The Exchanges

Q Can you tell us more about Sistema? I believe it's a Russian conglomerate which built a fund in India and would love to know about Sistema's journey.

A So, yeah, so Sistema is a large Russian conglomerate. We like to call them as the Tatars of Russia. They have operations in about 18 sectors. And these vary from, uh, telecom to financial services to retail, healthcare, paper and pulp, et cetera, et cetera. In India, Systema had a joint venture with Sham Group, and they were running the MTS telecom operations for about 10 years, and, you know, we know how the telecom story ended for a lot of the players, so they also, uh, wrapped up their business somewhere in 2016, and, uh, and decided to exit the telecom business, but while they were here, they built a lot of equity and network with the startup community, a lot of Early stage companies would reach out to them to tap into the balance sheet, uh, and to, uh, you know, uh, form business partnerships. And so, uh, Systema at the parent level decided that we need to have a play in India, and we need to learn from the Indian ecosystem. So, uh, in India and Russia and Germany, they launched a string of, uh, venture funds, venture funds and private equity funds. So we were beneficiaries of one of that, uh, theme. We started this fund in 2016 with a focus on mid-stage investments. We looked at the landscape fairly deeply and realized that while early stage has a lot of established brands, Uh, and late stage has a lot of capital in terms of Softbank and DSTs and all those guys. The real …

AI assessment note: “Sistema is a large Russian conglomerate. We like to call them as the Tatars of Russia.”

Q you have spent good time with Helion, which has been a six hundred million dollar fund. That's a pretty large fund, seeing, you know, the India of 2010, 2015. You have sourced over a thousand deals and were part of investments at Helion like Azure Power, Easy Tap, Mo Engage, Rail Yachty, Whoopla. How was your experience working with Helion? And at what state did you invest in these companies?

A So Helion was a very different ballgame, um, compared to McKinsey. Uh, what I liked about Helion was that, again, uh, you know, early on in my career, I got to work with a stellar group of partners who had prior experience in building, scaling, and exiting companies. Uh, they were partners who had built large-scale BPO businesses and exited them very successfully. Uh, to large enterprises. There were people on the technology side that had built technology businesses and sold to companies like Amazon in the eighties. And there were people who had worked, uh, largely in the consumer brand space. So for me as a junior person to work with all these partners and work, uh, on different deals that they were leading was, uh, an experience to cherish. Um, I, uh, You know, when I joined Helion, I remember the first deal that I worked on was Azure Power. Uh, nothing to do with financial services. This was a solar photovoltaic power generation company. Um, this was a founder who had no, uh, working experience in the solar photovoltaic world, but he understood that space better than most analysts that covered this sector. We were impressed by him, um, and his thought process. We actually stepped up to lead the seed round in Azure Power, and over the, Journey of that investment, we attracted capital from investors like IFC and Foundation Capital and a bunch of DFIs. And eventually, uh, you k…

AI assessment note: “We actually stepped up to lead the seed round in Azure Power”

Q lens on the fintech side of your portfolio, lending cart and Kisht. Uh, how are these companies doing in times of COVID? Uh, there's a report that, you know, lending is slowing down in the market, and there's a lot of conundrum on the bank side, on the RBI side. Uh, would, would love to have your thesis on these two investments and the general fintech sentiment in the market.

A See, uh, uh, you know, the NBFC sector has actually witnessed four mega shocks In the last 12 months, uh, starting from ILFS, then DHFL, then Yes Bank, and then COVID, which has resulted in two back-to-back moratoriums. So, the story for NBFC businesses hasn't been very positive, unfortunately. Um, uh, what that has led to is, uh, you know, cost of capital certainly has gone up by a hundred to 200 basis points. Availability of capital has been a challenge. Um, and, uh, and, you know, because of lockdowns due to COVID, uh, just collections became a, a problem for all the companies, not just our portfolio, but, you know, established companies like Bajaj Finance as well. So what our company decided, uh, to do during COVID was to pause disbursements because, uh, unless you can collect, there's no point, uh, disbursing capital and they reallocated a bunch of their, uh, resources to telecollections. Uh, I think on lending card, we are, uh, we were surprised to see the numbers that, uh, even in spite of, uh, COVID their average daily collections numbers stack up fairly nicely. Uh, in the market, and I think, uh, given what we've benchmarked against competitors, they're probably best in class in terms of collections. So while the new disbursements have paused, uh, we are just waiting for the lockdowns to end. I think on the demand side, there has been no constraint at all. Uh, SMEs wan…

AI assessment note: “what our company decided, uh, to do during COVID was to pause disbursements”

Q When it was such a fantastic journey, why did you decide to leave Helion and join Systema?

