The Epilogue: Looking back at S2 of the Blume Podcast | Karthik Reddy and Rohit Kaul

Rohit: Hey everyone. We started the second season of the Blume Podcast with a quote from Warren Buffet where he attributes his success to luck, genetics and compounding. As we recorded this season, we have had our own share of quotable quotes from our guests. Ramdeo Agarwal talked about the compounding of India as a nation. Peyush Bansal spoke about compounding customer obsession. Manish Sabharwal spoke about his three key ingredients of company compounding and Nitin Kamath dwelled on when a startup is actually born. As we wind up this season, we feel it's important to go back to the beginning and wrap our heads around all the themes, factoids and insights we heard from our guests to leave you the listener with the most essential advice on the power of compounding.

I'm Rohit Kaul. I lead marketing at Blume Ventures. I've turned the tables today and I have Karthik Reddy, the host of the second season of the podcast, as my guest. For those of you who don't know, Karthik is the co-founder and managing partner of Blume Ventures. So Karthik, you spoke to nine amazing founders in this season on the power of compounding.

I'm curious to know, were there any common threads or shared beliefs among your guests regarding the principle of compounding? 

Karthik: So I think I'll first touch the generic ones and then I'll get into.. three slices of how the nine-episode series played out. I don't think we had even all the guests lined up when we started the show at the beginning of the season, and I guess some things naturally just fall into place quite beautifully. And it feels like this year was a gift in terms of everything aligning itself very well. So I'll come to that in the second part. Maybe we can touch upon it in a different question as well. So common threads, I think there was obviously this love for customers and customer obsession.

All the founders sought out the reciprocity of their passion in customer love, right? As long as they were fed with customer love, they just found enough fuel to keep going on, right? I don't think anyone here was obsessed about any other target valuations, investor goals, etc. And if you see, there's a healthy mix of companies which lived without investors or fresh investor capital for very long stretches of time in their journey.

The second was, I think Custodians versus owners. I think when you're building a compounding journey, which in the last decades… and we have ample evidence of it in this season and for the listeners, I did a short tweet of a chart I'd drawn up for myself, but you might have missed it. So let me reiterate... Basically, the youngest company on the podcast was 13 years old and the oldest founder, the founder of Hatsun Agro has been running the company for 53 years, right? So that was the breadth of compounding journeys that you saw in this season and basically when you look amongst some of the younger ones like Zerodha etc, who was also only 13 years on paper though he does say that you should add all of our previous effort into it as well. It felt like two journeys compared to one. Same thing that Manish said about Team Lease, all the learnings from that first, small startup journey which got acquired, fed into the second journey almost seamlessly. And so when you're doing similar businesses, it feels like one long journey.

One M&A here or there, or the incorporation of a company is just a milestone. Where I'm getting to is, when you have multi decade compounding, then I feel like the founders start wearing the garbs of custodians, not like main maalik hun. There is no owner privilege beyond the point - at the least you're handing over to the next generation, at the least.

So I think that arrogance is not there, which is refreshing to see, which you do find in a lot of the startup world. This was very well explained by Manish and I won't reveal more. You have to go listen to that episode if you want to know what I'm talking about, in the whole jageer versus amanat analogy where he talks of the difference between building what you think is yours versus building what you think belongs to multiple stakeholders.

And all of this is interwoven, for me, these are important lessons for founders. As a manifestation of these last two points, which are about the same, a third point emerges, which is that your personal choices are not equal to all stakeholder choices, meaning you making decisions for what is right for you is not necessarily right for the company as a whole. And most again, founders make the mistake of thinking of these as synonyms and they're not. And when you've taken other stakeholders with you, sometimes customers, and invariably a lot of folks we are speaking to on the podcast who have touched venture money, either as employees or as a founder, that means you have the investor’s interest also to protect.  

So this orientation, that this is mine, and you are on the other side, customers are on the third side, and the team is on the fourth side - that doesn't make sense to me. As a summary statement to everything I've said, I think essentially all these founders, no natural end for a legendary company, that's a mark of a publicly listable company. If you look at the origins of the DCF-NPV formulas, essentially assumes cash flows go ad infinitum.

