February 26, 2025 • 40 mins
đź’°How do VCs raise billions before they invest in startups? What happens behind the scenes when venture capitalists secure funding from Limited Partners (LPs)?
đź“Ś Timestamps:
0:00 - IntroductionÂ
2:45 - How Gautam Mago & Rahul Chowdhri Became VCs
4:55 - The Growth of India’s Startup & VC Ecosystem Over the Years
7:40 - How LPs Shape the Venture Capital Industry
12:08 - What VCs Look for in a Startup
16:35 - Fundraising Mistakes Founders Make & How to Avoid Them
21:20 - India vs Global VC Markets: Differences in Investment Strategies
26:05 - Sectors & Trends That Will Define the Next Wave of Startups
30:50 - Why Exits Matter: IPOs, Acquisitions & VC Returns Explained
36:45 - Advice for FoundersÂ
For the first time, three of India’s top VCs pull back the curtain on the venture capital fundraising process!
Rahul Chowdhri (Stellaris Ventures), Gautam Mago (A91 Partners), and Amit Somani (Prime VP) break down:
âś… How do VCs raise capital from LPs & the challenges they face?
âś… The key questions LPs ask before backing a VC fund.
âś… How are investment decisions made when managing hundreds of millions?
✅ Why fundraising is just a startup problem—VCs do it too!
With ~$2 Billion collectively raised for Indian startups, this episode is a must-watch for founders, investors, and anyone looking to understand the world of venture capital.
đź”” Subscribe for more startup & VC insights!
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#VCFunding #VentureCapital #LPInvesting #IndiaVC #Startups #Investing #IndiaGrowth #IndiaStartups #PrimeVenturePartnersPodcastÂ
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
The reason we wanted to actually have this podcast is
to say we don't talk about this.
Speaker 2 (00:07):
It is like a startup founder trying to, you know, for
the first round of capital.
If you have good pedigree,people want to talk to you.
Speaker 1 (00:14):
Yeah.
Speaker 2 (00:14):
That doesn't mean you'll get money.
Speaker 3 (00:19):
The macro interest in India has never been higher, so
interest in India could isnever been higher Interesting
that all three of us arehomegrown funds.
Speaker 1 (00:30):
How has the LP landscape evolved over the last
15, 17 years?
Speaker 2 (00:34):
Now there are institutional LPs from India.
I fear in next 10 years tidemay turn the other way, that
we'll have excess capital.
Speaker 3 (00:41):
Us public market plus 5% is kind of what LPs would
expect you need a May Kalu Tikkiburger of India for McDonald's
to succeed.
Said you will spend your timeeverywhere, but you'll get the
capital from the US.
Speaker 2 (00:56):
There was a time in between where we felt we should
just pack, shop and go home.
Speaker 1 (01:01):
Welcome to the Prime Venture Partners podcast.
I am delighted to have with ustoday two friends and longtime
successful VCs in the Indianecosystem Gautam Mago, a partner
at A91, and Rahul Chaudharyfrom Stellaris Ventures.
Welcome to the show, guys.
Thank you.
Thanks for having us.
Gautam, love to start with youOne.
(01:23):
I've been always curious aboutthe name A91.
Where does that come from, andperhaps you can tell our
listeners and viewers a littlebit about the fund and what you
guys do?
Speaker 3 (01:31):
Sure.
So when we started A91, whichwas about six years ago, we were
trying to find a name thatstood for excellence in India,
and so we hit on A91.
The A is inspired by Ashoka theGreat and the 91 comes from
India both our country code aswell as the year of
liberalization and we put thattogether to form A91, which we
(01:52):
hope to stand for excellence inIndia.
We are a six-year-old firm, sowe are a late-stage venture.
Early-stage growth capitaltypically Invest between we have
now 27 investments so far.
Invest between we have now 27investments so far.
We invest between 100 to 400crores I prefer to talk in
(02:13):
crores versus millions ofdollars in companies that have
you know post product market fittypically well into revenue
generation and so on relevantfor us.
We think of our sectors asconsumer, healthcare, financial
services and technology, andwe've made new investments in
(02:34):
manufacturing, engineering typebusinesses as well.
Speaker 1 (02:38):
Fantastic Thanks.
Thanks, gautam, that isinteresting to know.
I didn't know the 91, the yearof liberalization, but that's
great.
Thanks, gautam, that isinteresting to know.
I didn't know the 91, the yearof liberalization, but that's
great, rahul.
A little bit about the nameStellaris, and then what you do
and we go from there.
Speaker 2 (02:52):
We'll very simply put Stellaris is backing Stellar
founders.
Speaker 1 (02:55):
Awesome.
Speaker 2 (03:01):
Jokes apart, you know , when we were starting, we had
this question of what the namebe, because we have fundraising
and there was no name on thepitch deck.
So Ritesh, one of the three ofus, decided that he'll take up
that responsibility and in somelanguage he figured out.
Stellaris stood forconstellation of stars.
And we thought that would be agood name to get started, so
that's how the name came.
We are an early stage fund, sowe do.
We are on the other spectrumspectrum of what Gautam and his
(03:22):
team does.
We do anything from a businessplan stage company to a series A
.
These are typically companies,pre-pmf, using technology and
backing India-originatedfounders.
So those are the three pillarsof our strategy.
We have been in business since2017, so this is the eighth year
now.
And now investing from a thirdpoint.
(03:42):
We are okay investing anythingfrom half a million to a 10
million dollar check at theentry point in a company.
Speaker 1 (03:50):
Wonderful.
So I know both of you were alsostellar VCs We'll pick on Rahul
even before you started yournew firms.
So the episode today is reallyfocused on you know, most
founders would think that VCshave a ton of money and perhaps
the two of you do I'm stilllooking, looking for it but that
we ourselves have to raisemoney, and we raise money from.
You know, people who are calledlps or limited partners.
(04:10):
Uh, how has the lp landscapeevolved over the last 15, 17
years since you, gentlemen, havebeen doing this, and, in
particular, in the context ofyour funds as well.
So maybe we can just start withyou, gothamautam.
Speaker 3 (04:22):
So, firstly, there's no one LP landscape as you can
imagine.
It's a capital market.
There are as many perspectivesas there are people.
If the public capital markethas, I don't know, x number of
million people, maybe theprivate capital market has X
thousand people, right, let'scall it that.
So there's enough diverseperspectives, I think.
(04:43):
If you look back 15, 17 yearsback when I started, originally
at Sequoia Capital, I joined in2007.
The private investment industryin India was really five years
old.
The first firms were founded inthe late 90s Chris Capital and
(05:04):
Westbridge, and there were someothers, but it was e-ventures
and some of them had evolved tobecome more private equity style
versus more venture style.
But it was a very, very smallcapital market.
So I think I learned this fromsomeone else that if you look at
the venture business in India,it evolved in that 2005 to 10
(05:29):
timeframe mostly alongsideSilicon Valley sort of
sponsorship, if you will right,whether it was a loose coupling
or a tight coupling.
And the same was true with theprivate equity business.
Most of the private equityindustry, most of the venture
industry, was global firms withglobal LPs, and I suspect I was
(05:57):
above my pay grade at that pointof time, but I suspect that
most people were just along forthe ride without much education,
saying, hey, we're investors inXYZ firm whether it was Sequoia
Capital or, I don't know,blackstone or whoever else and
okay, these guys say so, we'lltry it.
(06:18):
I think, if you fast forward totoday because the industry has
been around for so long there'sa lot more sophistication,
there's a lot more understandingand there's a lot more
participants.
Lps themselves have evolved.
They've all sort of set up Asiasetups, india setups, et cetera
.
So I think there is a lot moresophistication.
You still have a lot of LPsthat are very, very uninvested,
(06:42):
under-invested in India, andthen, of course, you have an
emerging class of LPs from India, given the wealth that has got
created in India over the last20 years, both founders and
public investors and so on.
I think there is a I'd say themacro, if I was to sort of draw
(07:03):
a dichotomy which I think we allhave to hold in our heads at
all points of time.
The macro interest in India isnever been higher.
The micro of saying hey, butwhy is it translated into
returns that are not bad but notstellar, is also there.
(07:24):
There's a lot of macro interest.
There's no doubt about that.
Speaker 1 (07:31):
Wonderful Rahul, congratulations on just closing
your third fund, a $300 millionfund, and I know that you guys
started also, like you said,seven, eight years ago and the
earlier funds were like 90 and200, something, right, 225,
right, uh, so obviously, uh, howhave you seen it, even in just
(07:52):
this last eight years, not justthe 17 that you've been
practicing this art?
How has it changed what?
What are the kind of differentquestions people are asking now?
What is accepted, what is still?
Speaker 2 (08:01):
people are like still looking for answers from an l
point of view so see, in termsof questions clearly, and in
terms of landscape also, right,there are some global LPs and
they've been around.
They were LPs in Helion andthey're LPs in our fund now.
So there are endowments,pension funds.
They've been around for like 30, 40, 50 years, investing in
venture.
(08:22):
Once in a while, we also see alot of new family offices come
in.
As people create wealth, theystart their family offices.
