The Journey from Seed to Scale: DSGCP Founders’ Conclave 2021

We recently hosted our annual Founders’ Conclave — series of panel discussions featuring key founders, operators, and strategics in the consumer startups landscape.

Session 2 moderated by DSGCP’s Deepak Shadadpuri, featured Arjun Anand from Verlinvest, Ash Lilani from Saama Capital, and VT Bharadwaj from A91 Partners. This VC powered session covered the tool-kit required at various stages of growth in an early stage consumer startup.

Check out the full video below!

Transcript

DS: Good morning and good afternoon. Depending on where you’re dialing in from, it’s a pleasure to have VT, Ash, and Arjun join us on the panel today. Coincidentally, the four of us have been co investing for over a decade before anyone even term investing in consumer brands. So we were doing the job we were doing for a very long time.

We picked some businesses which happen to be consumer businesses fast forward ten years. Here we are in the middle of a boom for consumer brands. What I want to do today is to keep the conversation of the panel more conversational and focus our discussion on what it takes to build a brand, a brand that is enduring. How, does the founder think about scaling, given the different approaches one could take in terms of the playbook and to ask the panelist questions about what they’ve seen work within their portfolio and what more importantly, has not worked. What can the founders on today’s call take away from the mistakes all four of us made?

So let me just kick off with I guess let me start off with Arjun, now Arjun. You started investing in India 2014 with Verlinvest. Verlinvest is a global, single family office consumer only fund. And you’ve been backing consumer brands as a fund starting in Europe, then the US and then came to Asia.

So as you think about the growth in consumer and how one scales, what have you seen in the US and Europe that could be relevant to your playbook in India?

AA: Absolutely Deepak. Thanks for having me. Just as background. We were founded in ’95 and we have been a single vehicle investing only in consumer brands for over 25 years. The fundamental thesis when we started out was that niche brands can be created. So there was the giant consumer Giants. Everybody knows them. It’s Unilever Nestle etc etc. . And we felt that there are pockets of opportunity that they cannot address and why they can’t address it is because the consumer is evolving. They have different needs, there’s different ways to segment this consumer. And so we started off investing only in food and beverage brands, which addressed certain consumer segments that were not addressed by the large brands, and who had probably more of a broad brush approach. And so that was the I guess, very, very basic insight with which Verlinvest was founded. And it’s been 26 years in a great run.

DS: And which was your first India investment or Asia investment?

AA: So Sula Wines in 2010 was the first investment. And if I could probably give you the investment thesis back then, which is probably not how things are written now. We didn’t worry so much about the TAM as people worry about it today. We said there is if you take a long enough point of view, a low alcohol drink which is excessively popular in all parts of the world, will come to India at some point. It has to be domestic because there’s an agricultural good. And so we said, as long as we back fundamentally a good brand, there is a business to be built. And so I think our investment note back in 2010 didn’t even contain a TAM analysis. We just said this will be big overtime.

DS: We will come back with that, because those who may not be aware. I mean, I led the first institutional round in Sula in 2004, where I had a whole page on TAM, and it literally was blank because there was no market data available. And it was the same hypothesis. Indian consumers are evolving. They will want an option to buy a wine as a product. We felt that Rajeev was building the best brand in the category. And when I invested this, we just set the context I invested when sales for that year were 2–8 Cr and I will come back to where it is now. I don’t want this session to be a Sula session, but it’s a good example because three of the four people on this panel has been involved in the Sula journey from seed to scale, and one of them has gone in, come out and come back in. So Ash Congrats on that one. and VT is connected by drinking a lot of it. So we’re good.

So, Ash, let me shift gears to you.

And this is very relevant because Saama is one of the few early players who were doing crossover. You were doing tech and consumer. I know VT did that when he was a Sequoia as well. But you were there much earlier. So as you think about how consumer businesses scale versus how non consumer, mainly tech businesses scale, I want you to highlight the differences because I think what’s happened in the last five years is the more generalist funds that come in to the consumer space and given the size of the market and the opportunity set and have set different expectations in terms of how they value businesses and what they expect from the founders.