Rohit: That's right. That's right. Yeah.

Karthik: So why doesn't that happen often enough is something we question. But actually, when you look at a lot of these companies, they're on that path. Now, of course, they can get acquired any given day. Of course, they can get displaced by a challenger company, all of that can happen. But I'm talking about the orientation, the common threads or shared beliefs is what you asked. And I find that these are inherent in all of the guests we spoke with.

Rohit: Wonderful. Thanks, Karthik. It's great that you unpacked that. I also remember, apart from Manish, Mr. Ramdeo Agrawal and Vinaiti also talked about building multi-generational companies. Especially in manufacturing, Vinatiiti spoke about when you start a company, you expect it to be multi-generational, not expecting it to have a specific end state. As you're saying, having a specific end state in mind is not how you start the company. So fascinating to hear these common threads. At the same time, Karthik, while you've unpacked these three, were there any insights, maybe out of these three or maybe something new that you heard? Maybe in one episode or across episodes, where you felt that, hey, this is going to sound extremely counterintuitive to the people who are going to listen to this, that people might say, "Okay, I did not think the world works like this." Any thoughts on that?

Karthik: One, I think we should engage in a bit of self-criticism here. Clearly, there's a healthy cynicism around the role investors play in companies. So that was good because you expect.. there's a sort of self-importance that you attribute to yourself, which is obviously exaggerated because many would have built irrespective of the capital source. So doubly so as a venture capitalist thinking that you are essential to building path-breaking companies is probably not true. That's counterintuitive I would say. Secondly, if you remember in the opening session of this podcast a few months ago when you and I were chatting, we talked about the difference between the XEx-Unicorn series last year and the Power of Compounding series this year. And when I look back, what I said was, we focused on journeys that captured the first 10 years, and here we are trying to focus on the journeys beyond the next 10 years. An interesting summation of this series compared to last year's series is that when you actually now look at the entire set of 17 episodes across two seasons, they all feel interchangeable. I think we picked guests who are actually on that path in Fund IOne, and in Fund IITwo, they've covered that path and are now worrying about different problems of intergenerational building and two-decade, three-decade, four-decade kind of problems. But actually, the first-seasonfirst season guests were equally compelling in their line. It's amazing. Being around again for 14-15 years, right? So this all seemed interchangeable, although I tried to draw a wedge between them. So that's counterintuitive.

I think what is counterintuitive is that these qualities and beliefs that you talked about in the first question are either latent in the founder and the journey or they're not. I don't think you can reclassify them six years, eight years, ten10 years down the line. I think by the fourth, fifth year, in my personal journey, for example, Rohit, you didn't know me when I made that call. I think it took about four or five years. After four or five years, you make that shift towards thinking about all the things required for compounding: culture, long-term believers, long-term institutional base, long-term partners, or, in the journey, long-term customers. But the minute that penny drops, all your orientation starts shifting towards things that you need to do to build long-term. And so, for me, that penny drop was like four years into the journey. I don't think it can be much later than that. That was the point I was making.

And the last thing I think is the promoter thinking of themselves as a shareholder and still being able to interoperably optimize for their own self as a shareholder but also for everybody around them is counterintuitive. Not to me, I think that was my premise for doing this season, but for a lot of the audience, I think it might have appeared counterintuitive. Because there's always this me versus them, "I've gotten diluted too much" kind of narrative. Crazy stories, right? Like Vinaiti's father raising money at face value from the public market to get started. So over 20 years, it neutralizes itself if you actually have a way to fix it. And so I think when you think super long, 20-30 years, and you build continuity maps with that kind of timeframe, then these issues don't bother you that much. And so all of these were counterintuitive.. 

Rohit: So just to summarize what you're saying. You're saying that there are many parts to building a valuable company for the long term, but the first four or five years are when you choose a path. That's the ‘flex’ you have as a founder. And after that, once you've chosen a path, you continue on that path. Is that what you're saying, Karthik?

Karthik: No, I'm actually saying that at most you have four to five years. A lot of these founders seem to have had it from almost day one, year two, something as early as that. And it might've been because this season’s founders didn't have a lot of funny money backing them. Very few, right?