So that landscape does changeand that is one area in which I
would say Indian LPs have comearound.
A lot of those set of familyoffices are there, and including
angels as well.
What has happened over the lastfew years is also now there are
(08:43):
institutional LPs from Indiawho are interested in venture.
Now, in terms of questions, ifyou are a global LP, you can
invest the dollar anywhere inthe world.
Clearly, the US has generatedsome great returns.
One of the big questions is whyIndia?
And if there's a risk premium,am I actually getting the return
that you are?
You know the risk that I'mtaking for, including currency
(09:03):
risk.
So that is one question thatLPs have.
The other one is you know, yes,I like to Gautam's point, I
like India, but why should Iinvest in you as a fund.
So what is so different aboutyou when there are, you know, 10
venture funds?
Some of them are globalplatforms, some have been around
longer than you have been.
And then, finally, question isof track record, as in yes, your
(09:26):
FMVs look good, but have youreturned money or not?
So those are a few questionsthat you will, I would say, on a
regular basis.
Whenever we call LPconversation, see, come up as
your fundraising.
Speaker 1 (09:39):
Absolutely Interesting that all three of us
are homegrown funds, right, andactually kind of a moment of
pride there.
Right To say that you can dothis now, as opposed to the
global funds which had the kindof India chapters or whatever,
or Asia chapters, as Gautam yousaid, or long right, including
(10:07):
kind of from times past.
They're struggling with thisquestion of, like you said, you
know, good but not great returns, right, perhaps not stellar
returns or whatever, right, andit's just compared to america.
Speaker 3 (10:12):
Sorry, certainly as compared to america yeah,
certainly, as compared toamerica.
Speaker 1 (10:16):
In fact I was going to ask you this uh, later,
gotham, that even compared toindia on the public markets,
which are a lot more liquid, Imean I wouldn't say predictable,
but you know you have a lotmore control over your destiny,
as opposed to one of the thingswe get asked on the public
markets, which are a lot moreliquid, I mean I wouldn't say
predictable, but you have a lotmore control over your destiny,
as opposed to.
One of the things we get askedon the early stage side is when
will I ever see BPI?
Because if you're seed stage,we are at prime.
We are seed stage.
It's very hard to imagine howare you going to get to a
(10:38):
10-year fund cycle?
Speaker 2 (10:40):
So, maybe for the folks that have been around and
backing it for a long time 30,40 years- so maybe for the folks
(11:01):
that have been around andbacking it for a good returns,
it just took longer.
So in terms of IRR it may nothave played out In terms of
multiples, it did play out.
Also, what has happened isIndia is much more mature today.
I would say most of the LPsthat were there 15-20 years back
are as interested in India asthey were 15 years back.
(11:21):
In middle there was a questionmark they had on India, but with
the size of the economy, growthin the economy in the public
markets and the liquiditythey're seeing from public
markets now they are veryinterested in India.
In fact, I fear in next 10years tide may turn the other
way, that we'll have excesscapital, too much capital, which
(11:46):
basically you know inculcates alot of bad habits when you're
growing a company or building acompany.
But you can't have it both ways.
So I would rather take excesscapital than low availability of
capital.
And I think India is in a verygood spot that way.
Speaker 3 (11:57):
Yeah, I'll just maybe say two things.
I mean, I think there is acomparison with public markets,
but up to a point only, becausewhen you look at the underlying
earnings expansion of publiccompanies, it has been far less
than the actual returns.
So a lot of returns have comefrom this capital inflow and all
LPs that think very, verylong-term know that that is not
(12:21):
a sustainable answer.
So there is a question, butit's only up to a point.
Second thing I'll say is thatthere are good reasons for LPs
to be very enthusiastic aboutIndia in the very long term.
When I started investing in 2007, india was a $700-$800 billion
(12:46):
GDP economy.
We were maybe $700-800 GDP percapita and the infrastructure
was digital, physical.
Everything was poor or waypoorer than it is today.
Fast forward to 2025, nearly $3trillion economy, nearly $3,000
(13:07):
, maybe $2,700 GDP per capita.
Every small change can lead tolarge outcomes now, larger than
then.
So there are very good reasonsfor that, for LPs to be
enthusiastic about it.
I think the time it takes tobuild companies in India is a
(13:31):
question that has to bejuxtaposed next to this question
.
So when we looked at the data,it certainly feels like from
company inception and if you'rea really good company and if
you're therefore top I don'tknow five percentile, maybe two
percentile of companies, youstill will take 13 to 15 years
to IPO.
So I think there is a palpablesense that the future, the next
(13:55):
10-15 years, should and will bebetter than the first 15 years
of India private investing orIndia venture in particular.
But for the future to be betterthan the past, one is the
environment is already better,but some of the inputs may have
to change as well.
Some of the thinking may haveto change.
Speaker 1 (14:13):
Got it.
Let's take two cohort of LPs.
We'll stick to theinternational ones.
We'll come to India in a fewminutes.
Let's say somebody is notexposed to India at all.
Right, gautam, you alsomentioned that there's a lot of
underpenetration.
We've also got a lot more LPinterest in the last six, nine
months than perhaps in the lastsix, nine years, right.
But many of them are alsorelatively new to India.
(14:34):
Now, that's a double-edgedsword, right, because they have
no idea yet about India.
And the other cohort is theones that have been in India for
a while.
They've got some, maybe it tooklonger, maybe you know they got
the multiple, not the IRR,whatever, right.
How would you think about thatcohort of LPs, the new ones, and
how would you?
You know, if you were advisingthem, what would you say they
(14:56):
should think about?
Come in, don't come in, thinkabout it, and so on.
Speaker 3 (15:00):
It's hard for any manager to convince an LP that
they should invest in it.
They have to sort of come tothat decision themselves.
You can provide some inputs,etc.
Second question, I think, isthat if you're a large LP,
particularly if you're managinga pool of capital more than a
(15:22):
few billion dollars or more, Imy guess is that most LPs and
they should first start withpublic market exposure to India
before they start with privatemarket exposure.
That's the logical thing to do.
That's what I would do if I wasin their shoes.
Of course there are people thatare only private market focused
and so on.
Leave those aside for a minute,because that's the most liquid,
(15:44):
easy answer versus and you canreverse mistakes easily if you
make them, and so on.
So if I was advising an LP thathad no exposure to India, I
would first say dip your faithin the public market first
before you do private investing,because you and us and Rahul,
this 10-year locked up capital.
I mean it's a long commitment,it's a really long commitment.
Speaker 1 (16:07):
Absolutely, Rahul.
Do you want to add anything toeither of the cohorts?
I?
Speaker 2 (16:09):
have a very similar view as Gautam it's very hard
for us to advise an LP, tellthem what to do.
That is a call they have to make.
I've also seen LPs take a callthat for this asset class, this
geography sounds moreinteresting.
So for there are LPs who arelike VC in India is attractive,
but buyout in Japan is what Iwant to do.
So they also decide based ondifferent asset classes.
(16:30):
And finally, it's a question ofportfolio construction.
At the end, right, there's arisk part and the return part
and diversity part.
So they try to balance allthree of them and maybe starting
public market is a good ideabecause, as Gautam is mentioning
, so maybe that's a way to start.
But yes, whoever comes in as in,they have no hurry.
(17:00):
See that good.
The good part of the of beingan LP is if you miss this fund,
it's not as if you can't enterin the next one.
Like for an early stage fund,if you miss a deal we can't come
in at a later stage for thatcompany.
Here they have no such ifthey're a good.
Lp they'll get their way intothe next one of the same
franchise.
Speaker 1 (17:17):
Yeah, no great.
I mean one of the very simplethings we try to figure out when
any newer kind of LP, like howlong have you been visiting
India?
Have you even visited in thelast two years, or since COVID?
And if it isn't, usually I meanwe're not advising them.
Of course you're, you know,talking to everyone, but it's
like, hey, look, just you know,get your bearings, it's all
right.
Like there's no, there's norush, like rahul said yeah, um,
(17:40):
switching gears, talking alittle bit about fund sizes,
right, uh, gotham, your lastfund was about 550.
Uh, rahul, you guys have sortof grown in in size in terms of
the fund size.
I think this might be even forthe founders that vcs also spend
a lot of time both thinkingabout LP portfolio construction
and the fund size.
So how do you guys end up at550 for the last one or whatever
(18:02):
the next one is going to be?
And, rahul, how did you guysdecide that this was the right
number?
Speaker 2 (18:07):
let's start with that so you know it's an interesting
and a difficult question toanswer.
A lot of time you see, fund sizederived strategy, whereas in
ideal world it should be theother way around, Right?
So I don't want to claim that wehave figured out the right
answer, but at least I'll tellyou the strategy and how it
(18:29):
leads to a fund size.
So our view was that we will doearly stage, which means seed
and series.
We need to build a portfoliowhich is at least 25 companies.
We have six check writers andthere is a certain number of
deal flow that we see from whichwe think we can do maybe eight,
nine a year.
And if you reverse calculatefrom that, we arrived at a
(18:49):
number between 250 to 300 forearly stage round.
