastructure that they are lending in Gurgaon. You've

25:29

raised venture capital as well. How much

25:31

of venture capital have you raised? We've

25:33

raised five rounds of capital so far,

25:35

totaling about $90 million. And

25:39

one of the questions I asked, this is the first

25:41

time I'm having a venture capitalist turn entrepreneur on my

25:43

show. Is there

25:45

a number relative to your valuation that you've disclosed

25:48

on what indifies? No, we haven't. How

25:52

many co-founders do you have? So we started with

25:54

three. So myself and,

25:56

you know, as you know, I didn't

25:58

have any prior background in Lus So

26:01

the first thing I did when I decided to do

26:03

this business was to make a Facebook post saying, hey,

26:05

looking for a co-founder. This was way back in

26:07

2014. And I found

26:09

my co-founder through Facebook. Siddharth,

26:12

he comes from a

26:15

lending background, risk management all his

26:17

life. And then we had a third co-founder

26:19

who was our C2 at that one point in time.

26:21

Unfortunately, that relationship did not end up

26:23

being a long one. But

26:26

yeah, Siddharth and I are very much in the business. Hello,

26:32

hello. We'd love to get some

26:34

more feedback and ratings from our listeners. So

26:37

if you haven't rated us already, please do

26:39

so on the podcast platform or app you're

26:41

currently listening to me on. You can also

26:44

write to us at fpatthikend.com. We

26:47

love hearing from our listeners and

26:49

subscribers. When

26:57

I looked at the Indify side, one of the things

26:59

that stood out and of course, you talk about the

27:01

kind of business loans you give, right? Term

27:04

loans, invoice discounting, letters

27:06

of credit, vendor payments, etc. But

27:08

more importantly, what stood out to me was that

27:11

you mentioned four or five

27:13

very specific sectors. Travel,

27:15

e-commerce, startups, hotels, restaurants,

27:17

and retail. Why?

27:20

Why are these five or six sectors

27:22

so important? Now, usually for me,

27:24

it's like when a company mentioned something so prominently,

27:26

there's a reason behind it. Otherwise,

27:29

they would not mention it. Why are these sectors

27:31

and mentioning them so important for you? Right. So

27:33

I think there are two elements to that. One

27:36

is we

27:38

believe that we can mitigate risk better or

27:40

we can assess risk better if we have

27:43

sectoral depth. So

27:45

for example, restaurants are notorious

27:47

globally for their risk of

27:49

failure rates. That's right. So about 15 percent of

27:51

restaurants go out of business every year. And

27:55

hence, if I have to assess the risk

27:57

in a restaurant, I'm not just assessing credit

27:59

risk. I'm also assessing a business survival risk.

28:03

E-commerce sellers are very

28:06

sensitive to price discounting on

28:08

the e-commerce platforms. So I

28:10

have to be able to understand, is

28:12

this business likely to undergo price commoditization

28:15

and hence loss of margin? It

28:17

looks like you're bringing some of your venture capital

28:20

knowledge also to bear here, because business

28:23

risk and like shutdown

28:25

risk, et cetera, is that normal?

28:28

This notion is very, very standard in the

28:30

lending business. So you will see that most

28:33

lenders, I'm not talking about consumer

28:35

lenders here, most business lenders, will

28:37

adopt a degree of sectoral focus to

28:40

be able to understand these. So how does

28:42

a, I mean, just out of curiosity, how

28:44

does a lender get

28:46

to know which restaurant is likely

28:48

to succeed or not? What kind of

28:50

data informs their model? So at a

28:52

very coarse level, a

28:55

classical lender may look at a three-year

28:57

history of a restaurant as

29:00

sufficient to guide their assessment on whether the

29:02

restaurant will survive or not. So

29:05

younger restaurants tend to die more than

29:08

restaurants that have survived. So you've gone past the

29:10

three-year, I think, chances of survival are higher. Now

29:12

in our case, because we are relying on far

29:14

more data, we have built what we believe is

29:16

a better model for predicting the same

29:18

outcome. So we could look

29:21

at a one-year restaurant and predict whether they are

29:23

going to survive or not. But

29:25

the concept is exactly the same. Could I

29:27

ask you, I mean, obviously not going

29:29

into your whatever your proprietary model, but what are

29:31

some of the signals that go into predicting whether?

29:34

Consumer love, you will hear that language

29:36

a lot in the so you'll essentially

29:38

look at ratings on. Rating reviews, you

29:42

know, are they in the premium segment? Are they

29:44

in the value segment? Depending

29:46

on which region are they operating in,

29:48

what cuisine are they into? Some

29:51

cuisines in some regions tend to be more volatile

29:53

than others. Staples tend to be

29:55

less volatile. So

29:57

once you put all of that data together, able

30:00

to build a better predictive

30:02

model than three years,

30:04

yes or no. So something that you

30:06

said earlier was a lot of the

30:08

classic lenders tend to have geographically

30:13

distinct lending strategies. What you seem to

30:15

be saying is less about geographical distinction,

30:18

but it's sectoral distinction. You need

30:20

to be able to understand travel

30:23

sector better. That is true for

30:25

both geography and sector. That

30:28

is true for both how conventionally lending is

30:30

done to businesses and how we do it.

30:33

So that part of it is similar. How

30:37

are we coming to these

30:39

predictions is different. So

30:41

that is kind of the reason why sectoral

30:45

bias becomes

30:47

important. And

30:52

what's common to these sectors? H

30:55

hotels, restaurants, travel. So that's the

30:57

second piece of there

31:01

are 100 sectors out there. Why are we choosing these

31:03

five or six? And

31:05

that comes back to where is

31:07

the wedge of disruption for us? So

31:09

as I mentioned earlier, there are certain assumptions

31:11

we are making on the pace of digitization

31:14

of certain sectors. So if you

31:16

look at our rubric for making a decision of which sectors

31:18

to go into, they will

31:20

entail how

31:24

digitized that sector is and how fast

31:26

is digitization growing. We largely look at

31:28

that on two axis.