So they had to make really hard calls and constantly question themselves on what they are in it for. And so they might've had those decision points earlier. For me, as I said, during Fund I fund one, when I saw how challenging it was, I had to make a call on whether I wanted to make this a lifestyle business and optimize for myself. Or start optimizing for everybody I bring into this journey. So I'm working as hard for my team members every day as I am for myself. That's exactly my point. So I'm the custodian of many stakeholders—careers, not lives, but careers for sure. And those switches can't happen in the eighth, ninth year. And if they don't happen in the first three, four years, then you're not that kind of founder

Rohit: I think what you're also saying is something which takes me back to what Ramdeo Agrawal said, I think one of the first few episodes we recorded about you as a founder cannot be in it just for the good times you have to be in it for good as well as the times when shit is hitting the ceiling.

Karthik: And also, there were a few things that we should touch upon category-wise, which we can do as well. We discussed talking about lessons for founders. We'll come to that. But here's what happened, right? Very curiously if you look at the last four episodes, suddenly, we went from single-generational companies to actually multigenerational companies very curiously. And when I found those choices, I was actually excited because I wanted to build some diversity in this dialogue that we're having with founders and sharing with all our listeners. What I mean by that is, look at the Arun Ice Cream journey. He started it 53 years ago, but his son now runs it and continues to compound. This is a little like Ambani's, for example, but in a miniature way. And the other part was Vinaiti's dad having founded the story, but basically, the first fifteen15 years it moved but not to anywhere close to the scale. And she took it over and compounded from there from 60 crores to 2000 crores.

And actually, what's even more interesting is the other two where they were actually acquisition-led. So if you look at both their minds, Mithun and Radhika, they made calls to note that their constraints on how to build big were not going to curb their mission to build the right kind of company.

So they took it to strategic investors. If you listen to Radhika's podcast closely, she actually put out a sale process to sell a hedge fund. Fascinating. And Mithun did the same. He convinced Lee to give up his stake so that Titan could take a majority share. Amazing. And then pushed the boundaries of what's possible within the acquired base, which means, me being the founder and all of those are like, those are all small stakes compared to what you can leave behind as a legacy.. And Radhika is charged enough to build a public company on her own now with a new entity and Mithun would have loved to, but as he says, quite openly, he found a partner who's more determined to own the entire business. So he's walking away from it. But those choices, I'm saying, were made in those first three, four years. Those are interesting examples, which may not have surfaced as much in the first half of the season. 

Rohit: That's a fascinating observation, Karthik, shifting gears slightly over here, and you spoke about being, you, for example, being the custodian not just for yourself, but for the larger team and the careers and all.

Straight away, come, I had a bunch of questions in between, but I just want to ask a different question over here is about - From these conversations, what are the takeaways that you want the Blume team to apply or you would want to apply to Blume as an organization as we grow, as we evolve into a larger company or, or a larger portfolio, so to say. Not for our founders, but for us..

Karthik: No, I think too many. I keep insisting, as you can see on our internal groups, that I want everyone to listen to every episode. I couldn't have arranged or come up with a better set of educational classes, right? And it's difficult. It's not like we make eyewear or we do chemicals, but on the other hand, we are a financial services company and there were three financial services companies in here, right?

And there's a lot to take away from how financial services companies are built more than any other sector, I would argue. Why? Because it has everything to do with being custodians of somebody's money. And so definitely double click on what it means to Ramdeo and Nitin and Radhika on what it takes to build.

One is actually like an asset management house like us, and the other two are more like tech. So if you see, the compounding journey starts much later. After people trust you with their money and you've shown returns, right? And so financial services businesses take even longer because not an instant gratification of buying a consumer product, wearing it, being happy with it.