Now, three and a half yearslater, if the inflation of round
sizes keep on happening, thenthe number might be different.
If the amount is very similar,then number will be similar as
well.
So it's a question of whatcapacity you have, what stage
you want to enter and what arethe round sizes happening in
that stage, and obviouslyincluding the following amount
(19:11):
so that is the math we had doneto arrive at the fund size.
We had a lot more interest, butat least we felt that even 300
is a hard one to deliver.
Going above that didn't makesense.
Speaker 3 (19:24):
How about you, gautam ?
Honestly, not very different.
I think it is art more thanscience, although there is some
science.
You do similar math as how manyinvestments per year?
What are we seeing?
What's the average investmentsize?
And I think it's good practice,if you have the good fortune of
(19:45):
being in that situation is tosay no to some of the capital,
because ultimately, we are allhuman.
While there is competition inthe market and there is an
aspiration to do more, thesethings can only grow at some
organic pace Unless youcompletely add a new strategy to
(20:07):
what you do.
Speaker 1 (20:09):
Yeah, I think it's heavily debated inside of Prime.
We've decided to keep it thesame across funds, but with a
lot of animated debate.
I think it's heavily debatedinside of Prime.
We've decided to keep it thesame across funds, but with a
lot of animated debate.
And in terms of what thestrategy should be, how would LP
portfolio construction?
I once heard from and I won'tquote his exact face Doug Leone,
when we had got to meet himmany years ago, that keep an
(20:33):
equal number of LPs.
I'll just leave it at that,Right, and therefore you do the
math right.
So it's 550 divided by whatever.
Do you guys consciously thinkabout LP portfolio construction,
whether it, in terms of thesource of capital, could be us,
like Rahul said earlier, itcould be pension funds, could be
endowments, could be DFIs,whatever, right?
Or is it a lot more now thatthe new firms are established,
(20:53):
right?
Yeah, hey, you've got a lotmore people wanting to invest.
Speaker 3 (20:56):
I certainly think.
We think about it now.
I think first fund one and fundtwo.
It's harder to think about ittoo much.
There are, I think, broadlyspeaking, two approaches that I
have seen.
One is if you look at the largeglobal firms of course this
(21:19):
happened over a period of time.
They all have very diversifiedLP basis, so no LP is more than
5% of the fund or whatever.
And then you have the otherextreme where you have 10 into
10 as well.
Speaker 1 (21:32):
Correct, rahul.
Just a twist on that questionhow about the geography right,
because you've raised some fromindia, a lot more from abroad.
Does that kind of play intomind?
Speaker 2 (21:43):
so not as much geography, but more the kind of
lps you're getting does play asin.
Do these people have, or dothese institutions have,
reputation of backing multiplefunds in their mind, at least
when they are coming into you?
What kind of checks they write?
What is their focus on India?
Are they new to India?
So, those are the things that Iwould say go more into our
(22:05):
discussion than a certaingeography, because geography is
a very hard one for us to have aview on.
Somebody from Europe might bevery convinced about India, but
somebody from Singapore may notbe.
Speaker 3 (22:15):
Makes sense, although I mean the emerging answer.
If you look at the emergedanswer, I don't know what it is
for you guys.
If you look at outside Indiacapital, big chunk of it tends
to be dollar in origin.
Yes, it tends to be American.
In one I had got advice from ahedge fund friend.
He said you will spend yourtime everywhere but you'll get
the capital from the US.
(22:36):
So yeah, and you know, it comesthrough various forms and so on
, but the end source is oftenthat's probably, I suspect it's
true for you also.
Speaker 1 (22:44):
Yeah, very much.
Yeah, similar for us.
In fact, for us it used to be100% from the US.
So that is why the geographyquestion of the mind, to say
maybe we should get some fromAsia, maybe some from the Middle
East or whatever.
Speaker 3 (22:56):
So I think, even though it's a smaller fund,
India is a interesting and IndiaLPs is interesting and relevant
question to think about for thenext 10-15 years.
For sure already there arereasonable amount of fairly
sizable LPs in India, are they?
There are a reasonable amountof fairly sizable LPs in India.
Are they up the curve in termsof understanding of what private
(23:20):
market investing, what ventureinvesting, what growth investing
is they're getting there?
They're not there yet, but thecapital base exists and if you
look at I don't know the numbersbut Chris Capital's current
(23:40):
fund, what we hear is that thereis going to be a sizeable
domestic component.
In the sort of private equityworld people have raised
reasonable size purely domesticfunds and that LP base is
getting a bit more sophisticated.
So that may also be aninteresting trend for the next
10-15 years.
Speaker 1 (24:00):
Got it, rahul, question for you as you went
from the first $90 million fund,although you were kind of
restarting the journey to the$300 million, like we often ask
founders when they are raisingright.
It takes the same amount ofeffort to raise $90 million as
$300 million.
Or is that a myth or reality,beyond the caveat of you just
starting restarting back whenyou did Solaris 1?
Speaker 2 (24:21):
I think it is more dependent on where you are in
your evolution as a fund morethan anything else.
In the first fund I think itwas the toughest fundraise for
us For about nine months.
There was a time in betweenwhere we felt we should just
pack shop and go home.
We only had, like it started aconversation where it looked
like everybody was interested inus.
In three months nobody wastalking to us.
(24:42):
So it is like a startup foundertrying to you know for their
first round of capital.
If you have good pedigree,people want to talk to you.
Speaker 1 (24:52):
Yeah.
Speaker 2 (24:53):
That doesn't mean you'll get money.
Speaker 1 (24:54):
Yeah, no, it is definitely very humbling to
fundraise, as is probably notapparent.
Speaker 3 (24:58):
I think what founders don't appreciate necessarily as
much is that you need manyyeses to make a fund.
You don't need one.
The big difference and thereason why it is both less hard
but also a lot harder, is that Ithink the two things that are
different and but also a lotharder is that I think the two
things that are different and Ithink, given that a lot of your
audiences, founders, it'spertinent for them One is that
(25:20):
you don't need one yes, you needmany yeses.
Second is there is no okay,make some progress and show me
Right, all or nothing.
So that's those both make itcan make it different.
Speaker 1 (25:34):
For sure, right Building along the same lines.
How do you quote unquoteprepare for a fundraise, or what
is it that you are thinkingabout?
Like okay, you know as and whenyou do your next fund?
Like hey, here are the set ofthings we should think about.
Of course, you have to talkabout track record, your
portfolio, but are there, oreven the timing right, like the
(25:55):
first fund was probably six,seven years ago Now this one you
know.
So any thoughts on that interms of when you are preparing
for a fundraise?
What are you thinking?
Speaker 2 (26:06):
So one is that if you want to plan, you can't plan
only six months in advance.
It has plants only six monthsin advance.
It has to be planned threeyears in advance to assume or
think like an lp as to what willthey look for in you when you
go out for your next fund and ifyou have certain funds running
behind you.
There are expectations that lpshave of you having proven xyz
(26:27):
by the time you are in the ninth, nth or n plus one fund right.
So you have to at least getthat sense.
The second one, and veryimportant one fund right.
So you have to at least getthat sense.
The second one, and veryimportant one, is are your
existing LPs going to supportyou?
It is like, again, when afounder is a late stage round,
they go and first check withtheir existing early stage
investors.
Are they in or out right?
(26:49):
So having that sense it's animportant conversation to have
and you know there are questionsaround team and succession
planning and all that stuff.
So those things have to be inline and not to say that you
have to engineer it.
You have to be ready with thosequestions and I'm assuming that
they all make.
There's a reason why thosequestions are asked.
(27:10):
So if team matters and ifsuccession planning matters,
then anyways, you should bethinking about it before you
start to fundraise.
So those are kind of thingsthat matter.
And finally, is the storylanding or not?
And at least we do a lot ofpreparation before we start
talking to LPs on what are thepotential large or important
questions that will come up whenyou go and start pitching.
Speaker 1 (27:33):
Yeah, so let's double click on both of those right
Exits, which has been theAchilles heel of the ecosystem
forever, and that leads to DPI,which is capital return, not
just raised into the fund andyou mentioned team.
Are there any other questionslike that?
And then, of course, we'll talkabout exits.
Speaker 2 (27:51):
See, differentiation is the other one that, at least
if you're in a crowded market,every LP will ask you why should
I invest in you?
Why not in 10 other funds, as Isaid would be longer, better
brand name and so on.
So that is one question thatyou have to answer and then
finally, what is the portfoliofounder saying about you, as in
(28:17):
when they do ref checks and Ithink ref checks are very
extensive and very important intheir diligence?
What is the ecosystem sayingabout you?
Speaker 1 (28:22):
What is your own company saying about you?
Speaker 3 (28:28):
Gautam maybe talk a little bit about exits and
generating returns, real dollarreturns.
I think the marker in our mindsis that M&A is a difficult
route.
In India, in the HUL minimalistacquisition of few days back
and you know, kudos to the team.
They built a incrediblebusiness.
It is rare if two thousandcrores of cash exit is quite
(28:49):
rare in India, how many we haveseen over the last, I think we
will see more Clearly.