So on today’s call, we have over 100 founders, many of whom are building consumer brands and are getting confusing advice on how do you scale? How much do you spend? Is it important to have positive GMs not have positive GM? Just let me ask you how you made that shift very early on in your career.

Yeah.

AL: For us, the example was given that we had such a strong footprint. When I first started out in the US and we built out the Indian network, we came with a heavy bias initially towards how tech was done in those days. And then we had a passion and a thesis for consumer and a consumer where a thesis was really twofold. One was being able to notice consumer behavior changing globally, seeing the trends that were happening there and trying to see what segments would work in India even if it was long term bet on early. So basically, you’re trying to create brands, you were trying to do something or the other part of the thesis. And consumer was what are some amazing segments in India where the TAM is huge, but there’s a need for a better product in terms of quality, in terms of ingredients. So we had this book kind of one was like a hail mary let’s find categories we can build into large companies, and let’s find categories that we can make better. But on the side, I got to tell you, I look at them very differently when we look at an opportunity that comes to the table, you know, and it’s tech or its consumer. One thing that is different is the risk reward and timing is different.

Consumer businesses you need to be patient with as an investor, it takes time to build it out. It takes time to figure out what the right market is. What are the right product launches? What are the right vertical launch?

Tech can sometimes be hard, hot and heavy. You going fast. You really got to spend money much faster in building really a category that already exists. But what you’re trying to do is be disruptive. And there is less patience in tech investing. There’s more expectations of faster growth, there’s more expection reward. But also, I think what people forget is there’s also more risk exposure.

So what we look at is completely different. I am not a believer that you can treat consumer investment the same way as tech investment. And even if it’s DTC, I think there is a difference. DTC is kind of somewhere in the middle. I am not a fan of valuing consumer companies like tech companies because it puts too much pressure on them too early as they grow. That’s fine. Multiples are different, too as you know, and there’s a gold rush right now on tech investing and that’s translating to consumer. But I am not convinced that the valuation necessarily means success.

I think you have to be patient. You focus on execution very, very early, and the founders vision has to be a little different from a tech company. Tech company. You need to ramp up sales very quickly. You need to ramp up a lot of different things very quickly. Whereas in consumer, the founder’s role is much, much more deeper in terms of doing a lock themselves till they get to a point where the market is established and then they add a scare in the team, et cetera. So I don’t know if that answers your question, but I’m just saying that you cannot compare this to you cannot look at them the same way, and we have never we look at each deal on its own merit. And we actually do get concerned when people call us and start asking us questions on consumer companies that are very tech like because they’re just different. You need make patient.

DS: So I’ll come back to you on that because when there’s a Sula wine, people clearly put it into consumer. When it becomes D2C, it becomes much more sort of grey because of the nature of the business, especially brands that are launching digital first, digital only and are competing for Mindshare in the digital real estate world and have compete with multiple, multiple people spending money on Instagram and Facebook. The spend becomes relevant and they are confused. And I have a challenge with my brand sometimes. Who comes to us saying, how do we think about it? How do we spend? Do we need to go and do a land grab? And I think one of the outcomes are one of the objectives of this panel is is to guide the founder to find his own true north. No, there’s no one answer for everyone, and it really depends what you’re planning to do with your brand.

VT, let me shift to you. I think before A91, you had the opportunity to working with one of the largest and most successful Indian sort of venture capital firms who get to see a lot of deals as someone who’s been through. So the Sequoia, the Sequoia part of your career now in A91, you know, whats evolved from a founder perspective in terms of what they think about scaling.

One would be the post soft bank era when lots of dollars came very quick, it’s carried on and hasn’t slowed down. But what else have you seen that’s impacting a founder’s ability to scale? So keep in mind, our founders are just starting or have raised one or two rounds of funding. But every founder at every stage is looking or thinking about the next round of funding because whatever capital they have usually last for about 18 to 24 months. And as soon as the fundraising round ends. He’s now thinking, what do I need to do to scale my business show KPIs that will look interesting enough for someone like I guess A91. If they came to me first, I will take them to you. You will take them to maybe Verlinvest. Well, investors think about what you look for and how that’s changed.