It's, "Hey, I gave you my hard-earned money, like everything I've earned and kept aside, I'm giving it to you to be a custodian”. And that's what I need people to understand, that as fun as venture capital sounds and as formulaic as an excel sheet might show on portfolio construction, .

eEvery rupee that you lose should hurt you, right? It's a part of the business. I get that, but I think that not too many youngsters in venture capital get it. So my team should definitely understand why this is such a long-term game and why this takes 30-40 years. Coincidentally between the last episode recording and our current today's recording, I also heard Elizabeth Clarkson's podcast on 20VC about venture capital funds. And she says every time you sign up, and which is what I've been trying to tell people, put your mug on the pitch deck. Essentially, I expect the same thing that the LPs expect, which is 12 to 15 years of loyalty to the money that you raised on. On the virtue of your mug also being on the pitch deck - to push that responsibility onto Karthik, Sanjay, Ashish. Agith is like unfair.

 As you can see, all this has been playing on my head. It's always, obviously this theme didn't come today. It came one year ago when we had to design the t-shirt for this year's Blume bash, which meant that it's been playing on my head for a while. All of this messaging is only validation that has come from the podcast.

My storytelling has been consistent across the firm, across the year. And as internally, we have done a lot of work to even do internal podcasts around this topic and what it means to be a Blumier inside the team and why 30-40-year journeys are important. So I think the podcast helped in reinforcing this at one level. Our business, right? The second most important thing, and this is where I'm hoping the youngsters get the benefit of what I didn't get 10-12 years ago when I started Blume, is why bother picking founders or for that matter, picking team members who don't believe in the power of compounding and long-term journey. It's a criminal waste of time more than anything else. Forget about the money for a second. Why would you want to spend time with such people, right? What is the thrill of taking an asset and flipping it over in 6 months, 12 months, 13, that's a stock market play. You can take a punt on a stock. You don't have to come in, do early-stage investing, right? So I think it's super tough to sell the mission of a venture capital firm and what it means. And Beezer Clarkson's podcast with Harry Stebbings is useful. It reiterates everything that we've known internally, but maybe I've not been able to communicate strongly enough to the world. That some 50 percent drop off between first-time managers and second-time managers. Same fund. They don't even raise. 75 percent by the time it gets to fund three.. So you should question what the hell are you doing and why are you building? And so I don't think that's well understood and therefore come to what we are doing in venture capital and why should you be doing this as well?

Rohit: No, I think it's fascinating, some of these stats. I think, and of course, these are not well understood, I think not outside venture, but also, as you're saying, also within venture in that sense, right? And one of the points Karthik touched upon this, the longevity with the firm. I think it's an interesting point. I just want to double-click on it. Also, in the context of something that Manish Sabharwal said in one of his responses, obviously, the episode was basically him doing quotable quotes through and through. But there's one thing with a statement which he said, that he went to a college and he offered kids two choices. You take 10 lakhs now versus you take one paisa now, which doubles every day. The 10 lakhs remain there. And he said, while people chose 10 lakhs, the majority of them should have picked like one paisa, which doubles every day because it will become much bigger at the end of the 31st, to which his wife quipped that, Hey, till the 24th day, if you take 10 lakhs, you are better off.

Because that's when the one paisa doubling will actually move beyond the threshold. And that's the sort of compounding which is now kicking in. And since then it's stayed with me, and I've been wondering at what point do you know that the compounding is either about to kick in or you want it to kick in or you start thinking about it.

And in the same light, you mentioned it. There was a penny-drop moment for you. So if you can also talk about that, what was the penny-drop moment four years ago? Was there a second penny-drop moment about when you think, okay, compounding has to start? I think these are two interlinked questions in my mind.

Karthik: So I'll finish the penny-drop on which is easier. Basically, the penny-drop moment for me was that when you start returning capital, people will happily give it back. So if you don't stick around until the 15th year or so and actually start showing capital back in spades, you really can't enjoy the fruits of that 15 years of labour. It actually kicks in only in the 15th year. And therefore, you have to build a firm that sustains itself smoothly, and there is a career progression for others after you. Ironically, you've done all the hard work, but they can benefit from it. But hopefully, the pot then increases to make it worthwhile for everybody.