31:30

One is the credit model

31:32

axis or saying how fast is data getting

31:34

digitized in that industry. And

31:36

second is the customer self-serve dimension

31:39

of how comfortable

31:41

are users in

31:43

that segment using a mobile

31:46

phone for getting a loan, for example.

31:48

So in that sense,

31:52

we've gotten into retail because

31:54

UPI happened. When we started our company,

31:56

we were in e-commerce, we were in travel, travel had

31:58

already digitized by then. travel agencies

32:00

are making bookings online. So

32:03

successively, our choices of which sectors we

32:05

can go into is driven

32:07

by the pace of digitization. And then obviously, we look

32:09

at scale. We don't want to be solving for very

32:11

small sectors, which might be. So

32:14

if I may kind of simplify that, what

32:16

you're really saying is that if a small

32:18

business owner is natively

32:20

comfortable using technology for their business

32:23

to run it on a day-to-day

32:25

basis, then they're most likely

32:27

to generate digital data and be comfortable

32:29

with receiving or borrowing digitally. And that's

32:32

one of the things that's really important

32:34

for you. Yeah, and we are looking

32:36

at the persona of that small business

32:38

owner, not just from their business usage

32:40

of technology standpoint, but also their personal

32:42

users of technology. These are all proprietary-driven

32:45

businesses. So if I'm

32:47

a rockstar user of PTM, then

32:51

it's likely that I can absorb digital credit. What

32:54

does that mean? That means that from

32:57

a customer journey standpoint, KYC standpoint, these users

32:59

are familiar with what it takes. So

33:01

you're saying that they're already using some

33:03

specific tools for a lot for their

33:06

business. Fair enough. Alok,

33:08

you're both a

33:11

first-generation entrepreneur as well as

33:13

a serial entrepreneur. If I'm not mistaken, you're the first

33:15

in your family to become an

33:17

entrepreneur. In the startup sense,

33:20

yeah. Yeah, yeah, that's right. And of course,

33:22

you're a serial entrepreneur as well. Three

33:25

probably if I count Kenan as well, because

33:27

you set up Kenan in India. That's correct.

33:30

So there's a very

33:32

interesting mix that we

33:35

see in you. So your first startup

33:37

was Jobs Ahead. That's right. And

33:40

you sold that to monster.com. Where

33:42

did that come about? Jobs

33:45

Ahead was an interesting story. There was a friend of

33:47

mine, Puneet. Both of us went to IIT

33:49

together. And I decided,

33:52

I think, halfway

33:55

through my IIT strength that I

33:57

wanted to be an entrepreneur. I

34:00

remember what the trigger on Nudge or

34:03

Inspiration was. No, no, very clearly. So

34:05

I interned at a company called CMR

34:07

Design Automation in Greater Tlash. And

34:10

there was another IT alumna, Shandarai, recently reconnected

34:12

with him. So

34:15

he was running his own company in his basement, top

34:19

quality work. And I

34:21

loved the lifestyle. He could walk down and work

34:23

in the basement when he wanted, and he could walk up for lunch. So I

34:26

said, this is what I want to be. So

34:28

it was a very, very 19-year-old

34:31

view to what you want to be. But

34:34

that stuck. And in 1997-98, I was

34:36

beginning to get anxious about what I need to do now. And

34:44

I was in Bangalore. I was living

34:46

in Bangalore at that point. And

34:48

Puneet happened to come there, and he said, hey, I'm

34:51

looking at starting an internet business,

34:54

and we should chat. And

34:57

literally, he came over to my house in

34:59

the evening. We sat through the night. And

35:01

somewhere during the course of that night, we said, yes, we're

35:03

going to do this. Interestingly

35:06

enough, we didn't have the idea kind of baked in at that

35:08

time. We just said, we're going to do a startup in the

35:10

internet space. I came back to Delhi then. And

35:13

then we kind of first put our

35:15

head to what the idea should be. We

35:19

launched a business called ZipperHead in

35:22

November of 1999. Those

35:24

are also in the careers space. So that

35:26

had four services for all Indians. All Indians

35:28

were all a million Indians

35:31

at that time. And that

35:33

had four channels, careers, fashion,

35:36

e-commerce, selling books, and

35:38

dating. So we said we're covering all the

35:40

names of the Indian audience. And

35:42

then as soon as we launched within literally the next 15

35:44

days, the users told

35:46

us that they were only interested in careers. So

35:49

85% of our traffic was going to the careers page. So

35:53

then over subsequently over the next couple of months,

35:55

we just pulled out the careers piece, branded their

35:57

jobs ahead and focused all our resources

35:59

on that. So that was

36:01

in some sense in the idea emerged as

36:04

we executed. But yeah, that was the first

36:07

one. You know, that's about what six years

36:09

before you sold in 99 to 2005. Yeah.

36:14

And then you became a VC. Yeah, that

36:16

was quite accidental. So once once

36:18

I sold jobs ahead, I was

36:20

looking to start my next business at a couple of ideas on

36:22

the table. And again,

36:25

I went to meet another

36:27

friend, Rahul Basin, who was at

36:29

Bearings. I

36:32

still remember, I think it was the 13th of September,

36:34

Friday and Saturday.