VT: But let me just walk you through what we look for. It because that gives you a better sense anyways, at our stage and when we’re looking, we’re certainly looking at the evidence on product market fit is so compelling that you’re no longer unsure of whether the product that has been dreamed down by the founder and executed by the team and delivered to the consumer. There is near certainty that the product of being appreciated is getting natural to pull and natural pull is exactly that word. We naturally getting pulled versus getting trust and pushed the help of a very aggressive sales team all through this town. So one thing we’re looking for? Is product market fit And certainly that has happened because then you can debate because then the question then we often ask is OK, this product markets exist. How big is the TAM for the how can it be where all can product go to and where all can founder potentially extend move, champion the product around to potentially build a large business. So the second question that we ask of the product market fit is how big this can be, you know, can this business become a 1000 Cr business $150,000,000 business in India over the next four or five years. What will it take to get there? So I would say that’s typically the second question and the third is third and the fourth question I’ll reach to that.

The third question often is how much capital will it take to get there? And given the way this business is being built so far, usually frugally because the part which has done a few early as you kind of put the product out there and put the market brought out there. You’re trying to form a we we are tying to a view on how much capital that we think it will take together. And does that sound reasonable, that it sound like something that will be accessible for this company? And finally it is about will the founder be able to recruit and sometimes a harsh word because the challenges that are going to be there when the company has gone from zero to 100, the team around you, the team around the founder they have to kind of move and change and yield to different phases. And how do the founder the founding team thinking about this? And this becomes especially tricky with multiple founders as well. So that’s why? Especially as the founding team, because early on to three people have started the company. It’s kind of good. But how do they scale and how is that getting reflected in the team that I found thinking? So I would say these are honestly that’s probably the four questions that we think about this and we are saying, what will it take to go from, let’s say 50 Cr 100 Cr. Maybe that’s typically the scale, like when we did Atomberg. I think they had maybe 35 core of H1 revenue. So literally the 35 Cr of annual sales. So you’re gonna get a sense that’s established. But will they be able to do all this if they want to get a thousand crores? That’s the question on there.

DS: So there’s two questions that have been asked a actually VT very close to the topic you just spoke to. Question number one was we are a scaling startup. We’ve raised one round of funding. How do we think about who we bring on next and the right partner? Given we already have one set of investors and therefore how important it is for future round investors to either complement them in skill sets or be able to work with them. The second question was, when is the right time to sort of think about scaling up a team? Do you coincide that with the fundraising or do you do that ahead of time knowing what is required to deliver?

But let’s pick on one of that. Right. So let’s think about who the right investor is. India today is flush with capital. It’s a lot of liquidity. It’s never been a better time to be a founder. And I said this once every six or seven years. And this is probably the best time. There’s a lot of liquidity. People are excited. People are excited about consumer brands. So you have your either Angels funded or seed funded, and now you’re raising your first anything between two and 10 million as a founder, what should they be thinking about as they think about who they shortlist as the next investor. And I ask each of you to just look back into your last ten years. What are the mistakes you’ve seen and what have been the successive Ash? Why didn’t you go first?

AL: Yeah I’ll go first and VT and I smiling because we’ve had the misfortune of being on two very dysfunctional boards, and we know what that’s like. And we’ve been on some very good boards together. So no, I think it’s very important as to who you bring on board, right. If you’re lucky enough to the right early stage seed investors who are committed to you who have been helping you. The next phase is to me, it’s very simple. I always say bring in folks a who is not just about money at this stage, right. Later stages, maybe we can say it all about valuation. It’s all about money.

But in the next stage, bringing somebody who understands the space or understands the domain. This is not an experiment for them that they have formed the thesis. They believe in the product, they believe in the market. Number two, somebody that you have in chemistry with yourself as a founder, right. We all I think at this table have the belief that we have to build a relationship with founders as based on trust. It’s based on chemistry, because that makes the ability to be open and to be transparent even easier. And then the third thing is dynamics with the board. If you have a very, very cohesive board, it makes a huge difference when you bring people either who know each other or complementary to each other because it enhances your ability not to focus on board management, but focus on extracting what you need from the board members to grow.

