Use Case

Azim Premji: The Man Beyond the Billions

For over five decades, Azim Hashim Premji has been one of the trailblazers of India Inc. Taking over his family business of vegetable oils at the young age of twenty-one after the untimely demise of his father, he built one of India's most successful software companies along with a multi-billion-dollar conglomerate. As of 2019, he was the tenth richest person in India, with an estimated net worth of $7.2 billion. Yet, the one facet of the man which has overshadowed even his business achievements is his altruism. He’s given away most of his wealth! In this episode, we’re joined by Sundeep Khanna, veteran journalist, and author of the book “Azim Premji: The Man Beyond the Billions”. Sundeep peels the layers off Premji's life while chronicling his professional and charitable work in the context of his many strengths and shortcomings. The episode is sponsored by Gaja Capital as part of the Gaja Capital Business Book Prize 2021. Tune in! This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit turnaround.substack.com

The story of Royal Enfield - a cult?

Few brands inspire the kind of devotion that an Enfield does. Its distinctive look and feel, the sound of its engine and the image that it creates of its rider have all contributed to putting the brand on the kind of pedestal that others could only dream of. But the story of how Royal Enfield became the brand it did today is filled with ups and downs, from its robust origins in the early 1950s to the rock bottom that was the 1980s to the lifestyle bike it is today trying to make a presence internationally. Enfield has truly come to epitomise successful business turnarounds and a case study in branding.In today’s episode we’re joined by Amrit Raj, the author of the best selling book “Indian Icon: A Cult Called Royal Enfield” for which he’s been nominated for the prestigious Gaja Capital Business Book prize 2021.Tune in! This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit turnaround.substack.com

Investing in Deep Tech & AI with Manish Singhal, Pi Ventures

In 1956 at the Dartmouth workshop, the idea we’ve now come to know of as artificial intelligence was sown. John McCarthy of Dartmouth college named the field, Artificial Intelligence. After the initial excitement, the artificial intelligence winter set in. With the availability of large amounts of data and computing power, we’re seeing a revival in AI. Several fields are being transformed by artificial intelligence now. And that includes writing. A few months ago, I’d interviewed Paul Yacoubian, the founder of Copy.ai. He is easily one of the most interesting entrepreneurs to watch out for. In just four months, his startup, Copy.ai had gone from $0 to $50,000 in monthly recurring revenue. The company uses the language model GPT3 to write marketing copy. And the traction it is seeing is proof that thousands of people are using it. It’s not just writing that’s being transformed by AI. It has found applications in several fields, including healthcare, manufacturing, banking, and finance. We figured it is about time we had someone on the show to talk about AI. In this episode of the Use Case podcast, we talk to Manish Singhal, the founder of Pi Ventures on investing in AI and deep tech companies. Pi Ventures is a Bangalore-based fund that only backs companies that uses deep technologies like AI to solve real-world problems. Timestamps3:01: Why did Pi Ventures choose to invest in deep tech and its thesis.6:36: On cancer screening tech from Niramai and mental health company Wysa.10:50: On Pi Ventures fund II. 13:02: What has changed in deep tech for it to become investible now?14:52: How Pi Ventures invests.17:08: Understanding Demand & Supply Resonance Maps24:24: India’s place in deep tech28:33: Incremental innovation and 10x innovation29:34: Domestica capital in deep tech32:03: Pi Ventures has 42% women-founded deep tech companies Link to Pi Ventures blog. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit turnaround.substack.com

