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Siddharth Ahluwalia:What have you observed in those founders who grew 50-100X since you invested?

Karthik Reddy: In my opinion, there are a bunch of reasons. I don’t think it’s about only, I wish I can blame it all on the founder. But I think the various things like market conditions, so space gets super crowded, then the number of cheque writers disappear. There are niche markets, which we are guilty of funding in the first fund. Nobody seems to care about it after us. So then you are at 2-3X, don’t sell the business, either become a lifestyle business or you will die. So you might as well exit it at 2-3X, right? So niche markets don’t work very well. And founders should have known better, we should have known better. So we drive away founders to think bigger if they come back with too small a vision. And finally, it’s fatigue, I would say, 3-4 years past, and not just at the founder level, it’s across the organization, you are saying, “hey, it’s not like I’m getting 30% pay hikes here.” And we’ve been doing this for four years and growing organically. Nobody’s cut a single cheque after the last round. So I’d rather just exit and move on. My opportunity cost is too high. And in a sense, I think the venture industry has got acclimatized to that behavior, they are saying, “hey, if the opportunity cost is too high, close it, or sell it move on and build something bigger, quickly iterate, it’s okay.” All of us are willing to take that hit. The folks who get all of these elements right are then on track to that 50-100X. But I feel it takes a mad persistence to want to keep learning. So when you asked me found the qualities, it is an incredible insatiable energy to build something transformative, and transform themselves to get there. They’re willing to punish themselves as founders, to keep learning, keep withstanding all the pressure, being the pillar of that pressure absorption for the whole firm, and make really tough decisions, right? I mean, cut costs, cut people, you know, survive at any cost. And there will always be those phases in all of these founders’ lives. And those are the guys or girls who basically break out from this rut, and end up building the 50-100x, right? If any of those qualities are missing even by a small fraction, then you’re in trouble in my opinion. Things can go bad very quickly, in this business. I’ve seen founders riding high and the next day they’re gone, just gone. And things can turn very quickly against you. It’s…you have your debt, or you have lack of capital or you over hired and have not thought through these things, you can go bust very quickly. So, that tenacity, that planning, ability to sell a vision and keep a team together, all those matters.

SA

Who are the three to four founders in your fund who you idolise?

KR

Right off the bat, it’s difficult I mean, we’ve always had this internal joke, it’s difficult to choose between your children in that sense. In value terms, I can tell you, the guys who are of the gate in terms of having created most paper value – Taxi For Sure, of course. They were great founders, but now been exited for four years. And currently, in the portfolio, it’s GreyOrange, Unacademy, Servify, Turtlemint. They are definitely a little ahead of the pack, but right behind them you have Dunzo, HealthifyMe, Locus, Milkbasket. It’s all marginal differences. Some of them are, you know, 50-100 million range somewhere, some are 100-250 range. It’s difficult to choose, they’re not yet 50-100X; they’re not yet like tomorrow morning, I can exit any of them or they can exit themselves. But I think if you asked me trajectory wise, all of them are capable of building a billion-dollar business.

SA

You have as a fund shied away from secondaries….

KR

Philosophically, I don’t believe in it. So until a company kind of reaches a billion dollars in valuation, and then I’ve lost track of why the hell they’re raising more money, or why they are mindlessly raising more money, and I have not yet been in that luxurious position, so to be honest, the only time those decisions have been imposed on me is because I’ve held Ola stock, Zomato stock or Truecaller stock by virtue of them acquiring my companies, so I have no visibility into them. So we did sell our stock. So it’s nothing we’ve never done. That’s the only case we’ve done it. One case. 

And, and when the companies break into unicorn territory, I feel like I lose visibility. I meaning I’m speaking for the firm, we lose visibility on where or why these companies are raising money, how they are executing the business. If miraculously, I continue to be on the board, I’d still don’t think I would sell, unless I believe that it doesn’t meet my threshold of 30% IRR, let’s say, right? Because that’s what I’ve kind of trying to promise my LPs who want me to be the hottest VC right? Then if it falls below that threshold, why am I still invested? But if I think it can maintain that threshold, Why should I sell, right? And so I’m a believer that the founder is the ultimate insider. And I’m the next best Insider, and the guy who the first cheque, most of the time. So if I don’t have that faith, how do you expect somebody else to have that faith and cut a new cheque? So if somebody comes into a new round, and you’re exiting, what are you saying basically?  Structural stuff aside; so you might ask, hey, there is an exit horizon….but you have not reached that yet, thankfully, no, we still have two more years on our first fund. So I have the luxury of having all of that not be a hindrance so far. Of course, after that, you have to, you know, calculate the structural things and say, hey, my fund is coming to end of life, I have to sell some. So we are reaching that point, we might do it in a few cases. But I’m in as long as the founder is in and thinks they’re generating wealth for themselves at 30% IRR, I’m there with them. That’s my philosophy.

SA

That’s a view something I have seen with very few VCs that hold on, you know, especially from early on till the founder sells the firm

KR  

Trying to see how long we can hold on to this philosophy. Of course, there will be investor pressure. I’m sure at some point, we’ll tweak it a bit. We will get some cash out, we will take some out. But yes, to the opposition of some of my LPs and to some of my VC friends who are appalled that we take this stance but yeah, we’ve been very hard on the stance so far. Let’s see how it plays out in the next five years or so.

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