36:37

And he said, hey, while you're looking for

36:40

your next business idea, you know, Bearings has

36:42

classically been in growth equity. He

36:44

said, we want to build venture as an asset

36:46

class. And why don't you come join,

36:48

you know, help us build venture while you're looking for

36:51

the next idea. And Monday I

36:53

was at Bearings, you

36:55

know, trying to build venture care for them. Unfortunately,

36:58

that relationship did not, you

37:02

know, end up being a long one. But

37:06

around February timeframe, Kenan was then looking at

37:08

setting up shop in India. That

37:11

discussion materialized in the end of March, I joined Kenan

37:14

to set up their presence in India. And you did

37:16

that for close to 10 years. Yeah,

37:19

6 to 15, so 9 years. Yeah.

37:23

And then of course, you

37:25

left Kenan. Kenan got sold,

37:27

acquired by JP Morgan. So

37:32

the first thing that happened was, you know,

37:36

Kenan was investing in US, India and

37:38

Israel through a common global fund. And

37:42

Kenan wanted to focus that fund

37:44

on the US market. So

37:47

essentially there was a choice to say, do we

37:49

want to raise another fund? Or

37:53

we don't, right? So our partner in

37:56

Israel, for example, said he'll

37:58

raise a separate fund, Kenan Israel. and went

38:00

down that route. In India, me

38:02

and my other colleagues here all felt like that's not what

38:04

we wanted to do. I

38:06

wanted to be back in entrepreneurship. Rahul Khanna

38:09

was my other partner, wanted to

38:11

set up a broader financial services

38:14

play. And

38:16

to that extent, we said, we don't want to do that. And

38:19

then we had a portfolio of companies. So

38:23

the next task for me then was to make

38:25

sure that we land the portfolio right. And in

38:27

that process, we landed up selling it to JP

38:29

Morgan. So the

38:32

decision to sell to JP Morgan

38:34

was an outcome of the other

38:36

decisions. After

38:39

nearly a decade stint as a

38:41

VC, how

38:44

was your second stint, how did it influence

38:46

your second stint as an entrepreneur? Did

38:49

it? I think in

38:51

some ways it did. I

38:55

think the notion of what creates value in a

38:58

company was

39:02

kind of better baked in my mind. And that's probably

39:04

the reason I wanted to get into a second operational

39:07

strength. When we started the first

39:09

company, it was a.com boom. The

39:11

notion of what creates value in a company, it

39:14

was very different. We were younger. I

39:17

don't think we had an understanding of what

39:19

happens there. I

39:22

think the second piece that was very clear in

39:24

my mind was the time it takes to build

39:26

a company. What

39:28

is that if I may ask you? If you're

39:30

putting down a range of years. I think at the lower end

39:32

it's 10 years. And then it

39:34

depends on how much you want to kind of ride

39:37

the compounding. But

39:42

I'm hard pressed to come up with companies that

39:44

got built to a reasonable scale in

39:46

less than 10 years in the Indian market. So

39:50

really when we started this company,

39:52

both me, my co-founder, both

39:55

of us started with the view that there's

39:57

kind of no...

40:00

end this timeline that we are

40:02

putting to this in the sense that

40:04

we will build it and we'll continue to build it and we'll

40:06

see how it goes. But really

40:08

if it works and if we continue to enjoy what

40:10

we're doing, we are here indefinitely.

40:14

So I think that mindset was certainly different

40:16

from when I started my first

40:18

company. If you had to give that same

40:20

advice to other entrepreneurs

40:23

who are starting up, how

40:26

would it change the way they go about

40:28

building their business, especially when it comes to

40:30

raising venture capital. Because often while

40:33

venture capital is an enabling force in order

40:36

for you to kind of set up and

40:38

scale a business, it also imposes certain constraints

40:41

on the need for exits, either

40:44

an absolute exit or as a cyclical

40:47

series of exits where one venture capital

40:49

is exiting to another etc. So what

40:51

would be your advice to someone who's

40:53

thinking, hey, I would also like to build a

40:55

business for the

40:57

long run. Yeah, see, I think one of

41:00

the things which is important is building a

41:03

business in the right sequence. Availability

41:07

of venture capital or

41:09

private equity is opportunistic. And

41:11

to that extent, there

41:14

is this instinct of if money is available, raise

41:16

more and I completely buy that. However,

41:22

what you say when you say you buy that

41:24

you might take I would raise more money if

41:26

more money was available. All right. However,

41:28

the notion of using capital

41:30

to jump

41:33

the sequence in which you build a business, for example,

41:36

let's build market share before we really got PMF.

41:39

I think those are the kind of product

41:42

market fit. Yes, yes. You

41:46

know, those are the kind of decisions that I

41:48

think are not consistent with

41:50

building a long term business. Because

41:53

in that scenario, you are landing a wasting a

41:55

lot more capital and

41:57

a lot of rework is likely to happen as you start

41:59

to to your product market. This

42:01

can't be easy right because a founder

42:03

especially first time founder who's building a

42:05

business and if capital is available and

42:07

of course we've gone through the zero ZIRP

42:10

era where we had venture

42:12

capitalist said if you don't take my money I'll give

42:14

it to someone else etc. So to

42:16

kind of take that point of if it's available take

42:18

it but then the problem is once

42:20

you take it you must deploy it you

42:22

can't just keep it in your bank and earn interest on

42:25

it which brings you back

42:27

as a founder to the point of

42:29

okay if you haven't got true product

42:31

market fit yet and if

42:33

you've raised money and if that money needs

42:35

to be deployed isn't that usually where bad

42:37

decisions get made because you've got to do

42:40

something with it. Yeah

42:42

so I think I'm questioning the take

42:44

it if it's available logic

42:47

because how is that consistent with not

42:49

deploying it. Correct. So see I

42:52

would tend to think of these in shades of

42:54

gray right so suppose I'm out there to raise

42:57

three million and I'm

42:59

getting ten right I would

43:01

take it and I

43:03

would still operate the business

43:05

in the right sequence. Will

43:07

there be immense pressure from VCs to say you

43:10

know why aren't you deploying

43:12

ten why are you deploying only three I

43:16

think that is a manageable one right. You're

43:20

looking for three you'll end up getting hundred

43:23

right now there

43:25

I think there is a trade off in

43:27

terms of you know maybe

43:30

you don't want to deploy hundred or even over a five-year period.