A You know, eight years was a very interesting time to, to learn a lot of things from these partners and, uh, and to, you know, really dirty my hands, uh, in a lot of deals. I was looking for the next challenge. I wanted to, uh, aggregate all my learnings and, and apply that to a platform where, uh, where I could sort of nurture it, uh, from the, from the ground zero. Um, Systema at that point in time was still an operating entity, uh, in India. They were running the MTS platform, and they were, they just started thinking about what next to do in India. And venture was an idea that they were pursuing, pursuing around with. Uh, they'd also come to meet Helion and we had some exchange of ideas. So when they decided to launch a venture fund and, and just to clarify system as venture fund was not a corporate venture fund. It was built and designed like a financial institution, financial VC. It seemed like the right platform where I could see myself add a lot of value. I could see myself, you know, put in the foundations of Uh, of a venture capital firm. What should be the investment philosophy? What should be the guiding principles? What stage should we focus on? What sectors should we look at? What should be our portfolio construction? What should be our return profile? So all those, uh, and, and then really, you know, get to a stage where I could be, uh, in a position to lead secto…

AI assessment note: “I was looking for the next challenge. I wanted to... nurture it from the ground zero.”

Q Fantastic. You are part of two food businesses. One is Rebel Foods, popularly known as Fazooz, and the second is Delicious. Can you tell us about your journey, at what stage you entered the companies, and why did you feel so strongly that these businesses, you know, would become today what they are? Especially Fazooz today, Is about to hit, I believe a billion dollars in valuation.

A That's right. So, uh, sorry, the Bell Foods or Fasos is a fairly old company. Um, they've had about eight, 10 years journey from the time they started. But when we came in, uh, it was a very pivotal moment for the company. They had transitioned from really, they were already, they were transitioning from, uh, Fasos, which is their own brand, uh, to a cloud kitchen platform. And what we liked was that, uh, you know, on the back of these cloud kitchens or dark kitchens or internet kitchens, call them whatever, You could leverage the economies of scale in terms of sourcing, infrastructure, people, et cetera, and launch multiple brands in the market. So they, uh, when we came in and we came in fairly late in this company, um, we came in at, uh, uh, at a series C stage, uh, but, uh, but it was the right time because, you know, they were just stepping the pedal on the cloud kitchen story. They had about a 120 plus cloud kitchens in the market. Uh, and they had launched about four brands. So we could see the evidence that, you know, uh, you could, how you could leverage the backend infrastructure and keep launching multiple, uh, lines of cuisines from the same kitchen. So, so that's something we felt was highly scalable. And, uh, we also felt that, uh, this is a team that really understands how to scale this business. Not just locally, but they had also international aspirations. And,…

AI assessment note: “we came in at, uh, at a series C stage”

Q Wow. So, so I believe all the companies in your portfolio of 10 are doing well, except one, you know, which, uh, which is Woopler. Can you share your learnings from Woopler? Were you too early on in that market?

A Yeah. Uh, uh, so Woopler, uh, you know, is something I actually worked on at Helion as well. So I was very close to that transaction. And then, uh, when I came to Systema, I felt very strongly about that model. And so I ended up, uh, backing that company at, uh, at Systema as well. Uh, they were initially, I mean, they went through multiple pivots, right, but, but eventually what they ended up with was a social commerce model, and, and they, from what I have looked and understood from the market, had probably the best economics in terms of, uh, you know, just running the social, uh, social commerce model. Uh, they, Uh, were contribution margin positive. Uh, they were scaling very nicely. They'd gone from literally two million to, uh, thirty million in a matter of a month, in a matter of 12 months. Uh, unfortunately, they struggled to raise capital. I think the competitive intensity in the market had, uh, had certainly increased. And, uh, our ability to support the company going forward was limited. Uh, and, uh, they had two term sheets that fell through, so unfortunately for the company, it happened at the wrong time, and so the founders decided that, you know, given the capital this business would require to scale, uh, and the fact that the capital was not coming, it was a hard decision to wind down the company. So, uh, I don't think it was too early or too late. I think the f…

AI assessment note: “I don't think it was too early or too late.”

Q now, there have been only a handful of companies like Baiju, Unacademy, Topper, Vedantu that have been, uh, able to scale I would say to a, uh, at least, you know, uh, near, uh, some of them are near billion dollar valuations. Some of them have crossed hundred million dollar valuations, and I'm monetizing well. What's your deep thesis? What will work in India, and what will work for you?

A Yeah. So, uh, you know, we've, like I said, we have been tracking the sector for a while and for the right reasons that you mentioned, we've also stayed away because we worried about monetization. We also worried about the fact that this is a fairly regulated sector. So higher ed is regulated. K-twelve is regulated. The opportunities lie within, uh, you know, coaching for test prep for entrance examination, which is a fairly competitive industry or market. And, um, and then, uh, tutoring for k-twelve, which is an emerging area. And then the other sector is preschool, which is largely, uh, franchisee driven model, et cetera, et cetera. So, uh, I think, uh, the, uh, these engagement levels and the scale that companies like Vedantu, uh, Unacademy, Topper, et cetera, are seeing gives us, uh, The encouragement that, uh, you know, during these times, uh, if you can build the right technology and link, uh, students on one side and delivery individuals on the other side, uh, there is, uh, there is value to be created in the chain, and then you can think of monetizing this through parents, et cetera, or through education institutions. So what we like is, uh, the K-twelve tutoring space, Uh, which is still nascent, but, uh, you know, it is getting competitive. Uh, we like the coaching for entrance examination, uh, potentially not IITJE because that is fairly crowded, but other examinatio…

AI assessment note: “So what we like is, uh, the K-twelve tutoring space”

Q So this could have potentially been a billion dollar business had it not been bought?