I mean, Veeba’s board is a perfect example. I mean, we joke about it all the time. I mean, Deepak always says this doesn’t feel like a board meeting. This feels like just a strategy meeting or a conversation because everybody on the board knows each other. Everybody brings a different skill set to the table. Everybody has brought a unique things, and everybody has different perspectives, but they’re all at the end, come to a common board, which is what can we do to make the company more successful. So I think it’s very important who you picked. And so the reason I said you have to weigh the chemistry, the value at and the board dynamics as putting you on a sport.

DS: Assuming what you’ve said complimentary skill set from a new investor or investor you trust blindly who may not have the skill set. You think that will round up the board or as an investor base.

AL: I think you can if you look hard enough. Fine combination of that because if somebody is in the consumer space, but I would go with somebody trust more because I know that they will go and do the right thing. But as somebody who brings come, I don’t know if they will actually go to the things that we think they’re going to do.

DS: I’m going to switch gears because Verlinvest has at least historically coming at a later stage. It’s typically one or two rounds after somewhere where DSG would go in as you come in in a series B, C, D the company’s been around for four by six years. It’s got a board. It probably has two or three institutional investors. What do you think about in terms of what you bring and what you expect to contribute to as the company scales?

AA: No, absolutely. So the way I think about it, the first value add we bring because we are so specific to consumer brands, is understanding the business model. Like you said in today’s world, there’s the digital business model. There is the totally, let’s say, offline CPG business model. And then there’s something in between and what’s happening with DTC. And in that case, given we only do one thing which is invested in consumer brands, we at least within, I would say the first ten minutes with any founder established that we understand their business model and that generally puts people at some comfort that we get it, and then everything else comes after that.

The second is obviously being a patient and long-term partner. We typically stay quite long and participate in multiple rounds of funding. You never know how much capital you actually need, and I totally get VTs point. You need to calculate how much capital you need to get to the promised land, but you never know, and things keep changing, given there so dynamic for us. Also, an important criteria. Like you said, Deepak is most likely when we come into a company, there would be several other institutions, institutional investors there. And what happens from a late stage investor standpoint is that the ownership of the early stage investor is usually higher, even though we may be putting more dollars to work at a later stage. And hence the profile of that early stage investor becomes quite important to us. And this is something that founders need not always get. And it’s because the ownership being larger amongst early stage investors, they may continue to think in a certain way, you know, having either inexperience in the way things scale after a certain point, et cetera. And some of them don’t want to give, let’s say, the ropes opt to the next stage of investors as well as reduce maybe dialogue at the board level, et cetera. And this is something that becomes important to us because if you have an early stage investor who doesn’t get it to at least the vision of the company and the founder, that becomes a semi red flag for us.

DS: So I think it’s a very good point and it’s very relevant because I think over the last I would say at least the last five years I’ve had personally pushback from some of our DSG founders when the DSG team sort of step back from the level of active involvement with a portfolio company. And our playbook is very clear. I think the team at DSG is very, very good at zero to one. We know how to come in pre revenue, we know how to work with a founder on product. We know product market fit. We know how to launch, and we think we know how to get you to a point where you prove product market fit so that someone like a VT or Arjun would say So you know what? You’re there. We also believe you can’t have too much noise at the board. There’s no right or wrong answer. The words both are been on where you have five brand name funds, each having a very divergent view. And the one person I realize who really struggles is the founder. So I think as we work with founders and the founder makes the ultimate call on which investor to bring in, we urge the founder to lay down very clear rules and I tell them, you really need to let go of your old guys, because if you are choosing your later stage, well, you are choosing him because he’s good from one to ten or ten to 100. Therefore, the guys who are there from zero to one or one to ten if they’re smart enough, have been around long enough, would take a backseat themselves. Or you need to manage the process. And I see this in my portfolio where this isn’t always the case. So as someone who comes in later, what can you do with the founder to manage the expectations of prior investors? I mean, have you had this problem before?