A 20 million fund to 290 million, however much ever you compound money, there's only a finite amount of dollars you can make. You can't make a 50 bagger on the 20 million fund versus a 5five bagger on the 290 fund. So the rewards are going to compound only after the 15th year - was becoming very clear. Then you can't build a firm that is short-term in its nature and put your pitch deck out there when you know that every time you put a pitch deck, it's another 12-15 years. So that was a penny-drop moment for me. I think you're absolutely right in that the Manish Sabarwal analogy applies a lot more to a very circumstantial fund like Blume, which was, we had no experience before this. So no one was willing to give us any credit for having worked in venture capital or having shown a track record.

So no one gave us institutional money. No one told us today's 20, right? We knew from market circumstances that all we could do was 20. There are firms that rode on their prior track record, came up in 2016 to 18. And raised three-digit million-dollar funds off the bat. So they had no obligations from the past because they were not the partners who raised that fund or had that obligation, but took all the good part of that came and got like instantaneous step function compound. So actually, the question you ask is the trick is that - he was trying to teach a lesson to school kids around the actual maths around compounding. Venture capital is the art of actually gaming that one paisa a day. In step functions, you're supposed to pick up paisa also. And so that doubling, finding what unit double can double, to accelerate the time factor is the genius of the founder and the VC, if you ask me. Is it perfect? No, it's not perfect. It'll fail most of the time, which is why we have 60 percent loss ratios. But look at the problems picked. The problems picked are those that can compound beyond the one paisa doubling. The same thing, you pick up 10 paisa on the first, still half the class will take the 10 lakhs on day one and walk away.

But I haven't done the math, but you put it into calculator right now, I'm sure that 24 days will shrink to 10 or 12 or something of that nature. Now tell me it's not worthwhile to build. Because from the 12 to 30 now that Compounding effect is like going to whip the 10 lakhs by any means. 10 lakhs at best can be given to a wealth manager earning 12 percent. So that's capped. You can only earn 12 percent on that, right? Or 13%. But this 10 paisa is compounding at some crazy orthogonal rate, which has everything to do with what I call step function compounding, not linear. So you take a giant step on day one, and then in between you take two, three giant steps, you can compound like crazy.

So COVID was a step function compounding factor for a lot of businesses. New technology, which allows you to put up, like Ppixxel putting spectral imaging satellites at super cheap prices because prices have gotten knocked down from where they were 10 years ago, is a massive startup, doing zero to not 10 paisa in that example, but more like two rupees compounding. So the speed at which you can compound then just changes dramatically. And I think that's the trick. So sometimes if you notice now, in Blume, we wait for three, four years to see whether this is a linear or it's a, already the step functions have been achieved and jump in a little late. Or we pick like really edgy tech, which because of circumstances has that step function advantage on day one.

That's my counter to Manish's more rigid mathematical principle of one paisa.

Rohit: Basically, step function compounding and not just simple compounding. Amazing. Karthik, towards one of the last few questions on this, I think one is on, I think you have personally pushed these episodes out to a lot of founders, like almost everywhere in the portfolio, a lot of people outside the portfolio. We've had some great feedback from founders. In fact, I remember when we were having the Blume Bash, in the morning, a bunch of founders wrote to you saying, ‘Hey, this is a great episode’. And I probably asked you, I think they're worried that they want to quiz you. And that is why suddenly all of them are just listening to this podcast and sending you feedback! But yeah, if you think of it, you touched upon the threads and the common themes. If there was one big piece of advice, and I think there are many, so I think I'm putting probably an unfair burden on you, because there are many themes and many great pieces of advice, but if those maybe one or maybe two in that zone piece of advice for the founders that you would aspiring founders that you want to share with them, you touched about them earlier. 

