The Exchanges

Q Any examples on the second category which you would like to share? Yeah.

A One, you know, so a few companies on ours, but the one that kind of stands out is Eruditis, which is a company being run by Ashwin Damera and Chaitanya, and both the entrepreneurs have built a fantastic company with very little capital. Another company in our portfolio, which has used very little capital to build a great business, um, is Shiprocket. And, and to be honest, the list continues. It's not that these are the two companies. Uh, even Rupee as a company in our portfolio has raised less capital to build value till now. Uh, Lyschus would be another example. So actually we like that idea and most of the entrepreneurs would fit that bill versus, uh, finding entrepreneurs or business models, which are cash cuddling.

AI assessment note: “the one that kind of stands out is Eruditis, which is a company”

Q You have led investments in startups such as Trebo, Sawan, Pepper Fry, Egglestar, and Lending Cart, and much more. The portfolio looks very diverse. What's the thesis behind, you know, some of these investments, which I just mentioned?

A That's a fantastic question. And to be honest, this is not the first time we've been asked this question. When we set up our venture capital arm, In 2013, a lot of people thought that we would put together a media centric, uh, or at best of media and services centric VC fund. Um, very few people know that we are fairly big in supply chain, financial solutions, uh, education and other sectors as well globally. And the general mandate For us is to make investments in anything digital and anything education. Of course, we, we can do media and services as well. So this is for us as BPO services. Uh, having said that a lot of them also get covered in digital. So that's the mandate for us, and that's why we've been doing it since 2013. The other thing that we started thinking about when we entered the market was that we don't, we didn't want to be a me too fund. There were so many funds who were, or which were all focused on early stage investments, whether it's seed funds, CDV funds, and we thought that that market would get saturated very fast. By 2013, there were already strong names that were emerging. Uh, very strong partners for us like Accel, Sequoia, uh, Lightspeed, uh, Mayfield, and so on. And I don't think, you know, we wanted to create another fund which would directly go and compete with them. What we did realize was there was a significant market in Series D and Series C…

AI assessment note: “the general mandate For us is to make investments in anything digital and anything education”

Q So if you can share, you know, some learning from the Savan journey, because you were already early in the journey and what, what kind of different, uh, phases the Savan journey went through?

A Sure. No, happy to answer that. And, uh, I think we were very lucky to be part of such a great company. I still, by the way, I'm touch in touch with, uh, the sovereign team or geo sovereign team, and they are just incredible entrepreneur and operators, really, really smart people. And I wish them all the very best going forward as well. As far as the journey is concerned, I think it was very typical, uh, journey that any VC would go through, you know, in a good, with a good startup. We did see hyper growth in the first few years of us investing in the company as series B. We also saw a lot more competition. Um, at that time there used to be, uh, three, four players Uh, who were fairly dominant and Savan was able to race ahead and become the leading player in the country. And, uh, honestly, after some time we did see a lot more strategic entering into the game as soon as they realized that this is a large market. And at that point we realized that the best bet we had, uh, to make sure that the company becomes, uh, fairly viable and sustainable is to join hands. With other strategic like-minded people. And, uh, we were lucky to have found the right home for the company with, uh, Reliance.

AI assessment note: “We did see hyper growth in the first few years... saw a lot more competition”

Q And any change in consumer behavior, which we are going to see, you know, post COVID, which you are currently working on or helping your companies prepare for those?

A Yeah, look, uh, I think first of all, very uncertain times. So even if we will give advice to portfolio companies or other advice in general, I'm not sure if they are all right advice. So with that caveat, uh, I must say that in general, we feel that given that, uh, physical contact is a big issue related to this situation, anything which does not promote physical contact, uh, those businesses will pick up after the lockdown. Online, of course, will be the big beneficiary of that or should be the big beneficiary of that, uh, segment. And in general, whether it's essential items today or non-essential, non-essential items tomorrow, all of them, all of them will be the beneficiary slash, uh, in advantageous position going forward. If we expected adoption of consumer behavior or change of consumer behavior in two to three times or two to three years, sorry, they will get accelerated by a few years and may even happen, let's say, um, in a, you know, in a year's time from now.