43:36

So I think

43:38

within reasonable bounds you

43:41

can take more capital and still be

43:46

sensible in terms of how you're deploying it right. And

43:52

I think some of this is less

43:54

a function of what

43:56

investors are telling you versus what You're telling the

43:58

investors. Ah,

44:01

Own. Especially in the

44:03

recent. Past. Like two or

44:05

three years. I. Think

44:07

there's been more and more retribution off

44:09

entrepreneurs decisions to saying hey, but they

44:12

must as we're pushing. Hide.

44:14

In various different context or chemically super

44:16

doesn't business and citing that argument accountability

44:18

other business with don't have enough I

44:20

left one our decision some of the

44:22

bullet going to be backed. Ah,

44:24

but I don't think. Ascribing

44:27

those decisions to investors gears that

44:29

I trim of accountability type. If

44:33

the elephant the law say two thousand and

44:35

fifteen or two thousand sixteen were to pitch

44:37

to the allotment, they'll have two thousand and

44:39

ten. Would he get funded? Ah,

44:45

Two thousand and Ten. Maybe.

44:49

Two. Thousand Seven know. And

44:51

eight And this has to do with a little bit of a

44:53

journey that we went through. In. A learning journey

44:55

that we went to as investors. And

44:58

I think in two thousand and five six

45:00

by and large. There was this

45:02

whole i won't call it the first cohort

45:05

of venture capital. Ah

45:07

fete many of us at shop

45:09

in two thousand and sixteen same.

45:12

Most. Of us had noble for degree. In

45:14

terms of the funds. And. Has

45:16

at some level devil kinds of business model that

45:18

understood. Me Adventure: Sell your

45:20

dozen others Didn't. And.

45:23

Financial services wasn't necessarily belushi bespoke times

45:25

that us has wasn't necessarily a business

45:27

that was seen in that light but

45:29

as you got more experience and thing

45:32

and market. I think that

45:34

we've started to get. I define

45:36

soon Twenty Done, for example, can and did

45:38

invest in echoed as microfinance which of the

45:40

balance you can in business. So by that

45:43

time I think we had come out onto

45:45

the notion that you can create of interstellar

45:47

tones. Investing. in balance

45:49

sheet businesses of substances in

45:51

india house if i'm s

45:53

through scaling so he did

45:56

a skill second both are

45:58

under exit saved up Perhaps

46:00

because of the scale, the

46:05

multiples that are available are much higher. Right?

46:09

And inherently, it's a much more of a

46:11

white space market than

46:15

a disruptive market. So

46:18

I think those were some of the factors that led

46:21

us in that direction. And not just financial services.

46:23

If you look at K&M's investments over those nine

46:26

years, we move from more

46:28

and more of concept

46:31

risk to more and more of execution risk,

46:33

to taking that risk. Right?

46:35

So we invested in happiest minds, which was Mr.

46:38

Ashok Shuk and

47:00

to that extent, maybe just

47:02

taking execution risk gets you there. You

47:04

don't really have to take all the

47:06

concept risk that is embedded in classical venture

47:08

capital. I'm

47:11

going to like read you back something else that you've

47:13

said, I think in the past is the Bible of

47:15

raising money has three points. One,

47:17

big market, two, great team.

47:20

Three, protect the value you provide.

47:23

What is the third one? What does it

47:25

mean? Protect the value? It's the same thing

47:27

that we call sustainable differentiators. Right? Why do

47:29

you why will you continue to get valued

47:31

more than other people? And

47:35

how do you sustain that

47:37

franchise? Right? The

47:41

fact that there are big markets is

47:44

available to everyone. If

47:47

it leads to very fragmented

47:49

outcomes, right, in a differentiated

47:51

market, then in some sense,

47:53

at a company level, it's a buyer's market,

47:56

and value will get suppressed. So

47:59

I think that's the end of this. That is extremely important. The

48:01

second piece where that becomes important is

48:03

as I mentioned earlier, the cycle of building a business

48:07

is inherently long in India. So

48:09

in US, average time to exit might be

48:12

five to six years. In India, it's

48:14

about double of that. What

48:17

does that mean? That means that while in your fourth

48:20

year, you're still building your company out and you're probably

48:22

at the mid stage of building the company out, there's

48:24

already another disruptor who's

48:26

coming with a new approach, even more

48:28

relevant to the market now. So I

48:30

think businesses in India, startups in India have to

48:33

go through these multiple cycles of

48:35

building businesses within businesses

48:38

rather than go through one cycle and get done with it,

48:40

get done when I say, at least in terms of an

48:42

exit. And we're seeing that

48:45

in several businesses now, right? So unicorns

48:47

are necessarily reinventing themselves to

48:49

say, hey, my current business

48:51

seems like it's plateauing out and

48:53

this is pre-exit. And

48:55

hence, what is the next wave that I can ride on? So

49:00

I think that is a function of the time it

49:02

takes to build the business and the opportunity it provides

49:05

for others to come and disrupt your business before you

49:07

really played it out. One

49:10

of the things or the points

49:12

that isn't mentioned nearly as much

49:16

when it comes to building long-term sustainable

49:18

businesses is the importance of

49:21

building an organization. I'm

49:24

guessing like many of the points that you said that

49:26

great team, great market, et cetera. I mean, when it's

49:28

an idea or when it's an early stage, it's

49:31

really hard to assess how an

49:33

organization gets built. But in

49:35

the process also, it rarely gets talked about that

49:37

much. What's been your

49:41

philosophy or understanding of how

49:43

to build lasting organizations which

49:45

are beyond the market, beyond

49:47

the founders, et cetera?