Venture Debt - the what, why and when not! With Ishpreet Singh, Stride Ventures

There is a saying that debt is often cheaper than equity. Our topic for today is venture debt, which has become mainstream in the Indian start-up ecosystem of late. In 2019-20, the total amounts raised by venture debt funds was about $62 million which jumped to about $85 million in 2020-21.As the pool of growth stage start-ups increase, it is fast becoming an attractive non-dilutive alternative to equity financing. Not just that. In many cases, it is a great additive to equity financing as a bridge round. Say you are at a Series B stage company and you know you have to raise the next round in the coming year, but if you were to go out to the market today and raise capital you will get a lesser valuation than what you would if you improve your numbers over the next 10-12 months and then raise. To get that extra 10-12 months runway, Venture Debt can be an alternative to bridge rounds. Our guest on the podcast today is Ishpreet Singh Gandhi, the Managing Partner and Co-founder of Stride Ventures, one of India's leading venture debt funds. You could listen to the episode on the browser above or on Spotify/ Apple Podcast/ Google Podcast by clicking the play button below:Here are parts of the transcript (edited slightly for better readability): Ravish: A good point to start off with might be to understand what venture debt is. Traditionally, we've looked upon debt as a bad thing. Now, venture debt comes in at the stage where a lot of companies do not have the traditional cash flows or even assets (which has been the traditional way for underwriting term loans by banks). You've worked with multinationals as well as start-ups. I know that Lendingkart and Rivigo were some of the first start-ups that you lent to while you were at IDFC. Two questions – what is venture debt and at what stage of a start-up’s life cycle should one explore raising venture debt? Ishpreet: So venture debt becomes available in eligibility once you've raised your first institutional capital. So moment you raise a venture capital round with an equity infusion of around $4-5 million, you become eligible for venture debt for a very early stage company. And it can go to later stages as well because you remain backed by some of the institutional investors by then. In terms of standard offering, a traditional venture debt product is typically coming on top of venture capital round. So the moment you have a venture capital infusion, you can club your financing with venture debt. Say hypothetically you're a company that is planning to raise ₹50 crores, and you believe that ₹40 crores are getting committed from the VC. The remaining ₹10 crores, you say, okay I do not want to dilute for this capital and that 10 crores can be replaced with the venture debt option, which ends up getting repaid over a period of next 2 to 3 years.And while doing that you pay a certain interest rate plus you give a certain portion of warrants in the company, which can be 10-15% of the debt amount. And that typically ensures that you do not dilute your stake in the company for those ₹10 crore rupees. It's been a very widely used tool in the US and the mature economies. It came in existence in the 70s-80s in the US when Venture Capital started coming in and today constitutes a very large portion of the US equity market. Its size ranges anywhere from 13-15% of the Venture Capital market in the US. And some of the other economies like Europe, it will be 8-10%. It's gaining steam in India – it will be around 3-4% of the Indian Venture Capital market today. We think it can be a billion-dollar market in the next one and half years because it is closely correlated with the Venture Capital market and we have seen that grow exponentially over the years. Our whole purpose remains - how it can be used by founders. Because a lot of founders realize while raising rounds that they end up diluting a lot, which could have been replaced by debt.The other point, which you have to understand is that this debt can be replaced by equity because this has to be repaid. It's a loan ultimately. A founder must understand that this should be done at a time when you can afford to repay. So it can backfire if you have not timed it well or have not done it in an educated manner. And that's where it's very important for the founders to realise the importance in terms of creating non-dilutive structures which can be repaid. Another benefit is that the turnaround time is faster than the typical equity venture capital fundraise.Ravish: What are some of the other pros and cons to taking venture debt? When receivables aren’t coming in or if you’re using it just as a way to prevent dilution and not using the money - then effectively you might just end up paying interest on undeployed capital! When is the right time to take it? And also at what point should you not take debt? It's a very valid question. When you raising the capital round, you have to be very sure of how much capital you're looking for. And I'm sure generally founders are aware of that. So of the 40- 50 crores of capital being required upfront, it's very important for a founder to understand and forecast the revenues and losses. And then back-calculate that this is the type kind of runway I want for my company for the next couple of years. to check if they should take venture debt. When I started Stride in 2019 and went to the Venture Cap ecosystem and founders, there were mixed reviews. People are clear of the fact if they’d be pre-revenue or very minimal in revenues - so revenues are not very clear. That's where the traditional venture debt of long-term loan comes in. And, and more importantly, this is an instrument that works beautifully where you're sure that this is a fix-six year story. That's why I said it's very critical for the founder to time it, well, they should be on top of their business. Ravish: How do incoming venture capital investors (ex: a Series B investor coming in) look at companies or start-ups that have already some amount of debt on their balance (say debt taken while/ after raising Series A)?Ishpreet: So venture capital investors have started realizing the importance. We work very closely with all the top funds in the country. Our portfolio has a lot of companies funded by Sequoia, Accel, Elevation, Chiratae, and others. The whole purpose is that they also don't want to dilute in good companies and they would want debt funds to contribute, to grow their portfolio companies.Ravish: But this is for existing investors, what about incoming ones? Ishpreet: In both the cases we have seen it is complimentary. And that's where your first aspect of the question comes in handy - asking what the use case is and how do they intend to repay debt-  do they repay when they raise equity capital or do they immediately repay or do they keep on holding onto it. We have, I think in our portfolio, already seen more than 15 companies raising or about to complete the follow on equity rounds. In fact, they were talking about augmentation of further debt! Because the genuine capital requirements cases can be replaced by debt.Most would not want to raise large equity rounds if that capital requirement can be complemented with debt. Especially where the marketing spends are high and that additional capital can generate the delta revenue for you. Ravish: Is that the same as Accounts Receivable financing?Ishpreet: No. AR financing is more of receivable financing for corporates. That is typically like capital provided for you for a marketing spend. So it's more prevalent in the B2C companies where you say, okay, I have to increase my Google spends and my marketing spends by 10% - on that I can generate 20% more winnings, but I do not have that source of capital to do it from equity investor. In AR financing the repayment happens as a share of revenue every month. In Venture Debt the repayment also happens monthly but it is secured lending done on the assets of the company. AR financing is unsecured and it is done as a share of the revenue. There the return for the lender can be as high as 25-26% because they are taking a larger risk because if a company is unable to pay you back, you practically can’t do anything. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit turnaround.substack.com