Karthik: I think fundamentally what every great entrepreneur will say, which is basically build for your customers who you really care about, right? So I think if you think about entrepreneurship, at least in the venture-funded avatar as something that can make you money, it's either scheming or in a good way, using the word in a good way, or it's like trading. Is it an enterprise that can be built and can compound? I don't think so. So only things that can compound, and we touched upon it with a lot of founders, right around ‘What it means for brand to compound, customer love to compound, culture to compound’.. And so essentially I think when you build for customers and the problem that you care about a lot, then all of this flows more naturally number one, and then you're building to leave a legacy, not some valuation or some exit, which is, which is a venture capital problem. It should be a founder problem. The takeaway is. Guys, if you build something that gets forgotten, even before the decade market is done, then truly is this, was that a journey worth building? Of course, they could have made money. I'm not saying … see money is a side effect, right? So if you ask me, what lesson are you giving the founders? This would be right. And then when you leave that legacy, I think you make everyone, every stakeholder that was a part of it, very proud of the job. I worked in American Express in my first job and there was this pride of what that card meant in my wallet, even 20 years later. I know what you're saying. And so can more brands do that? Indigo is so mechanical in the way it treats me as a customer that at some level I despise it, but to the rest of the world, I laud it as one of the best operational excellence businesses built globally, most operationally challenging and cost-challenging businesses in the world. And I will say to death that it is one of the most beautifully executed businesses ever in the history of mankind. I think you'll create that sense of pride in what you build when you obsess with it. The customer problem and solve it. Everything else takes care of itself. So that's my primary thing.

Rohit: Got it. Got it. It takes me back to, some, I think one of the other things you said the other day was about as a founder, do you want to be a chapter in the book of entrepreneurship India or do you want to be a footnote? So I think obviously being a chapter is I think in a way is what you're saying.

Karthik, I think you have all the questions I've run through, but if there is anything else that you would want to add and you want the listeners to think about please share. 

Karthik: We should, when we discussed it, I think you also said one last, I know you've asked it in two different ways. One I've answered. You said, what would be a key takeaway or piece of advice on the power of compounding? For the Blume team to apply as much like the founder. So I think the final word on the founder, for example, is, which I've said a fair bit this year, not that I didn't know it before, but I think everybody in the team has been repeating that all of these stories are so unique - I think the nine stories we presented this year and the eight we presented last year - yes, there are common learnings, which are more sort of emotional gut, but the stories are so unique. Why are they built for different customers? They're built by different personas. They're built in a different point of time, right? The story is yours to make is unique. So don't copy paste cut paste from others, right? It's my thing. Now I'm using that as a segue because from a venture capitalist standpoint also that matters a lot, right? So we tend to get sucked up into pattern matching so much that we don't understand that's not going to make the real publishing worthy story, but it's the fact that somebody built an exception to that formula that's going to create that story, right?

So basically one of my first year annual report quarterly reports that I wrote to my investors, I used to write these quotes on top. So there was, I think a Martin Luther King, there was maybe a Buffet. I don't know. It was a Bezos. And there was, of course our Good friend and mentor, Mohandas Karamchand Gandhi, and so idealistic as I was back in the day, basically, I said, we want to fund the change we want to see. So adapting from, we should be the change.

The one thing also that I wanted to add for the founders is that they should learn every story is unique, right? So don't ever fall into the trap of blindly imitating. One of our guests in the podcast. So that said, you will find there is a subtle element of what one particular founder does that appeals to you because it's your personality also, your belief also, your vision also, and so that's what I think I've gotten on my feedback on the WhatsApp chats after people listen. They say I am relatinged to this. I love this aspect. And you can, it's very clear that particular founder, that's all they'll take away from that. So it's great. Take takeaways, but your stories are gonna be unique because the point in time which you started the company, the macro variables around you, the customer has changed and evolved - So you can't cut-paste anything. And so I wanted to use that as a segue to say that applies to the way Blume team members also see the world. Please don't fall into it. Pattern matching to the extent that you're looking for a China copycat or an India copycat or a X of Y of X. It's easy to say, but it's a trap in my view, because eventually what will get built and become legendary is not a copy. It will be something unique, right? So your job is to judge that. So that's what I would exhort most of our colleagues and the venture capital industry. 

Rohit: Thank you so much, Karthik. This is a wrap. Thanks for being a great host for the second season of the Blume Podcast. For our listeners who are here for the first time, you can listen to the Blume podcast on Spotify, YouTube, and in your favourite podcast app.

Please let us know your feedback wherever you're listening. Thank you so much for listening. 

Karthik: Thanks, Rohit, for setting everything up and a lovely team that we've had both across all three, four cities that have allowed us to seamlessly execute this season. It's been a pleasure.