It will happen, but it is notthe same frequency as America.
So you have to sort of be onthe path, in our view, to be an
IPO-able company.
And if you have that, there aresome strategies you can employ
(29:09):
to sell along the way becauseDPI is important for LPs.
Sell along the way because you,because dpi is important for
lps, um, the uh, and I alsothink some of it is a function
of where you are in your life asa firm.
Once you have a few funds underyour belt which have performed
well on a cash returned basis,then perhaps there's more
(29:30):
forbearance to say, okay, wetrust you and you know you'll
figure it out, which is normal,it's absolutely human.
You know if everyone has toearn on their stripes and on
their trust, um, but I think theand you know, despite the IPO
markets of today, which areexuberant and almost, like many
(29:50):
companies, can go public, thechallenge I think for a lot of
LPs has been that from the timeof inception it takes quite a
long time, and then I thinkthere's a.
The dichotomy, I think, is thatyou need LPs that are patient
because it's going to take time,but nobody is infinitely
(30:11):
patient, right?
So nobody can be infinitelypatient.
Speaker 1 (30:14):
Right, I think, rahul , the problem is harder yet for
earlier stage fund.
I know you do seed, but alsoSeries A, but imagine your seed
investment portfolio as astandalone cohort.
It takes even longer.
So how do you guys think abouttwo questions, one Gautam's
point about are you thinking,not necessarily exitability, but
if this were to ever go IPOsomeday, what would it be?
(30:35):
Or is that not?
It's largely like an early betand then we'll see how it goes.
Speaker 2 (30:41):
No.
So I think for us, everyinvestment we make better the
IPO, if it works out, so that isat least incoming thesis of
every investment we make betterVIP, if it works out, so that is
at least incoming thesis ofevery investment.
Obviously not everything right.
On the other question, onengineering and exit, like I'll
make a statement which is more,you guys will laugh at me you
(31:03):
need a burger of India succeedright, so the same burger in us
doesn't succeed in india, andhence similar exit strategy in
us may not work in india nowwhat?
is that right strategy?
I don't want to claim that Ihave the answer, but I'll tell
you.
What we have done is, uh, inour prior lives we realized that
waiting, or this whole notionof getting, trying to get to
(31:26):
full potential is the only wayto exit, was a bad idea.
And at least over the lasteight years, whenever we got a
liquidity opportunity, we lookedat it really seriously.
And in companies that weremiddling, we took it blindly.
In companies that were doingwell, if it were exceeding,
let's say, 10x of our capital,we took enough money off the
(31:48):
table.
So at least there were somepartial exits that happened.
Now, obviously, we could nothave done it on our own.
There had to be liquiditywindows that were available, but
in the past we had not takenadvantage of the liquidity
windows.
So at least this time we changedthat a little bit.
Good part is, with multi-stagefunds and later stage funds
coming in.
Speaker 4 (32:08):
We don't have to.
Speaker 2 (32:08):
At least an early stage investor doesn't have to
wait for full M&A or full IPO toget all the cash back.
If the company is doing well, alot of series D investors are
interested in doing secondariesalso to bulk up their ownership.
You have to be a little bitnimble and you know what we want
(32:30):
founders to do is we havehustle.
Speaker 3 (32:31):
There's a very similar thing out here as well,
you know, it's interesting Ithink Fred Wilson has put this
out a long time back about theUnion Square Venture strategy
and it's different from I meanfrom the strategy that some
other firms follow, that theysell along the way, right, they
sell one third and just, youknow, just write the upside on
the balance.
(32:51):
Um, there's another lp of ourswho gave us the advice that some
even private equity firms inindia follow, which is the
version of what raul is sayingat 3xl one third and then you
can, you, you know, it's fine,you're sending, you're sending
the capital back, et cetera.
I think the this full potentialbit is is a is a useful
(33:14):
framework.
If all the companies are, orsome of them have, a chance to
become Google, yes, right, thenof course you don't want to sell
anything ever.
Speaker 1 (33:22):
Yes.
Speaker 3 (33:22):
Right.
It doesn't feel like we're inthat paradigm in India.
I wish we were.
I don't think we're in thatparadigm in India.
Speaker 1 (33:30):
Not yet, at least.
Yeah.
So that leads to an interestingquestion in terms of because a
lot of the audience here isprobably founders right, how
open are you about theseconversations?
The reason we wanted toactually have this podcast is to
say we don't talk about this,nobody wants to talk about it.
So appreciate both of youtalking about it.
So how openly do you talk aboutend of fund life this one, you
(33:52):
know, if you're going to raise200 million I might want to take
some chips off the table or howmuch of it is more kind of
hallway conversation or evensort of like backroom.
Speaker 2 (34:00):
You know like we'll talk about actually, we are very
open with the founders in this,as in when we come in we say we
are there for eight, nine years.
So that is understood.
Founders at least I would sayfounders who have been in the
industry also understand thatfunds have a life.
When they are raising the nextround, we tell them to figure
out whether that investor has afund life constraint or not.
(34:21):
So it is not as as if theydon't understand the math.
If a founder is looking tobuild a company that will go IPO
in 15 years from zero toinception inception to exit.
They also want people on theircap table who are patient enough
to be with them when they aregoing IPO.
They want investors who willnot sell quickly because that
impacts the stock price.
(34:41):
So they are I would sayfounders are very intelligent
and understanding about thisfact.
In fact, they would help youget an exit as long as it
doesn't harm company's fundraisepotential.
Speaker 1 (34:52):
Yeah, the primary that sort of thing.
Speaker 3 (34:56):
Similar.
I think it's a little biteasier to have this conversation
at growth stage than it is atventure stage, because I think
there is more clarity about apath.
But I would still say I wouldsay even now, versus five years
back when we started, I think wehave more maturity and clarity
around the conversation to behad with founders saying, okay,
(35:16):
once we invest, what is the path, what is the goal, how do we
sort of take the steps alongthat path, versus sort of kind
of implicit right.
Yes, so I think the explicitconversation I think is we've
also improved our ability to dothat.
But it is easier.
(35:37):
Growth stage, adventure stage.
It's when you are, you know, Ithink, the I suspect adventure
stage.
The time to have thatconversation is four or five
years.
In once there is a post, thelittle bit of momentum.
Speaker 1 (35:51):
So as we, as we get to the kind of you know end of
the show here, let's say it's2030 and you're raising whatever
N plus one, N plus two,whatever that ends up being five
years from now, Right, what doyou think you know a little bit
of looking into the future, bothfrom your own fund lens point
of view, but also, since thiswe're talking about LPs, what do
(36:12):
you think are the kind ofthings we would be thinking
about talking about five yearsfrom now?
What is your prediction,projection thought process?
You, Rahul, had said earlierthat, look, we think three years
ahead when you just closed yourfund.
So maybe it's too premature,we're still recovering from that
, but let's say it was 2030.
So it's five years hence.
Speaker 2 (36:30):
See.
One is that, and specificallyabout Stellaris, I would say we
should have proven more funds interms of performance.
We had a great fund one, butfund two, fund three also needs
to perform.
So that is one thing that I'mhoping by 2030 we would have
proven as an industry I wouldsay a lot more later stage India
.
By 2030, we would have provenas an industry, I would say lot
more latest stage India.
Specific funds will get created.
That is my personal view.
(36:51):
With more capital coming inlarger outcomes from India.
We have very few A91 equivalents.
But let's say, if somebody wereto write a $50 million check, I
can't think of a tech focusedIndia specific vehicle whom I
can go to today, and as a 50, Imean 50 to 75 in that range.
(37:12):
So we'll see more of that.
One thing that we will have toprove as domestically grown
entities is can we last for thefirst generation?
And that is one other questionon India that while opportunity
and everything is there, not toomany locally grown fund have
lasted beyond the firstgeneration of founders who
started the fund.
(37:32):
You mean the GPs Beyond the GPs,exactly so by 2030, that better
be proven, that we can createnew GPs.
You know that is what createdSequoias and Bessemers of the
world in US and I hope and I dowant us to create something
similar out here.
Speaker 3 (37:51):
I actually would submit that the LP base, 5-10
years out, would have becomelarger and more sophisticated.
We would be talking less aboutthem, I hope, and more about the
companies and the businesses tobuild, Because the real
bottleneck, I think, of how todo better for emerging companies
(38:14):
in India is not actually LTEs.
It's not right.
It's really the nature of thebusinesses that we can build
where our competitive advantagelies, what the economy of India
allows, what exportopportunities allow, etc.
Etc.
And I think if we do a goodenough job as investors what the
economy of India allows, whatexport opportunities allow, et
cetera, et cetera and I think ifwe do a good enough job as
investors and really foundersinvestors can only do very
(38:34):
little then we won't be talkingthat much about the LP side of
things, because the LPs will bethere, there'll be plenty and so
on, but I do suspect there willbe larger and more
sophisticated LPs.
But I do suspect they will belarger and more sophisticated
LPs.
Yeah, so that's.
Speaker 1 (38:53):
Great, and I would say that we should have put the
DPI question behind us as anecosystem, not just individual
funds and so on.