Term sheets are F*ing complicated; Kushal Bhagia explains them best!

Why this topic for this season’s first episode - A few days ago, one of my best friends from college got an offer from a Thrassio like set up to buy X% stake in her D2C company. Now she had bootstrapped and built this business from absolute zero to a multi-crore turnover company with ~30% margins on each sale! Yet she felt absolutely lost and helpless during the negotiations because she had no clue how pre-money and post-money valuations worked. As a builder and an operator, her primary skill set was building stuff. On the other side of the table were multiple ex- PE guys whose only job was to do these calculations and negotiations inside out. At that stage, I realised how important it is to understand how valuations, dilution and investor rights in term sheets work. I figured, if ever I want to start up myself - THEN would NOT be the right time to know about these basics. Moreover, working at start ups mean you’re working for ESOPs and to know what the value of ESOPs could be at various stages, one must understand how dilution and liquidation preferences work. So, in this episode of the Use Case podcast, I’m thrilled that Kushal Bhagia, who is the founder and CEO of First Cheque, could join us to explain these important concepts. He’s a super founder friendly investor who has been trying to educate the market on these concepts with his Youtube series called “Know your termsheet”.These are some of the things we cover in this episode. They’ll help you make sure you’re getting a fair deal. * 04:00 - Context setting* 07:50 - Your company has a value only because an investor is putting money in it - fir that new shares are created -> dilution happens; pre-money and post-money explained with an example* 13:20 - Key items agreed in a term sheet; terms and conditions that come with this collateral free money that you get; tag along rights, pre-emptive rights. * 26:00 - If an exit happens, in what order and how much will people get money; preferential shares, participating and non-participating shares* 35:00 - Special case of accelerators, pre-seed rounds, convertible debt (YC specific - SAFEs) * 44:00 - What bets do VCs like to make? Honestly, expect a no. Listen to this episode in your favourite podcasting app: This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit turnaround.substack.com