VT: Yeah. No, I think it’s a fair point. I’ve seen some how does anything to do a good job of it the kind of stuff I’ve seen founders do. I think one thing I’ve seen founders do is reference calls with other portfolio companies, which let’s say the new investors are coming in from to get a sense of what is the engagement style. How do they like to be engaged and what do they like to see and what do they like to do? So I think the for learning about their investor. I would even say before you pick them, please do investor due diligence just as much as investors due diligence or founders. And the good news is today there’s a lot of data available. The last boom cycle, India 2007 2008. There was no data. So it felt like all money was the same. But now after 13–14 years, you have a sense and you can dig around and get feedback and talk to founders and learn about both the firm and the individual would like me to represent the firm.

So I would say that’s one, one I totally recommend talk to other board companies where they’re in the board off so that we get a sense of style. Second is solve for this proactively and early. And even before the first board meeting, we’re going to be inviting all the founders and all all the new investors do it proactively do it early because then it is much easier to set expectations saying, hey, this is the kind of frequency of engagement. Is it monthly? Is it quarterly? This is the kind of material that we’re going to have in the board meeting. This is the kind of material that we would share on a monthly basis and then ask saying, what more do you need to see or what is it that you would like to talk about this? I think that is the second and the third thing, which I feel some founders do very well is they make sure that the board meeting, unfortunately with Zoom is hard, but at least or offline board meetings we start, they combine it’s not just a board meeting. There is some socializing element as well. It could be lunch, it could be dinner. So that also kind of helps you, you know, sometimes a dinner previous evening helps you kind of surface concerns and make sure that the conversation availability have at the board meeting is much more focused and much more targeted. And those are the three things that I’ve seen people do, and I see they be quite effective.

AL: One thing just just to add to this, what I mentioned earlier is that as seen an early stage investors as you look at the next round, you do try it. At least the best effort is to find investor who complements your skill sets brings value and you have a chemistry with and we’ve seen this as we have invested with VT or Arjun. And I agree with you, Deepak. At some point we have to learn as snarling we went to step back. We’ve done the heavy lifting to that age and we don’t want duplication. So if Arjun brings a skill set to the table and it’s taking that from one to ten where there were supportive, but then we take on little tit bits where we can add value and then they take it to the next level. So everybody’s cohesive. But then you start dividing based on ability to add value to that scaling effort.

VT: So the collision is super important. And one of the things that all the funds on the balance today is please do not underestimate the harm that this functional role can do with the business, I think do not understand that it’s not capital does feel equal and same when it comes to many people. Unfortunately, the lived experience is that it’s not the case. So do your reference. Do your conversation. I think it is absolutely worth the last 5% on valuation or a complicated term. If you believe that you’re getting a more cohesive set of co investors who will function together and even when they disagree, we’ll be able to disagree and commit versus disagree and stay disagreeable. I think it’s very valuable. So don’t underestimate that I will urge everyone. I would be very thoughtful about that.

DS: I’ll put you a little bit on the spot. You were a very early investor in PayTM. You were on the board of PayTM. You got off the board of PayTM. It’s about to go to public. You just rejoined the board of PayTM if you think of VSS and his journey. So that’s about the business is more about a founder’s journey from start to where it is today. What can you tell the founders on today’s call are the key things. One is capital and we’ve spoken about it. The second thing I keep hearing from my founders is they find it a real challenge to build a team. No, because without the team, you can’t scale. So just be good to it may not be PayTM. Pick a couple of case studies where you work closely with the founder on building the infrastructure, primarily people when you bring them in, how do you think about it? Anything that you can share that the founders on today’s call can take away.