Speaker 3 (39:01):
Which is a function of companies just doing better.
Speaker 1 (39:03):
Companies have to do well, and there has to be
liquidity along the way, right,whether it is through along the
way, you, you know, selling alittle bit of your winners
hopefully not the googles, uh,or whatever those end up being
but also enough and more ipos,like, like both of you guys have
had.
So with that, we'll bring thisto an end.
So thank you, uh gautam, thankyou, rahul, for being on the
show, and it was great to greatto chat with you thank you,
(39:26):
thanks for having us dearlisteners, thank you for
listening to this episode of thepodcast.
Speaker 4 (39:35):
Subscribe now on your favorite podcast app for free
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(39:57):
To read the full transcript,find the link in the show notes.
The reason we wanted to actually have this podcast is
to say we don't talk about this.
Speaker 2 (00:07):
It is like a startup founder trying to, you know, for
the first round of capital.
If you have good pedigree,people want to talk to you.
Speaker 1 (00:14):
Yeah.
Speaker 2 (00:14):
That doesn't mean you'll get money.
Speaker 3 (00:19):
The macro interest in India has never been higher, so
interest in India could isnever been higher Interesting
that all three of us arehomegrown funds.
Speaker 1 (00:30):
How has the LP landscape evolved over the last
15, 17 years?
Speaker 2 (00:34):
Now there are institutional LPs from India.
I fear in next 10 years tidemay turn the other way, that
we'll have excess capital.
Speaker 3 (00:41):
Us public market plus 5% is kind of what LPs would
expect you need a May Kalu Tikkiburger of India for McDonald's
to succeed.
Said you will spend your timeeverywhere, but you'll get the
capital from the US.
Speaker 2 (00:56):
There was a time in between where we felt we should
just pack, shop and go home.
Speaker 1 (01:01):
Welcome to the Prime Venture Partners podcast.
I am delighted to have with ustoday two friends and longtime
successful VCs in the Indianecosystem Gautam Mago, a partner
at A91, and Rahul Chaudharyfrom Stellaris Ventures.
Welcome to the show, guys.
Thank you.
Thanks for having us.
Gautam, love to start with youOne.
(01:23):
I've been always curious aboutthe name A91.
Where does that come from, andperhaps you can tell our
listeners and viewers a littlebit about the fund and what you
guys do?
Speaker 3 (01:31):
Sure.
So when we started A91, whichwas about six years ago, we were
trying to find a name thatstood for excellence in India,
and so we hit on A91.
The A is inspired by Ashoka theGreat and the 91 comes from
India both our country code aswell as the year of
liberalization and we put thattogether to form A91, which we
(01:52):
hope to stand for excellence inIndia.
We are a six-year-old firm, sowe are a late-stage venture.
Early-stage growth capitaltypically Invest between we have
now 27 investments so far.
Invest between we have now 27investments so far.
We invest between 100 to 400crores I prefer to talk in
(02:13):
crores versus millions ofdollars in companies that have
you know post product market fittypically well into revenue
generation and so on relevantfor us.
We think of our sectors asconsumer, healthcare, financial
services and technology, andwe've made new investments in
(02:34):
manufacturing, engineering typebusinesses as well.
Speaker 1 (02:38):
Fantastic Thanks.
Thanks, gautam, that isinteresting to know.
I didn't know the 91, the yearof liberalization, but that's
great.
Thanks, gautam, that isinteresting to know.
I didn't know the 91, the yearof liberalization, but that's
great, rahul.
A little bit about the nameStellaris, and then what you do
and we go from there.
Speaker 2 (02:52):
We'll very simply put Stellaris is backing Stellar
founders.
Speaker 1 (02:55):
Awesome.
Speaker 2 (03:01):
Jokes apart, you know , when we were starting, we had
this question of what the namebe, because we have fundraising
and there was no name on thepitch deck.
So Ritesh, one of the three ofus, decided that he'll take up
that responsibility and in somelanguage he figured out.
Stellaris stood forconstellation of stars.
And we thought that would be agood name to get started, so
that's how the name came.
We are an early stage fund, sowe do.
We are on the other spectrumspectrum of what Gautam and his
(03:22):
team does.
We do anything from a businessplan stage company to a series A
.
These are typically companies,pre-pmf, using technology and
backing India-originatedfounders.
So those are the three pillarsof our strategy.
We have been in business since2017, so this is the eighth year
now.
And now investing from a thirdpoint.
(03:42):
We are okay investing anythingfrom half a million to a 10
million dollar check at theentry point in a company.
Speaker 1 (03:50):
Wonderful.
So I know both of you were alsostellar VCs We'll pick on Rahul
even before you started yournew firms.
So the episode today is reallyfocused on you know, most
founders would think that VCshave a ton of money and perhaps
the two of you do I'm stilllooking, looking for it but that
we ourselves have to raisemoney, and we raise money from.
You know, people who are calledlps or limited partners.
(04:10):
Uh, how has the lp landscapeevolved over the last 15, 17
years since you, gentlemen, havebeen doing this, and, in
particular, in the context ofyour funds as well.
So maybe we can just start withyou, gothamautam.
Speaker 3 (04:22):
So, firstly, there's no one LP landscape as you can
imagine.
It's a capital market.
There are as many perspectivesas there are people.
If the public capital markethas, I don't know, x number of
million people, maybe theprivate capital market has X
thousand people, right, let'scall it that.
So there's enough diverseperspectives, I think.
(04:43):
If you look back 15, 17 yearsback when I started, originally
at Sequoia Capital, I joined in2007.
The private investment industryin India was really five years
old.
The first firms were founded inthe late 90s Chris Capital and
(05:04):
Westbridge, and there were someothers, but it was e-ventures
and some of them had evolved tobecome more private equity style
versus more venture style.
But it was a very, very smallcapital market.
So I think I learned this fromsomeone else that if you look at
the venture business in India,it evolved in that 2005 to 10
(05:29):
timeframe mostly alongsideSilicon Valley sort of
sponsorship, if you will right,whether it was a loose coupling
or a tight coupling.
And the same was true with theprivate equity business.
Most of the private equityindustry, most of the venture
industry, was global firms withglobal LPs, and I suspect I was
(05:57):
above my pay grade at that pointof time, but I suspect that
most people were just along forthe ride without much education,
saying, hey, we're investors inXYZ firm whether it was Sequoia
Capital or, I don't know,blackstone or whoever else and
okay, these guys say so, we'lltry it.
(06:18):
I think, if you fast forward totoday because the industry has
been around for so long there'sa lot more sophistication,
there's a lot more understandingand there's a lot more
participants.
Lps themselves have evolved.
They've all sort of set up Asiasetups, india setups, et cetera
.
So I think there is a lot moresophistication.
You still have a lot of LPsthat are very, very uninvested,
(06:42):
under-invested in India, andthen, of course, you have an
emerging class of LPs from India, given the wealth that has got
created in India over the last20 years, both founders and
public investors and so on.
I think there is a I'd say themacro, if I was to sort of draw
(07:03):
a dichotomy which I think we allhave to hold in our heads at
all points of time.
The macro interest in India isnever been higher.
The micro of saying hey, butwhy is it translated into
returns that are not bad but notstellar, is also there.
(07:24):
There's a lot of macro interest.
There's no doubt about that.
Speaker 1 (07:31):
Wonderful Rahul, congratulations on just closing
your third fund, a $300 millionfund, and I know that you guys
started also, like you said,seven, eight years ago and the
earlier funds were like 90 and200, something, right, 225,
right, uh, so obviously, uh, howhave you seen it, even in just
(07:52):
this last eight years, not justthe 17 that you've been
practicing this art?
How has it changed what?
What are the kind of differentquestions people are asking now?
What is accepted, what is still?
Speaker 2 (08:01):
people are like still looking for answers from an l
point of view so see, in termsof questions clearly, and in
terms of landscape also, right,there are some global LPs and
they've been around.
They were LPs in Helion andthey're LPs in our fund now.
So there are endowments,pension funds.
They've been around for like 30, 40, 50 years, investing in
venture.
(08:22):
Once in a while, we also see alot of new family offices come
in.
As people create wealth, theystart their family offices.
So that landscape does changeand that is one area in which I
would say Indian LPs have comearound.
A lot of those set of familyoffices are there, and including
angels as well.
What has happened over the lastfew years is also now there are
(08:43):
institutional LPs from Indiawho are interested in venture.
Now, in terms of questions, ifyou are a global LP, you can
invest the dollar anywhere inthe world.
Clearly, the US has generatedsome great returns.
One of the big questions is whyIndia?
And if there's a risk premium,am I actually getting the return
that you are?
You know the risk that I'mtaking for, including currency
(09:03):
risk.
So that is one question thatLPs have.
The other one is you know, yes,I like to Gautam's point, I
like India, but why should Iinvest in you as a fund.
So what is so different aboutyou when there are, you know, 10
venture funds?
Some of them are globalplatforms, some have been around
longer than you have been.
And then, finally, question isof track record, as in yes, your
(09:26):
FMVs look good, but have youreturned money or not?