49:49

How do you build lasting organizations?

49:51

So I must admit that I'll

49:53

be speaking from observation here because

49:56

honestly, Ndfi is only nine years old right now. So,

49:58

whether you're a developer, we will end up

50:00

being a lasting organization or not is very much a

50:03

question out there. But you

50:05

must have bets and philosophies on what you're, I

50:07

mean that's all I'm interested in. Yeah, so

50:09

I think on that front, I

50:14

think there are two or three elements that are important to me,

50:17

right? And some of those are important to me because they're important

50:19

to me. So

50:21

one is that the organization should be

50:25

able to continuously challenge itself,

50:28

reinvent itself. Right?

50:32

As companies get large, there

50:35

are more and more people who are coming into the company

50:37

who are coming with a preservation

50:39

mindset rather than a creative

50:41

mindset. And

50:43

you want to make sure that you are nurturing

50:46

that 15-20% of the people who are coming with

50:48

the creative mindset, because that

50:50

is what allows you to ride these waves. Right?

50:54

How do you do that? So

50:56

they need protection. They will fail. Right?

51:00

So when I say, you know, those 15-20%

51:02

of people need to be nurtured, right?

51:05

You have to allow them to shoot off the head. They

51:08

have to be able to speak in a meeting without

51:10

fear that if they speak out something, which is not

51:13

necessarily completely thought

51:16

through. If you want to

51:18

encourage risk taking there, it has to be clear

51:20

to the entire organization that

51:22

risk taking is okay. Right?

51:24

So one of the things we try to follow in our

51:26

company is if

51:28

you fail, that is fine. Right?

51:31

But we expect that you've

51:34

done a thorough job of

51:36

failing. Right? Now, it's easier

51:38

said because people are

51:40

looking for evidence of that in the leadership

51:42

section, in the founders actions. Right?

51:47

But that's, I think, a very important trait that

51:49

you want to build. How do you counterbalance that

51:51

with many organizations, the need for people to feel

51:53

that there

51:55

should be consensus? Because

51:59

when Someone often, I mean these 15-20%

52:01

of people who are creative or who are like,

52:03

you know, shooting from the hip, like you said,

52:06

sometimes the ideas will

52:08

not lead to consensus. Yeah. So

52:11

what's your... Yeah, I

52:13

would bring the portfolio mindset to this, right? Just

52:15

like we do it in venture capital. Yeah, sure.

52:18

So, you know, you got $100 million

52:20

of value sitting somewhere. You're

52:22

not going to shoot off the hip and put that to risk, right?

52:27

You need $100,000 to experiment a new idea that

52:29

could be, if

52:31

successful, could be much larger opportunity. You'll

52:34

provide that opportunity. Something

52:37

very similar was said to me by Ahmed Agarwal

52:39

of No Broker, who said that internally

52:41

they run it like a venture capital

52:43

firm where somebody wants to run a

52:45

business, they're allocated capital, they're asked to

52:48

make a bet. So in some senses

52:50

they contain the risk of... I'm not

52:52

sure whether we have

52:54

been able to do that. And

52:56

I think the basic challenge

52:59

here is that things

53:03

are not necessarily defined, you

53:05

know, as

53:07

units when they come up for experimentation, right?

53:11

The product manager will come up and say, hey, I want to try out

53:13

these three things. It's

53:15

very hard to take a VC mindset to

53:17

that because it's not a isolated

53:19

piece of the picture. It will affect other things.

53:22

It has to connect back to the rest of the business and

53:24

the business model. What's going to be the pricing model? How are

53:27

customers going to feel about it? Is there a customer facing risk

53:29

that they're adopting? And

53:32

to that extent, so there are... I think the notion

53:34

in which you can run it like venture capital is

53:36

actually a good, simple notion.

53:39

So today, for example, if he's

53:41

looking to diversifying in new product categories, there

53:44

are two such categories we've identified. Those we are

53:46

running like venture capital. We've allocated capital. We are

53:48

building separate teams for those, but that's

53:50

the easier part. The harder

53:52

part is how do you get this to be part

53:55

of every decision,

53:57

every function you

54:00

are making which inherently is intertwined with

54:02

the rest of it. So it has

54:04

a notion of one

54:06

way in which it is similar to venture capital

54:09

is I want the bets to be small, I

54:11

want the readout to be fast and I

54:13

want the upside to be high, right?

54:16

All three. If the upside

54:18

is not high, it is not worth doing. If

54:20

the readout is long, you know,

54:23

we have to figure out. So, is

54:25

something working or not? Okay. Right.

54:28

So, if I can read an experiment out in 30 days, if

54:30

you are telling me that I can read an experiment out in

54:32

a year, that is too slow. That

54:35

does not allow me to iterate. So then,

54:37

you know, let us spend more time on saying

54:39

what is really the bet we are making, right?

54:43

This is like you do not need to launch a product to assess

54:45

its demand if you can put a sign-up page, right?

54:48

A trivial example, but it

54:50

allows a quick readout, establish confidence in

54:52

the hypothesis, right? So,

54:55

I think in those aspects is

54:57

similar to venture capital, right? Venture capital says let us say

54:59

it is half a million dollars, let us see if something

55:01

is working. If it does, then we will put

55:04

another five. The staging capital, the staging

55:06

investment. But

55:09

in the sense of it being an

55:13

entity in isolation, it is not like venture capital.