AL: So, you know, PayTM was an interesting study. Everybody looks at PayTM as to what it is today, but everybody forgets that when we invest in a PayTM, we were actually a mobile vaas business called 197. And the first seven years were not as rosy in terms of capital. We had two investors. It was [unintelligible] and myself, and we funded the first few rounds, and it’s only when later on in life when the big boys came in. But I would say the biggest thing that we had a challenge with. We had a very mercurial founder who was a risk taker who moved very fast. But what I loved about Vijay is PayTM would not have existed if you didn’t have the foresight to be brave and always think ahead of time. So how did PayTM come about? I remember the meeting very clearly where Vijay came to us. And again, recognizing looking at the future, said the regulators are squeezing our vaas business, the telecom operators are squeezing our vaas business. When the middle we gonna squeeze from both ends, we need to figure out another alternative source of revenue. Okay, there are two or the companies in the space.

In fact, VT You remember there were others in that space at that time and they didn’t move as fast enough. And they pretty much went away. And there were a lot of businesses. So he came up with the idea to say, I’m going to pivot. And this is one thing that I always want to look for. And founders the ability to know when your current business model, your strategy is not working right. And being able to be brave enough to go to your board or think ahead of time and say, Let me tweak this. Let me play around. How do I get this fixed and not be stubborn about? This is what I knew. This is what I saw. This is all I’m going to do. You could run a business into the ground if you’re too stubborn, because market conditions change with Vijay. The challenge was that once we convert it to the PayTM model and it started with recharging prepaid phones and then we realized, oh, my God, people leaving money in the wallet. Why don’t we do COD and then it took off. But the skill set to build a vaas business was very different to build the payment business. So in some terms, what we have had three pockets. One is we’ve had a couple of folks who’ve been there. That which I trust from day one, especially in the support functions in finance, in HR. Those positions we hired early, those folks have grown with us. They’ve known we’re just DNA and they stayed consistent on the business building side, we’ve had to obviously supplement what we started off in different ways. And as it said, you have to be open to upgrading. You have to be open to looking at folks who’ve been with you day one. But now you need to move on. Maybe their roles for them, maybe they’re not. And I think Vijay did a good job on that.

And third, I think knowing what you need to get that scale. So I think one of the biggest decisions Vijay made was when he hired Madhur Deorar into PayTM. Experienced Banking realized finance, fundraising capital is going to be a big issue. That was not his core skill set to bring in somebody. So I think the key is first, identifying who from an existing team can scale with you, if not, find the right roles for them, or find a way to step them aside and upgrade those positions. Number two, bring in skill sets that you yourself don’t have expertise in and surround yourself with good people. And three you have to hire. I mean, we’ve been hiring the creation. Of course, the risk is when you hire like that, your attrition rate is also going to be because everybody’s going to come and steal from you. Once you build people and you build expertise. And fortunately, we’ve been lucky to have the ESOP base to try to retain people. But it’s not easy. The different problems in the escape today. Our problem is retention and managing attrition. But hiring the right people is important. But also you have to be valued at every stage. You know deepak when we started the wallet business to three years later, five years later today we’re going public. The scale is so different that you have to look at your team every few years to say, okay, have outgrown it have outgrown it can hand supplemented, so it never stops, never stops.

DS: I’m going to pick on two threads. There one is you mentioned very briefly, but I want to reinforce the founder is hire the core people early. There’s a clear distinction in at least my portfolio. I ask everyone else to comment on the people who have hired early in HR and in finance. A lot of the pain goes over. You have many, many things to worry about, from product to market to performance marketing. You need someone to be the gatekeeper and nature. Hr Works and Finance works. Number two is trying to understand if there is a difference in style in India and south East Asia versus I guess, the west. So I’m going to put you on the spot only because your portfolio is the most diverse Oatly just when public, you guys are the biggest shareholder oatlly before going public, you have a couple of Indian companies going public. Soon as you compare the portfolios in Europe and the US who have gone public or about to go public, and companies that are about to get to that point in India, is there any visible difference between ability to build the team quality your team, or is that a geography irrelevant?