AI assessment note: “anything which does not promote physical contact, uh, those businesses will pick up”

Q So some of it are a mix of online or offline plays like Prebo, Pepper Fry, Agrostar. Can you throw some more light on it? What made you, you know, completely from a media house perspective to jump into offline and, uh, businesses, uh, which were outside the Burtzman co-spent?

A So honestly, um, as I said, Bertelsmann is not just media. We are a large conglomerate, which obviously has a lot of media businesses, but we do have services businesses, whether it's supply chain, e-commerce, um, it can be education, financial services, and so on. And if you look at all the investments that we've made, If parts of these businesses are very similar to what we do in Europe or other parts of the world. So I think there's a consistent theme that, that we follow. Now, of course, are we a furniture maker? No, we are not a furniture maker, but do we understand how complex supply chain works? I, the answer is at Elvato, we do that and we saw similar type of complexity in a company like Pepper Fry as well. Now, honestly, for us, the idea is not to be sector specific, but look at capabilities and understand if there are capabilities which are very difficult To replicate and that's what we call as a complex business. We like those businesses because we ourselves are in such business.

AI assessment note: “Bertelsmann is not just media. We are a large conglomerate”

Q Great. The businesses like Prebo and Pepper Fry, uh, you know, we are sitting in April, 2020, uh, a lot of, uh, you know, situations which we never expected to get into. How are these businesses coping up with the COVID, uh, 19 repercussions, which we are dealing with today? And what are the learning for other entrepreneurs, which we can derive from, you know, the actions being taken?

A Look, I think, uh, not a few businesses, but all businesses at this time, whether big, small, um, need to be agile and they need to adapt to the new reality. The new reality is that we are living in extremely uncertain times and some businesses over time will go back to their normal. Some businesses will do even better. We think that a company like Pepper Fry may end up Eventually benefiting significantly after this COVID episode is behind us. The reason of course is that it is part of an online trend where people will spend less time looking at offline options, but may go significantly towards online. And, uh, that would benefit companies like Pepper Fry. So from that perspective, I think that we want to make sure that we put our heads down, make sure that our runways are strong, And we stay relevant for the times after COVID. Of course, at the same time, it does give us a very good opportunity to not only fix our cost base, but also think about significant innovation that we can do to make sure that we continue to be the leader in the space that we operate in. And I think that is a general feedback I would give to all good Internet companies, and that is how they should think of life.

AI assessment note: “make sure that our runways are strong, And we stay relevant for the times”

Q Coming onto a personal side of yours, which are the habits you follow, which attribute to your success?

A Well, I can tell you that I'm a fairly, um, organized person. For me, my life revolves around my calendar. If there's something on my calendar, then I consider it done. So right from my professional as well as my personal work, including, for example, going to the gym or even, uh, eating lunch, everything goes into my calendar. So from that perspective, uh, it's my calendar that runs my life and, uh, that is kind of healthy being extremely efficient. The second thing I would love to do and I really do is I end up kind of mixing work and pleasure wherein even when we are working, then we are in a very informal environment, uh, with entrepreneurs, with my team and so on. And that does not let me get fatigued as much as I otherwise would be if I would be in a very formal setting. That would obviously mean, uh, casual dressing. That would obviously mean, uh, having informal conversations. Having a furniture in the office would be a lot more casual in nature and so on. And I think that kind of helps you have a very relaxed mood, wherein you are able to take tough decisions relatively easily. And on top of that, Making sure that, um, you're able to not get too fatigued, even if you've had long hours in the office or at this time at home. Lastly, of course, you know, finding time to spend time with family. Um, that is very important and playing sports and pursuing some hobbies like, u…

AI assessment note: “it's my calendar that runs my life and, uh, that is kind of healthy”

Q And how do you help your portfolio companies, you know, with the scale of challenges, you know, being a growth partner?