55:16

This is all through the organization

55:18

all the time. Are there examples

55:20

of bets that you have made that

55:23

have potentially ended up in failure and

55:25

you have learned from them? There are more failures. We

55:27

do not learn too much from them. My

55:30

own experience is if you tried something and

55:32

failed at it, it is worth being

55:35

back on the table in 18 to 24 months time. Because

55:38

it is usually a timing issue rather than a… It can

55:40

be a timing issue, it can be an execution issue, it

55:42

is very hard to separate the bet from the execution. So

55:46

we try not to learn too much. In fact,

55:48

we see that organizational memory is a barrier. Sometimes

55:52

some of our people who have been with us for a long time

55:54

will come and say, but in 2017 we have

55:56

done this, it did not work. In

55:58

2017 it is… It

56:01

is a very powerful thing, right? Like just because it

56:03

didn't work in the past doesn't mean it's not going

56:05

to work. Yeah, yeah. And it doesn't mean that we

56:07

throw away those learnings. We still want to say, okay,

56:09

why didn't it work there? Right.

56:11

So one of the businesses that we are operating in the

56:13

venture mode, we failed thrice at that. We have not built

56:15

a good business there. What keeps the

56:18

idea still alive? That why? Why sense

56:20

of opportunity? Right.

56:22

So the source is if it succeeds, then it should

56:24

be there. So

56:27

as long as that is true, then

56:30

I think it is worth multiple shots. It's not worth

56:32

the same mistake again and again, but it's worth multiple

56:34

shots. Do

56:36

you believe in this concept of founder mentality?

56:39

Ownership, yeah. Yeah. And

56:42

connected to that slightly unrelated

56:44

is, is there, do

56:47

you feel that especially with

56:49

founder led organizations, startups, et cetera,

56:52

founders have this larger than life importance in

56:54

organizations for the right reasons. They started it,

56:56

they hire a lot of the people, the

56:58

business model comes from them, but

57:00

at some point it also prevents the

57:02

organization from making that leap to not

57:05

being dependent on founders. Is that something that

57:07

you've been trying to kind of work?

57:10

Have you reached a stage yet where

57:12

you think about how will industry work

57:15

if the founders aren't around to

57:17

guide? Yeah. So I think in case

57:19

of industry, we've been able to kind of get there. So

57:24

today we do have a CEO

57:26

in the company now, and I

57:28

think we are lucky to find a person who displays

57:30

the same founder characteristic, even though that person is

57:32

joining us several years after the company is founded. And

57:36

down the line in the mid management,

57:38

I think that is the core of this, right?

57:41

I think the organization is held together by mid

57:43

management, not by leadership, right? That's the

57:45

translation layer between what the leadership is wanting

57:48

to get done and what gets done. And

57:51

so I think at that layer, we've got people who behave

57:53

like owners. Some

57:55

of those are people who have been with us for many years. So

57:59

they're practically. has seen the

58:01

company since we were zero. But

58:04

there are people who joined us last year

58:06

and they're displaying founder mentality. Now

58:08

the question becomes, what do you do with them? Do

58:12

you lock your organization into a seniority mindset?

58:15

If people have been here longer, do they? The

58:19

tenure mindset. Yeah, the tenure mindset. So I think

58:21

those are the harder ones. The

58:24

challenge with much of this is, by the

58:26

time you realize that some

58:29

of these biases are set in, it's

58:31

too late. So in some sense, you need to be

58:33

a bit more proactive about, hey, I'm

58:35

seeing some behavior, right?

58:37

I can react to that behavior, but

58:40

what is the message I want to send out, right?

58:43

And hence is there a thread that we want to

58:45

build, which is called culture. What's

58:48

your views on culture? I mean, what are some of

58:50

the specific or

58:53

perhaps unique things that you do at

58:56

IndiFi, specifically focused on culture

58:58

to ensure that its culture is differentiable.

59:00

So I think I've gone through a

59:03

couple of different cycles on this and

59:05

again, hopefully we have learned from what

59:07

hasn't worked for us. There

59:11

is this whole notion of defining

59:14

culture, defining

59:16

values in a company and

59:19

then creating a implementation

59:21

rubric to it, right? What will you do in

59:23

recruitment? What will you do in appraisers? I

59:27

think culture inherently is formed by what happens on

59:29

the floor every day. And to

59:31

that extent, discovering culture is

59:34

almost more important than defining

59:36

the culture, right? What

59:41

is the behavior that gets rewarded on

59:44

the floor? What is the behavior that gets reprimanded

59:46

on the floor? A

59:49

lot of that flows from the leadership. So

59:52

when I say flow, it's not necessarily bottom up, but

59:55

if we want to promote risk-taking,

59:58

right? then

1:00:00

we have to be able to almost

1:00:04

instinctively react correctly to

1:00:07

both successes in this taking and failures in this taking.

1:00:11

To that extent, I think authenticity

1:00:22

is the cornerstone for culture. I don't think, if

1:00:25

I start another company, you

1:00:28

will see very similar culture shape up to

1:00:32

what I might have done here or what we have done

1:00:34

in Jobs I'm

1:00:38

still the same person. While I have different co-founders,

1:00:41

I've been lucky to find co-founders where

1:00:43

we share the values. What

1:00:46

is the means of phrase which is used a lot? Authenticity.