So those are a few questionsthat you will, I would say, on a
regular basis.
Whenever we call LPconversation, see, come up as
your fundraising.
Speaker 1 (09:39):
Absolutely Interesting that all three of us
are homegrown funds, right, andactually kind of a moment of
pride there.
Right To say that you can dothis now, as opposed to the
global funds which had the kindof India chapters or whatever,
or Asia chapters, as Gautam yousaid, or long right, including
(10:07):
kind of from times past.
They're struggling with thisquestion of, like you said, you
know, good but not great returns, right, perhaps not stellar
returns or whatever, right, andit's just compared to america.
Speaker 3 (10:12):
Sorry, certainly as compared to america yeah,
certainly, as compared toamerica.
Speaker 1 (10:16):
In fact I was going to ask you this uh, later,
gotham, that even compared toindia on the public markets,
which are a lot more liquid, Imean I wouldn't say predictable,
but you know you have a lotmore control over your destiny,
as opposed to one of the thingswe get asked on the public
markets, which are a lot moreliquid, I mean I wouldn't say
predictable, but you have a lotmore control over your destiny,
as opposed to.
One of the things we get askedon the early stage side is when
will I ever see BPI?
Because if you're seed stage,we are at prime.
We are seed stage.
It's very hard to imagine howare you going to get to a
(10:38):
10-year fund cycle?
Speaker 2 (10:40):
So, maybe for the folks that have been around and
backing it for a long time 30,40 years- so maybe for the folks
(11:01):
that have been around andbacking it for a good returns,
it just took longer.
So in terms of IRR it may nothave played out In terms of
multiples, it did play out.
Also, what has happened isIndia is much more mature today.
I would say most of the LPsthat were there 15-20 years back
are as interested in India asthey were 15 years back.
(11:21):
In middle there was a questionmark they had on India, but with
the size of the economy, growthin the economy in the public
markets and the liquiditythey're seeing from public
markets now they are veryinterested in India.
In fact, I fear in next 10years tide may turn the other
way, that we'll have excesscapital, too much capital, which
(11:46):
basically you know inculcates alot of bad habits when you're
growing a company or building acompany.
But you can't have it both ways.
So I would rather take excesscapital than low availability of
capital.
And I think India is in a verygood spot that way.
Speaker 3 (11:57):
Yeah, I'll just maybe say two things.
I mean, I think there is acomparison with public markets,
but up to a point only, becausewhen you look at the underlying
earnings expansion of publiccompanies, it has been far less
than the actual returns.
So a lot of returns have comefrom this capital inflow and all
LPs that think very, verylong-term know that that is not
(12:21):
a sustainable answer.
So there is a question, butit's only up to a point.
Second thing I'll say is thatthere are good reasons for LPs
to be very enthusiastic aboutIndia in the very long term.
When I started investing in 2007, india was a $700-$800 billion
(12:46):
GDP economy.
We were maybe $700-800 GDP percapita and the infrastructure
was digital, physical.
Everything was poor or waypoorer than it is today.
Fast forward to 2025, nearly $3trillion economy, nearly $3,000
(13:07):
, maybe $2,700 GDP per capita.
Every small change can lead tolarge outcomes now, larger than
then.
So there are very good reasonsfor that, for LPs to be
enthusiastic about it.
I think the time it takes tobuild companies in India is a
(13:31):
question that has to bejuxtaposed next to this question
.
So when we looked at the data,it certainly feels like from
company inception and if you'rea really good company and if
you're therefore top I don'tknow five percentile, maybe two
percentile of companies, youstill will take 13 to 15 years
to IPO.
So I think there is a palpablesense that the future, the next
(13:55):
10-15 years, should and will bebetter than the first 15 years
of India private investing orIndia venture in particular.
But for the future to be betterthan the past, one is the
environment is already better,but some of the inputs may have
to change as well.
Some of the thinking may haveto change.
Speaker 1 (14:13):
Got it.
Let's take two cohort of LPs.
We'll stick to theinternational ones.
We'll come to India in a fewminutes.
Let's say somebody is notexposed to India at all.
Right, gautam, you alsomentioned that there's a lot of
underpenetration.
We've also got a lot more LPinterest in the last six, nine
months than perhaps in the lastsix, nine years, right.
But many of them are alsorelatively new to India.
(14:34):
Now, that's a double-edgedsword, right, because they have
no idea yet about India.
And the other cohort is theones that have been in India for
a while.
They've got some, maybe it tooklonger, maybe you know they got
the multiple, not the IRR,whatever, right.
How would you think about thatcohort of LPs, the new ones, and
how would you?
You know, if you were advisingthem, what would you say they
(14:56):
should think about?
Come in, don't come in, thinkabout it, and so on.
Speaker 3 (15:00):
It's hard for any manager to convince an LP that
they should invest in it.
They have to sort of come tothat decision themselves.
You can provide some inputs,etc.
Second question, I think, isthat if you're a large LP,
particularly if you're managinga pool of capital more than a
(15:22):
few billion dollars or more, Imy guess is that most LPs and
they should first start withpublic market exposure to India
before they start with privatemarket exposure.
That's the logical thing to do.
That's what I would do if I wasin their shoes.
Of course there are people thatare only private market focused
and so on.
Leave those aside for a minute,because that's the most liquid,
(15:44):
easy answer versus and you canreverse mistakes easily if you
make them, and so on.
So if I was advising an LP thathad no exposure to India, I
would first say dip your faithin the public market first
before you do private investing,because you and us and Rahul,
this 10-year locked up capital.
I mean it's a long commitment,it's a really long commitment.
Speaker 1 (16:07):
Absolutely, Rahul.
Do you want to add anything toeither of the cohorts?
I?
Speaker 2 (16:09):
have a very similar view as Gautam it's very hard
for us to advise an LP, tellthem what to do.
That is a call they have to make.
I've also seen LPs take a callthat for this asset class, this
geography sounds moreinteresting.
So for there are LPs who arelike VC in India is attractive,
but buyout in Japan is what Iwant to do.
So they also decide based ondifferent asset classes.
(16:30):
And finally, it's a question ofportfolio construction.
At the end, right, there's arisk part and the return part
and diversity part.
So they try to balance allthree of them and maybe starting
public market is a good ideabecause, as Gautam is mentioning
, so maybe that's a way to start.
But yes, whoever comes in as in,they have no hurry.
(17:00):
See that good.
The good part of the of beingan LP is if you miss this fund,
it's not as if you can't enterin the next one.
Like for an early stage fund,if you miss a deal we can't come
in at a later stage for thatcompany.
Here they have no such ifthey're a good.
Lp they'll get their way intothe next one of the same
franchise.
Speaker 1 (17:17):
Yeah, no great.
I mean one of the very simplethings we try to figure out when
any newer kind of LP, like howlong have you been visiting
India?
Have you even visited in thelast two years, or since COVID?
And if it isn't, usually I meanwe're not advising them.
Of course you're, you know,talking to everyone, but it's
like, hey, look, just you know,get your bearings, it's all
right.
Like there's no, there's norush, like rahul said yeah, um,
(17:40):
switching gears, talking alittle bit about fund sizes,
right, uh, gotham, your lastfund was about 550.
Uh, rahul, you guys have sortof grown in in size in terms of
the fund size.
I think this might be even forthe founders that vcs also spend
a lot of time both thinkingabout LP portfolio construction
and the fund size.
So how do you guys end up at550 for the last one or whatever
(18:02):
the next one is going to be?
And, rahul, how did you guysdecide that this was the right
number?
Speaker 2 (18:07):
let's start with that so you know it's an interesting
and a difficult question toanswer.
A lot of time you see, fund sizederived strategy, whereas in
ideal world it should be theother way around, Right?
So I don't want to claim that wehave figured out the right
answer, but at least I'll tellyou the strategy and how it
(18:29):
leads to a fund size.
So our view was that we will doearly stage, which means seed
and series.
We need to build a portfoliowhich is at least 25 companies.
We have six check writers andthere is a certain number of
deal flow that we see from whichwe think we can do maybe eight,
nine a year.
And if you reverse calculatefrom that, we arrived at a
(18:49):
number between 250 to 300 forearly stage round.
Now, three and a half yearslater, if the inflation of round
sizes keep on happening, thenthe number might be different.
If the amount is very similar,then number will be similar as
well.
So it's a question of whatcapacity you have, what stage
you want to enter and what arethe round sizes happening in
that stage, and obviouslyincluding the following amount
(19:11):
so that is the math we had doneto arrive at the fund size.
We had a lot more interest, butat least we felt that even 300
is a hard one to deliver.
Going above that didn't makesense.
Speaker 3 (19:24):
How about you, gautam ?
Honestly, not very different.
I think it is art more thanscience, although there is some
science.
You do similar math as how manyinvestments per year?
What are we seeing?
What's the average investmentsize?
And I think it's good practice,if you have the good fortune of
(19:45):
being in that situation is tosay no to some of the capital,
because ultimately, we are allhuman.
While there is competition inthe market and there is an
aspiration to do more, thesethings can only grow at some
organic pace Unless youcompletely add a new strategy to
(20:07):
what you do.