A I think what is, what was very important for us was to realize that as a, as a partner, we should choose the areas where we can help our companies. Thankfully Bertelsmann has been in the venture capital Business since early 2000. And so this was not our first one that we started in India. Bertelsmann runs funds in US, China, Brazil, and India, and now making investments in other parts of the globe. And then together we have more than 200 portfolio companies and collectively probably about 20 plus years of work experience. Um, and then of course, a fairly large venture capital team. One thing that we knew from day one, when we were starting, Was that we cannot handle the company in every shape or form and choosing the battles that we can fight was very important for us when it comes to value add. Can we provide value add in 50 directions? The answer is yes, but can we actually on the ground do it to our satisfaction? The answer is no. So from that perspective, our value add, we started focusing on three or four things so that we do them very well. First is of course, talking about the growth strategy. And networks, which kind of goes without saying, and spending a lot of time with entrepreneurs to, to help them think about, uh, life. Number two activity where we significantly help our companies is about, um, HR and hiring. When companies are in a growth stage, they have to hire …

AI assessment note: “our value add, we started focusing on three or four things”

Q And Bertelsmann owns four VC funds in Brazil, US, China, and India. How do you see the next 10 years of the Indian market as compared to the other markets which you are in?

A I think India market, thankfully, is following the China market, I would say. I would say we are probably in between, we have, we have some Similarities to the China market and we have some similarities to the U S market. And then there are certain features which are very unique with its own flavor also added to it. Uh, so from that perspective, I think if I were to look at the India market in isolation, I would be quite excited to be here. We are longterm investors as well as operators, and we think that we have made a fundamental commitment to the country as well as the ecosystem. And we do hope that the next, not only 10 years, but 20 or 30 years are very strong for India as well as our businesses in the country.

AI assessment note: “we have some similarities to the China market and we have some similarities to the US”

Q And, uh, can you share, you know, without naming the top habits and the mindset among the most successful Burstman portfolio entrepreneurs, what are your key learnings from them? If you want to look, I think a standard conversation with your, with any new entrepreneur joining Burstman portfolio in a late night chat over drinks.

A Look, I personally think that a lot of entrepreneurs have brought in significant amount of skillset and value to even us as entrepreneurs, as managers, as well as, as human beings. So first of all, I can tell you without fail, all the entrepreneurs or partners we've had Are fantastic human beings and we would love to kind of go out for a drink with them or this entire question that people ask us, um, will you be happy if you are on a deserted island with one of your entrepreneurs? I think without fail, I can tell you that we will, at least I will personally be quite excited to be with any one of our entrepreneurs happily, um, in a deserted island just by virtue of how strong and good people they are and so much that we learn from them. Having said that, some of the good habits that we have seen successful entrepreneurs implement in business, not on the personal side, are of course ability to think far and deep. I think that's a very critical mindset and making sure that entrepreneurs have an ability to see not to, you know, one or two years further out, but probably 10 to 15 years further out. Having that vision and then using that vision to create deep capabilities within the organization Is in my mind a recipe of how successful and sustainable businesses are built for which last a long time? And, um, I think that I would say would be one such, um, skill set slash ability that…

AI assessment note: “some of the good habits that we have seen... are of course ability to think far and deep”

Q But, but for example, uh, looking at a model like, uh, you know, Prebo, right? Uh, Siddharth and his team has built a model very frugally. How, how are you able, because the business model and the market looks very large, how are you able to spot that agility early on when you, you and entrepreneur are dating before the investment is made?

A Yeah, I think one of the things that we don't like to do is don't invest in businesses which have very little, um, profit margin. Because as more competition comes in and let's say it's a category where profit margin is either a single digit or even as, as little as three to five percent, then in order to build a lot of profit at the bottom end, you will need an extremely large volume. And unless the business is as strong as let's say Flipkart and otherwise an Avalon, you will not be, you'll not end up winning, winning that game, which is why a lot of these businesses are winner take most businesses. However, in most of my businesses, which we have invested, the gross margins would be in double digits, sometimes even in 30, 40 percentage points, because that is how the structure of the market is. We like those businesses. Because from that business for every hundred dollars of revenue that the company will get, at least 30 to 40% of that will flow down to a gross profit level, which means there's significant room to become profitable with less capital. And if they see, continue to see adjacent opportunities or opportunities for their core products, they can continue growing. But these are definitely businesses which will become a lot more profitable, much faster than businesses which would have single digit gross margin Characteristics.

AI assessment note: “one of the things that we don't like to do is don't invest in businesses”