1:00:50

What do you mean by it? Let

1:00:53

me take some examples. In

1:00:56

my company, I'm

1:00:59

not the person who goes out and will

1:01:02

give a high five to people as a means of

1:01:04

motivating people. That's

1:01:07

not you, that's not me. And

1:01:10

my entire team will tell you that. But

1:01:16

if there are good ideas on the table, then

1:01:20

there's an openness to see them and

1:01:22

to promote them. I

1:01:25

will hold myself to a higher level of performance and I will hold

1:01:27

any of my team members. Now,

1:01:32

in a company where you

1:01:34

have the type one person who's

1:01:36

motivating people through their persona,

1:01:40

that will become the culture. And it's

1:01:42

OK. I

1:01:44

don't think there is a single unique successful culture. In

1:01:48

a company that I am setting up, the

1:01:50

kind of values that I am displaying will become

1:01:53

the cornerstone of the culture. You know, those kind

1:01:55

of people will end up being more successful. They

1:01:57

will end up being successful. the

1:02:00

points. If I try

1:02:02

to be the first one, it's

1:02:04

going to be a mess, because I'm saying

1:02:06

that that is what we should be, but

1:02:09

that's not my instinctive response when something happens

1:02:11

in a meeting. So

1:02:14

that's what I mean by being authentic, of

1:02:16

saying you're able to

1:02:18

accept who you are and be consistently

1:02:21

that. You will be consistent if you

1:02:23

accept who you are. The inconsistency comes

1:02:25

from you're

1:02:27

trying to be something that you believe is right. So

1:02:30

there is this whole, at one

1:02:32

point in time, the GE culture was the culture. And

1:02:36

sure, for the people who ran it at that time, that

1:02:39

was an authentic culture. It was successful.

1:02:41

But once it became the template of what a good

1:02:43

culture is, everyone tried to fit that. And

1:02:46

it wasn't authentic anymore. What

1:02:49

kind of people don't succeed in DeFi?

1:02:53

So I think there are some ground rules that

1:02:55

we've set. One,

1:02:58

we will not tolerate politics, an

1:03:01

iota of that. As

1:03:03

soon as you see the first signs of it, we will cut

1:03:05

that out. Cut that out doesn't mean firing the person. Cut that

1:03:08

out means having a conversation with the person, being

1:03:10

brutally honest about this is not the behavior that

1:03:12

will give them an opportunity

1:03:14

to correct. So even

1:03:17

today, if

1:03:19

you walk in, in meetings and so on, you will see

1:03:21

none of that going on. And

1:03:24

this translates across levels in the company. And once

1:03:27

you set that rhythm, that is what gets

1:03:29

swallowed. Second, for example, we

1:03:32

like to rely a lot on data. And

1:03:35

so there is a strong bias

1:03:38

towards being able to

1:03:40

bring data to present a case or

1:03:42

accept that you don't have data and present

1:03:44

your conviction and reasons why you feel conviction.

1:03:47

So people who aren't comfortable with data,

1:03:50

especially at leadership levels, find

1:03:52

themselves as seen. Right.

1:03:54

And it's not to say they are not good people

1:03:56

or they won't be successful elsewhere, but in our system,

1:03:58

our system asks them for... or hey, why

1:04:00

do you think this is the case?

1:04:03

And if there's a person who comes up and says, hey, I

1:04:05

spoke to 25 customers and this is my guard, that's fine. So

1:04:11

we would count that as data. So

1:04:16

that is the second place we've seen, so

1:04:19

how you manage people, we've

1:04:24

seen some failures there in our leadership. Data

1:04:27

has been an issue. Focus.

1:04:33

Again, are you willing

1:04:35

to make that bet? Or

1:04:37

is it all diffused? So

1:04:39

I think we have both, in

1:04:42

terms of people not being successful in NTFE, but

1:04:45

also certain initiatives not being successful in NTFE,

1:04:48

I would trace them back to this notion of, okay, did

1:04:50

we have a sharp bet? Or

1:04:52

did we say, right? And

1:04:54

there's some risk here, some risk here, some

1:04:57

risk here, but we really know what we

1:04:59

were solving for. So I think

1:05:01

some initiatives haven't worked out because of that. One

1:05:04

of the questions I often ask guests

1:05:06

is, what's their favorite open-ended question when

1:05:08

they're interviewing talent? I

1:05:14

like problem solving. So when I'm

1:05:16

interviewing people, normally I would go back to

1:05:18

puzzles, problem sets. What's

1:05:23

the thinking behind that? To see

1:05:25

the thought process of the person, right?

1:05:27

What do they do when they get blocked, right?

1:05:31

Do they give up? Do they continue to struggle

1:05:33

with the problem? I still remember this, I had

1:05:35

been four, five years back. This is

1:05:37

one very junior person, I was hiring.

1:05:41

And we

1:05:43

had the interview asking for the, couldn't

1:05:45

get through, that was fine. And

1:05:49

then the interview was done, you might

1:05:52

have. I was

1:05:54

back at my desk and this guy walks up and says, hey,

1:05:57

you know, I just thought of something. I

1:06:00

don't know whether the person was trying to do it because he

1:06:03

wanted to still be considered. But

1:06:05

just that fact that the person continued to struggle with

1:06:08

the problem, I think is

1:06:10

valuable. It

1:06:14

also brings

1:06:18

out the creativity in people, how are people thinking

1:06:20

about it. And so normally, if

1:06:23

someone's kind of suggesting one line of thought,

1:06:26

and you throw another line of thought at them,

1:06:29

are they catching that, are they exploring that, or

1:06:32

are they still committed to that

1:06:34

just one line of thought. I think those are some interesting

1:06:37

pieces that come out of it. Second

1:06:40

thing that we tried to establish is how

1:06:43

much of the success they

1:06:46

got in their previous jobs. Was

1:06:49

there doing and how much of it was

1:06:53

part of this rising

1:06:55

tide. How

1:07:00

do you assess that? Those are

1:07:03

relatively simple ones. Just ask them what was the

1:07:05

business like when they came in, what is it

1:07:07

that they did, what worked, what

1:07:09

didn't work. If

1:07:11

everything is working, they don't

1:07:13

have a clue. What

1:07:18

is your view at succeeding at a career

1:07:20

over the long run? Because

1:07:22

what we knew of careers is increasingly

1:07:24

getting short and disrupted, whether you look

1:07:27

at entry level careers with the rise

1:07:29

of AI, whether you look at 35,

1:07:31

45, 50 plus careers getting

1:07:35

disrupted because middle management, senior

1:07:37

management. So our notion of what

1:07:39

we thought of as career is no

1:07:42

longer what it was. So what would be your

1:07:44

advice to someone

1:07:47

who's entering college or getting a job?