Speaker 1 (20:09):
Yeah, I think it's heavily debated inside of Prime.
We've decided to keep it thesame across funds, but with a
lot of animated debate.
I think it's heavily debatedinside of Prime.
We've decided to keep it thesame across funds, but with a
lot of animated debate.
And in terms of what thestrategy should be, how would LP
portfolio construction?
I once heard from and I won'tquote his exact face Doug Leone,
when we had got to meet himmany years ago, that keep an
(20:33):
equal number of LPs.
I'll just leave it at that,Right, and therefore you do the
math right.
So it's 550 divided by whatever.
Do you guys consciously thinkabout LP portfolio construction,
whether it, in terms of thesource of capital, could be us,
like Rahul said earlier, itcould be pension funds, could be
endowments, could be DFIs,whatever, right?
Or is it a lot more now thatthe new firms are established,
(20:53):
right?
Yeah, hey, you've got a lotmore people wanting to invest.
Speaker 3 (20:56):
I certainly think.
We think about it now.
I think first fund one and fundtwo.
It's harder to think about ittoo much.
There are, I think, broadlyspeaking, two approaches that I
have seen.
One is if you look at the largeglobal firms of course this
(21:19):
happened over a period of time.
They all have very diversifiedLP basis, so no LP is more than
5% of the fund or whatever.
And then you have the otherextreme where you have 10 into
10 as well.
Speaker 1 (21:32):
Correct, rahul.
Just a twist on that questionhow about the geography right,
because you've raised some fromindia, a lot more from abroad.
Does that kind of play intomind?
Speaker 2 (21:43):
so not as much geography, but more the kind of
lps you're getting does play asin.
Do these people have, or dothese institutions have,
reputation of backing multiplefunds in their mind, at least
when they are coming into you?
What kind of checks they write?
What is their focus on India?
Are they new to India?
So, those are the things that Iwould say go more into our
(22:05):
discussion than a certaingeography, because geography is
a very hard one for us to have aview on.
Somebody from Europe might bevery convinced about India, but
somebody from Singapore may notbe.
Speaker 3 (22:15):
Makes sense, although I mean the emerging answer.
If you look at the emergedanswer, I don't know what it is
for you guys.
If you look at outside Indiacapital, big chunk of it tends
to be dollar in origin.
Yes, it tends to be American.
In one I had got advice from ahedge fund friend.
He said you will spend yourtime everywhere but you'll get
the capital from the US.
(22:36):
So yeah, and you know, it comesthrough various forms and so on
, but the end source is oftenthat's probably, I suspect it's
true for you also.
Speaker 1 (22:44):
Yeah, very much.
Yeah, similar for us.
In fact, for us it used to be100% from the US.
So that is why the geographyquestion of the mind, to say
maybe we should get some fromAsia, maybe some from the Middle
East or whatever.
Speaker 3 (22:56):
So I think, even though it's a smaller fund,
India is a interesting and IndiaLPs is interesting and relevant
question to think about for thenext 10-15 years.
For sure already there arereasonable amount of fairly
sizable LPs in India, are they?
There are a reasonable amountof fairly sizable LPs in India.
Are they up the curve in termsof understanding of what private
(23:20):
market investing, what ventureinvesting, what growth investing
is they're getting there?
They're not there yet, but thecapital base exists and if you
look at I don't know the numbersbut Chris Capital's current
(23:40):
fund, what we hear is that thereis going to be a sizeable
domestic component.
In the sort of private equityworld people have raised
reasonable size purely domesticfunds and that LP base is
getting a bit more sophisticated.
So that may also be aninteresting trend for the next
10-15 years.
Speaker 1 (24:00):
Got it, rahul, question for you as you went
from the first $90 million fund,although you were kind of
restarting the journey to the$300 million, like we often ask
founders when they are raisingright.
It takes the same amount ofeffort to raise $90 million as
$300 million.
Or is that a myth or reality,beyond the caveat of you just
starting restarting back whenyou did Solaris 1?
Speaker 2 (24:21):
I think it is more dependent on where you are in
your evolution as a fund morethan anything else.
In the first fund I think itwas the toughest fundraise for
us For about nine months.
There was a time in betweenwhere we felt we should just
pack shop and go home.
We only had, like it started aconversation where it looked
like everybody was interested inus.
In three months nobody wastalking to us.
(24:42):
So it is like a startup foundertrying to you know for their
first round of capital.
If you have good pedigree,people want to talk to you.
Speaker 1 (24:52):
Yeah.
Speaker 2 (24:53):
That doesn't mean you'll get money.
Speaker 1 (24:54):
Yeah, no, it is definitely very humbling to
fundraise, as is probably notapparent.
Speaker 3 (24:58):
I think what founders don't appreciate necessarily as
much is that you need manyyeses to make a fund.
You don't need one.
The big difference and thereason why it is both less hard
but also a lot harder, is that Ithink the two things that are
different and but also a lotharder is that I think the two
things that are different and Ithink, given that a lot of your
audiences, founders, it'spertinent for them One is that
(25:20):
you don't need one yes, you needmany yeses.
Second is there is no okay,make some progress and show me
Right, all or nothing.
So that's those both make itcan make it different.
Speaker 1 (25:34):
For sure, right Building along the same lines.
How do you quote unquoteprepare for a fundraise, or what
is it that you are thinkingabout?
Like okay, you know as and whenyou do your next fund?
Like hey, here are the set ofthings we should think about.
Of course, you have to talkabout track record, your
portfolio, but are there, oreven the timing right, like the
(25:55):
first fund was probably six,seven years ago Now this one you
know.
So any thoughts on that interms of when you are preparing
for a fundraise?
What are you thinking?
Speaker 2 (26:06):
So one is that if you want to plan, you can't plan
only six months in advance.
It has plants only six monthsin advance.
It has to be planned threeyears in advance to assume or
think like an lp as to what willthey look for in you when you
go out for your next fund and ifyou have certain funds running
behind you.
There are expectations that lpshave of you having proven xyz
(26:27):
by the time you are in the ninth, nth or n plus one fund right.
So you have to at least getthat sense.
The second one, and veryimportant one fund right.
So you have to at least getthat sense.
The second one, and veryimportant one, is are your
existing LPs going to supportyou?
It is like, again, when afounder is a late stage round,
they go and first check withtheir existing early stage
investors.
Are they in or out right?
(26:49):
So having that sense it's animportant conversation to have
and you know there are questionsaround team and succession
planning and all that stuff.
So those things have to be inline and not to say that you
have to engineer it.
You have to be ready with thosequestions and I'm assuming that
they all make.
There's a reason why thosequestions are asked.
(27:10):
So if team matters and ifsuccession planning matters,
then anyways, you should bethinking about it before you
start to fundraise.
So those are kind of thingsthat matter.
And finally, is the storylanding or not?
And at least we do a lot ofpreparation before we start
talking to LPs on what are thepotential large or important
questions that will come up whenyou go and start pitching.
Speaker 1 (27:33):
Yeah, so let's double click on both of those right
Exits, which has been theAchilles heel of the ecosystem
forever, and that leads to DPI,which is capital return, not
just raised into the fund andyou mentioned team.
Are there any other questionslike that?
And then, of course, we'll talkabout exits.
Speaker 2 (27:51):
See, differentiation is the other one that, at least
if you're in a crowded market,every LP will ask you why should
I invest in you?
Why not in 10 other funds, as Isaid would be longer, better
brand name and so on.
So that is one question thatyou have to answer and then
finally, what is the portfoliofounder saying about you, as in
(28:17):
when they do ref checks and Ithink ref checks are very
extensive and very important intheir diligence?
What is the ecosystem sayingabout you?
Speaker 1 (28:22):
What is your own company saying about you?
Speaker 3 (28:28):
Gautam maybe talk a little bit about exits and
generating returns, real dollarreturns.
I think the marker in our mindsis that M&A is a difficult
route.
In India, in the HUL minimalistacquisition of few days back
and you know, kudos to the team.
They built a incrediblebusiness.
It is rare if two thousandcrores of cash exit is quite
(28:49):
rare in India, how many we haveseen over the last, I think we
will see more Clearly.
It will happen, but it is notthe same frequency as America.
So you have to sort of be onthe path, in our view, to be an
IPO-able company.
And if you have that, there aresome strategies you can employ
(29:09):
to sell along the way becauseDPI is important for LPs.
Sell along the way because you,because dpi is important for
lps, um, the uh, and I alsothink some of it is a function
of where you are in your life asa firm.
Once you have a few funds underyour belt which have performed
well on a cash returned basis,then perhaps there's more
(29:30):
forbearance to say, okay, wetrust you and you know you'll
figure it out, which is normal,it's absolutely human.
You know if everyone has toearn on their stripes and on
their trust, um, but I think theand you know, despite the IPO
markets of today, which areexuberant and almost, like many
(29:50):
companies, can go public, thechallenge I think for a lot of
LPs has been that from the timeof inception it takes quite a
long time, and then I thinkthere's a.