A Well, um, you know, that's not how managed services businesses get valued. Uh, uh, I think the multiple we got was a fairly decent multiple from Pine Labs. Uh, they, like I said, they were already 90% of the market. Billion dollars was the throughput, but the commissions, the revenues that they make on that throughput was, uh, you know, early Only double digits. So from that standpoint, uh, uh, this was, uh, this was the, this was a very decent valuation that the company got. A billion dollar would have happened had they launched their own B to C brand. And, uh, they launched their B to C brand, but if they had scaled their B to C brand and, uh, you know, basically, uh, scale that part of the business, then one could have seen a billion dollar opportunity, but they were largely on the managed services business. And so this was a great outcome for all the investors.

AI assessment note: “A billion dollar would have happened had they launched their own B to C brand”

Q dollars to Pine Labs. Uh, Whoopla, Mobicon, NetMeds, Pazooz, Seclor, Licious, LendingCart, HealthyFimey, Kisht, So can you tell us about, Uh, starting with Quicksilver. At what stage of valuation you entered in the company? And how, how did you grow the company? And finally, what led you thought process behind the exit? I believe from, from an exit point of view, it was still early, but a very large exit.

A Yeah. So interestingly, you know, I was still at Helion, uh, when I had referred, uh, the Quicksilver deal to Systema, and it was, uh, something that my partners felt very strongly about, and they had invested in the company even before I came on board. And, uh, you know, the thesis there was that, uh, you know, this is a gift card market is a large multi-million dollar market in the country. Uh, what Quicksilver had built through their managed services business was a, a solution that pretty much had monopolistic characteristics. They were 80, 90% of the market. They were powering gift card solutions for pretty much all the retailers, both offline and online. So it seemed like, uh, and you know, we were, this was, uh, one of the first few deals that we did. So we were conscious of the risk that we were taking. So this seemed like a good deal, uh, where downside was protected, and we could really, uh, see about three, four X on the upside, uh, from the stage at which we came in. We came in, uh, I think early series C in this company. This was an internal round that the investors were doing, and we joined that internal round, uh, with a four million check, uh, We, uh, had a journey of about, uh, two years with, with the Quicksilver, where we actually helped them open their Russia operations. Uh, my partner who was on the, on the deal actually helped hire the first Russian head fo…

AI assessment note: “We came in, uh, I think early series C in this company”

Q And what about Seclor and Mobicon? What areas they are in, and what stage you came in, and how are they doing right now, once you partnered with them?

A Seclor was the first deal Systema did. Uh, this is an information rights management product that was funded by, uh, previously funded by Venture East, uh, and Helion. And, uh, this company again, uh, uh, you know, targets large government enterprises in, uh, India, large manufacturing setups, uh, in China and South and, uh, and Europe. And they have an office in the U.S. where they target U.S. customers. Essentially what they do is provide you the ability to, um, uh, you know, Uh, trans provide to put a layer of security at the document level so that you can only share it with the relevant persons, uh, et cetera. And, uh, we came in at, uh, at a series B stage in this company. This was one of the early checks in the company. We've supported the company over time. They are probably at a double digit ARR number at this moment.

AI assessment note: “Seclor was the first deal Systema did.”

Q Uh, thanks Ruf for sharing your insights. Uh, now coming to some personal side of yours. You have been a venture capitalist for quite a long time. What, what habits do you attribute to your success in your very high success ratio?

A So, uh, uh, you know, success is a relative term. I think venture is a long gestation, uh, profession and, uh, success in that, in this is fairly back ended. So, um, I would, I would say that, you know, uh, success for me would is still five years away. When I actually see, uh, hard cash exit for the companies that I've invested in. But I think, uh, one of the attributes, uh, you know, that at least I focus on is just fairly disciplined investing, and that has, uh, potentially held us in good stead even in this time. So, for example, when we started Systema, I think our investment philosophy that we Chalked out was that we will not invest in flavor of the season business. We will not invest behind high burn businesses. We will like to invest behind high gross margin businesses where margin of safety is, uh, fairly significant. So thin, uh, margin businesses which depend on volumes is something we'll not be able to support. And, uh, and our capital should help the company get to break even. And, uh, Or at least there should be a path to break even, uh, where, uh, we can achieve the break company level break even with our capital. So these four or five trades is something we have deployed across our portfolio. And we've looked at all the companies through this lens. And, uh, you know, I think that has held us, uh, as a fund in good stead. So our portfolio is a fairly robust. We, …

AI assessment note: “one of the attributes, uh, you know, that at least I focus on is just fairly disciplined investing”