1:07:50

I want to first kind of just the

1:07:54

notion of succeeding at a career, I think the notion of

1:07:56

success is the more important one to

1:07:58

question. And that is

1:08:00

different for different people. So

1:08:04

again, I have

1:08:10

had an opportunity every 5 to 7, 8

1:08:12

years to just completely give up what you

1:08:14

have and start afresh.

1:08:18

For me that is success. For

1:08:24

someone else, having

1:08:26

25 years in one domain and mastering that

1:08:29

could be success. So I think

1:08:31

the notion of success itself is a little bit contentious

1:08:35

or variable across people. And

1:08:38

to that extent saying that... Or it is individualistic.

1:08:40

It is very individualistic. So what would you tell

1:08:42

them? Follow your heart? Follow

1:08:44

your heart tends to be very broad.

1:08:49

But I think figuring out what you enjoy

1:08:52

doing, what really gets you to work

1:08:54

every day, I think that is critical.

1:08:57

And people will still have goals of saying I need

1:08:59

a certain degree of financial independence. Things

1:09:02

of that nature. Those are not necessarily conflicting with

1:09:05

the notion of what is really that drives you. So

1:09:08

for me it is problem solving. I was about to

1:09:10

ask you, what is it that really drives you? What

1:09:12

gets me in every day is problem solving. So

1:09:16

I want to be able to look at a problem and say, hey,

1:09:20

this is the solution. I don't know that this is solution. But

1:09:22

at least these are the three choices. Let's see. So

1:09:25

it is not like we have solved for MSM credit. We have

1:09:27

0.1% or 0.01% of the MSM credit market. But

1:09:32

we have added to the body

1:09:34

of knowledge. And that is

1:09:36

satisfying. And we know that if we have

1:09:38

to be a significant player in the market, we have to grow 10x, 20x

1:09:41

from here, we

1:09:44

will have to solve more of those problems. But

1:09:47

that is energizing. What

1:09:50

is it that all of

1:09:52

your direct reports or colleagues will agree

1:09:55

about you? They

1:10:00

will agree that I need to be more sensitive

1:10:02

when dealing with people. They

1:10:06

will agree that I will bring a certain

1:10:08

quality of intellectual excellence

1:10:11

to the table, but I need

1:10:13

to bring more of empathy to the table. I

1:10:15

think those are some other things. We have these conversations, so I

1:10:18

kind of know what they would agree on. And

1:10:21

this thing is that this is why I'm

1:10:24

being authentic. I'm not being harsh to

1:10:27

anyone. This is just the way I

1:10:29

work. No. So I think

1:10:31

being authentic is not, again,

1:10:35

inconsistent with continuously improving who you

1:10:37

are. Right?

1:10:39

So my response would be,

1:10:42

you know, I hear you. And

1:10:45

if I accept a certain argument, then

1:10:47

I would accept it. Right?

1:10:49

And then it's up to me

1:10:51

to see how I improve. In fact, you

1:10:54

know, sometimes children bring the best out

1:10:57

of you on this. Right? So my

1:10:59

daughters are both in college now. I

1:11:01

don't know when I was speaking to my younger one. She's in second year now.

1:11:03

Maybe it was a couple of years back. And

1:11:07

she said, you know, when we were young, we thought you

1:11:09

were karus. I'm

1:11:12

like, I'm like, so my daughters

1:11:14

are telling me that, hey, over the last four, five

1:11:16

years, we think that you've gotten

1:11:19

much more empathetic than what

1:11:21

you were five years back. Now,

1:11:24

there's no way under the sun that my people are

1:11:26

not feeling the same way. What's

1:11:29

it? I mean, I had another founder

1:11:31

earlier today say the exact same

1:11:34

thing that in the last four, five years, I

1:11:36

think I've gotten more empathetic, even though I'm

1:11:39

doing a startup, which is more stressful. So what

1:11:41

is it? Is it that when you're in a

1:11:43

stressful, when you're a founder and you're in a

1:11:46

situation where you need to be responsible for the

1:11:48

answer and the future and the vision, etc. It

1:11:50

in some senses calms you down. Is

1:11:54

it something else? Is it age? I mean,

1:11:56

it could be age. I'm just thinking aloud

1:11:58

about it. So see, again, my notion. of

1:12:00

what I deemed

1:12:02

to be success when

1:12:04

I was 35 is certainly different from how I look

1:12:07

at it today. So when I was 35, I

1:12:11

would have been banging middle of my Canaan journey.

1:12:15

And how old are you today? If I'm

1:12:17

asked 52. And

1:12:21

at that

1:12:23

time, the

1:12:25

public visibility that a venture career brings you, I

1:12:28

found that very exciting. And

1:12:36

that itself lends a degree of

1:12:38

arrogance. Today,

1:12:41

that's not important for me. So

1:12:45

I think age might have to do a little bit with it.

1:12:49

I think it's also perhaps a

1:12:52

degree of realization. And I've seen

1:12:54

entrepreneurs who at

1:12:56

a very young age come to that realization. So maybe

1:12:59

I'm just late at that, is

1:13:02

that your success is depending on everyone around you.

1:13:05

In some sense, you're responsible for them, not just as a

1:13:07

boss, but also as a

1:13:09

person. So I

1:13:12

think over the course of

1:13:14

industry, that is probably what one

1:13:16

of the things that I

1:13:19

feel more and more strongly

1:13:21

about. But I don't think

1:13:23

that is something which is ageling. I literally

1:13:25

have 25 year old entrepreneurs who are great at

1:13:27

that. So

1:13:29

it's just a different point in time. You

1:14:30

You