The dichotomy, I think, is thatyou need LPs that are patient
because it's going to take time,but nobody is infinitely
(30:11):
patient, right?
So nobody can be infinitelypatient.
Speaker 1 (30:14):
Right, I think, rahul , the problem is harder yet for
earlier stage fund.
I know you do seed, but alsoSeries A, but imagine your seed
investment portfolio as astandalone cohort.
It takes even longer.
So how do you guys think abouttwo questions, one Gautam's
point about are you thinking,not necessarily exitability, but
if this were to ever go IPOsomeday, what would it be?
(30:35):
Or is that not?
It's largely like an early betand then we'll see how it goes.
Speaker 2 (30:41):
No.
So I think for us, everyinvestment we make better the
IPO, if it works out, so that isat least incoming thesis of
every investment we make betterVIP, if it works out, so that is
at least incoming thesis ofevery investment.
Obviously not everything right.
On the other question, onengineering and exit, like I'll
make a statement which is more,you guys will laugh at me you
(31:03):
need a burger of India succeedright, so the same burger in us
doesn't succeed in india, andhence similar exit strategy in
us may not work in india nowwhat?
is that right strategy?
I don't want to claim that Ihave the answer, but I'll tell
you.
What we have done is, uh, inour prior lives we realized that
waiting, or this whole notionof getting, trying to get to
(31:26):
full potential is the only wayto exit, was a bad idea.
And at least over the lasteight years, whenever we got a
liquidity opportunity, we lookedat it really seriously.
And in companies that weremiddling, we took it blindly.
In companies that were doingwell, if it were exceeding,
let's say, 10x of our capital,we took enough money off the
(31:48):
table.
So at least there were somepartial exits that happened.
Now, obviously, we could nothave done it on our own.
There had to be liquiditywindows that were available, but
in the past we had not takenadvantage of the liquidity
windows.
So at least this time we changedthat a little bit.
Good part is, with multi-stagefunds and later stage funds
coming in.
Speaker 4 (32:08):
We don't have to.
Speaker 2 (32:08):
At least an early stage investor doesn't have to
wait for full M&A or full IPO toget all the cash back.
If the company is doing well, alot of series D investors are
interested in doing secondariesalso to bulk up their ownership.
You have to be a little bitnimble and you know what we want
(32:30):
founders to do is we havehustle.
Speaker 3 (32:31):
There's a very similar thing out here as well,
you know, it's interesting Ithink Fred Wilson has put this
out a long time back about theUnion Square Venture strategy
and it's different from I meanfrom the strategy that some
other firms follow, that theysell along the way, right, they
sell one third and just, youknow, just write the upside on
the balance.
(32:51):
Um, there's another lp of ourswho gave us the advice that some
even private equity firms inindia follow, which is the
version of what raul is sayingat 3xl one third and then you
can, you, you know, it's fine,you're sending, you're sending
the capital back, et cetera.
I think the this full potentialbit is is a is a useful
(33:14):
framework.
If all the companies are, orsome of them have, a chance to
become Google, yes, right, thenof course you don't want to sell
anything ever.
Speaker 1 (33:22):
Yes.
Speaker 3 (33:22):
Right.
It doesn't feel like we're inthat paradigm in India.
I wish we were.
I don't think we're in thatparadigm in India.
Speaker 1 (33:30):
Not yet, at least.
Yeah.
So that leads to an interestingquestion in terms of because a
lot of the audience here isprobably founders right, how
open are you about theseconversations?
The reason we wanted toactually have this podcast is to
say we don't talk about this,nobody wants to talk about it.
So appreciate both of youtalking about it.
So how openly do you talk aboutend of fund life this one, you
(33:52):
know, if you're going to raise200 million I might want to take
some chips off the table or howmuch of it is more kind of
hallway conversation or evensort of like backroom.
Speaker 2 (34:00):
You know like we'll talk about actually, we are very
open with the founders in this,as in when we come in we say we
are there for eight, nine years.
So that is understood.
Founders at least I would sayfounders who have been in the
industry also understand thatfunds have a life.
When they are raising the nextround, we tell them to figure
out whether that investor has afund life constraint or not.
(34:21):
So it is not as as if theydon't understand the math.
If a founder is looking tobuild a company that will go IPO
in 15 years from zero toinception inception to exit.
They also want people on theircap table who are patient enough
to be with them when they aregoing IPO.
They want investors who willnot sell quickly because that
impacts the stock price.
(34:41):
So they are I would sayfounders are very intelligent
and understanding about thisfact.
In fact, they would help youget an exit as long as it
doesn't harm company's fundraisepotential.
Speaker 1 (34:52):
Yeah, the primary that sort of thing.
Speaker 3 (34:56):
Similar.
I think it's a little biteasier to have this conversation
at growth stage than it is atventure stage, because I think
there is more clarity about apath.
But I would still say I wouldsay even now, versus five years
back when we started, I think wehave more maturity and clarity
around the conversation to behad with founders saying, okay,
(35:16):
once we invest, what is the path, what is the goal, how do we
sort of take the steps alongthat path, versus sort of kind
of implicit right.
Yes, so I think the explicitconversation I think is we've
also improved our ability to dothat.
But it is easier.
(35:37):
Growth stage, adventure stage.
It's when you are, you know, Ithink, the I suspect adventure
stage.
The time to have thatconversation is four or five
years.
In once there is a post, thelittle bit of momentum.
Speaker 1 (35:51):
So as we, as we get to the kind of you know end of
the show here, let's say it's2030 and you're raising whatever
N plus one, N plus two,whatever that ends up being five
years from now, Right, what doyou think you know a little bit
of looking into the future, bothfrom your own fund lens point
of view, but also, since thiswe're talking about LPs, what do
(36:12):
you think are the kind ofthings we would be thinking
about talking about five yearsfrom now?
What is your prediction,projection thought process?
You, Rahul, had said earlierthat, look, we think three years
ahead when you just closed yourfund.
So maybe it's too premature,we're still recovering from that
, but let's say it was 2030.
So it's five years hence.
Speaker 2 (36:30):
See.
One is that, and specificallyabout Stellaris, I would say we
should have proven more funds interms of performance.
We had a great fund one, butfund two, fund three also needs
to perform.
So that is one thing that I'mhoping by 2030 we would have
proven as an industry I wouldsay a lot more later stage India
.
By 2030, we would have provenas an industry, I would say lot
more latest stage India.
Specific funds will get created.
That is my personal view.
(36:51):
With more capital coming inlarger outcomes from India.
We have very few A91 equivalents.
But let's say, if somebody wereto write a $50 million check, I
can't think of a tech focusedIndia specific vehicle whom I
can go to today, and as a 50, Imean 50 to 75 in that range.
(37:12):
So we'll see more of that.
One thing that we will have toprove as domestically grown
entities is can we last for thefirst generation?
And that is one other questionon India that while opportunity
and everything is there, not toomany locally grown fund have
lasted beyond the firstgeneration of founders who
started the fund.
(37:32):
You mean the GPs Beyond the GPs,exactly so by 2030, that better
be proven, that we can createnew GPs.
You know that is what createdSequoias and Bessemers of the
world in US and I hope and I dowant us to create something
similar out here.
Speaker 3 (37:51):
I actually would submit that the LP base, 5-10
years out, would have becomelarger and more sophisticated.
We would be talking less aboutthem, I hope, and more about the
companies and the businesses tobuild, Because the real
bottleneck, I think, of how todo better for emerging companies
(38:14):
in India is not actually LTEs.
It's not right.
It's really the nature of thebusinesses that we can build
where our competitive advantagelies, what the economy of India
allows, what exportopportunities allow, etc.
Etc.
And I think if we do a goodenough job as investors what the
economy of India allows, whatexport opportunities allow, et
cetera, et cetera and I think ifwe do a good enough job as
investors and really foundersinvestors can only do very
(38:34):
little then we won't be talkingthat much about the LP side of
things, because the LPs will bethere, there'll be plenty and so
on, but I do suspect there willbe larger and more
sophisticated LPs.
But I do suspect they will belarger and more sophisticated
LPs.
Yeah, so that's.
Speaker 1 (38:53):
Great, and I would say that we should have put the
DPI question behind us as anecosystem, not just individual
funds and so on.
Speaker 3 (39:01):
Which is a function of companies just doing better.
Speaker 1 (39:03):
Companies have to do well, and there has to be
liquidity along the way, right,whether it is through along the
way, you, you know, selling alittle bit of your winners
hopefully not the googles, uh,or whatever those end up being
but also enough and more ipos,like, like both of you guys have
had.
So with that, we'll bring thisto an end.
So thank you, uh gautam, thankyou, rahul, for being on the
show, and it was great to greatto chat with you thank you,
(39:26):
thanks for having us dearlisteners, thank you for
listening to this episode of thepodcast.
Speaker 4 (39:35):
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Just search for prime venturepartners podcast in apple,
spotify, castbox or however.
You get your podcasts, then hitsubscribe and if you have
enjoyed the show, we would bereally grateful if you leave us
a review on Apple Podcast.
(39:57):
To read the full transcript,find the link in the show notes.
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