AA: Deepak it is very, very different. To be honest, the main difference and I remember US colleagues being totally shocked isn’t just staff strength at different scales of the company, right? It’s obviously super expensive to hire large teams in these other countries. So for them, when they look at even our companies, which are maybe one 10th the size of the ones we have in the US, they are shocked by the staff strength. But then that comes with the complexity of India that you need a lot of people to just handle, you know, certain tasks to operate in India, which doesn’t exist because the infrastructure is so good in certain parts in the west. And so what they focus on is in the high level talent. And so if you look at some of our companies like Oatly, Tony’s in the US, etc. All of these guys placed certain, you know, very senior people early on, and they became more or less co founders, so they may not have the title of co founders.

DS: But I’m going to interject because I want you to think about one more point as you respond. One is you’re right. They’re able to hire talented people fairly early and put in senior in India. Most have failed to do so. Is that because senior guys don’t want to join what it’s perceived to be a startup too risky? Or is it that the Indian founders just don’t want someone to become a cofounder

AA: So Deepak I think fortunately, the reverse, which is the talent pool is completely changing. People are a lot more open than I’m sure VT and Ash can relate. It was not the case to get senior talent in 20, 11, 20, 12, super hard to attract such folks into, let’s say, relatively early companies. That is changing today because everybody is seeing success stories and hence getting attracted, however, and I would say largely which has remained. One challenge is that the typical Indian founder does not want to give up either economics or want to give up control. And this changes as it scales. But the earlier stage you are they are very, very cautious on hiring expensive talent, very cautious on giving up incentives which today is what is attracting all of this talent, which is the ESOP pool. And this has been moving, I would say, but Deepak, you know, it that it’s really, really hard for people to give up large, I would say for them at an early stage is relatively large salaries because they’re just not used to that.

DS: So let me challenge you. I agree that 2011 to twelve, there was a lack of talent, and I also agree with the point that most founders are a bit nervous about giving up equity or cash. But if I fast forward 2021, we are finally seeing founders realizing they should share the economics. But I’m still finding it a challenge to hire senior people from industry. And this is a conversation is as recent as three, four weeks ago, where you have someone very senior in CPG work for Global and Indian MNC, but just wants to go on paper to a startup but is not comfortable with what it means to own equity. So I’m seeing the other issue where people do not want to give up the salaries that are being paid by the HULS and P&Gs and the miracles and the Godrej’s I mean, you need that to change for that talent to move across. Do you see that changing anytime soon?

AA: I see it changing for sure. I would say here the tech companies have led the way just because of the scale that they have achieved. It’s about time it will reach CPG. But for example, I see Unilever, which is really a CEO factory in India, clearly having some talent at the mid level looking for other things. And the reason they are looking for is because they see these large successes coming out, starting with tech but certainly coming into consumer, and they bring a very valuable skill set with them, and they could gain an extremely enriching experience if they joined at an early stage.

DS: I’m going to ask Vivek the CEO of boAt join board recently and provide to that he was the CEO of Godrej Consumer. Good question for him in a later session. I’m going to switch to questions in a little while, but my last question before that is just very quickly amongst the three of you. You know, everyone talks about the success stories, what you should be doing. Are there any clear warning lights and mistakes to avoid as a brand scales? You know, each of us have backed dozens of consumer brands, which are the most common mistakes that the younger founders should be aware of and not make the same mistake again.

AL: So I think somebody very touched on, right? I think one is. Yes, we backed you because you have the vision and you are the founder of the company. But make sure that you start surrounding yourself with good people, smart people, even if it means paying a little more than what you’re making yourself and building that foundation building that foundation on the support functions. That’s one, two, then be flexible about your business model. You know, if things are not working, things like our sideways brainstorm challenge, think ahead and try to tweak early because otherwise you spent too much capital trying to prove something as well. It happens sometimes, right? You could three focus on the product. Don’t compromise and product ever because you on a consumer business, you don’t get multiple chances with consumers. Stop focusing on for more about fundraising. If you execute, fundraising will happen. You know, revenue solves a lot of problems.

Okay, so focus on execution. And if you are performing and you’re doing the right thing and you have supportive investors, the next one will come. Don’t build your strategy based on what other market is throwing at you. And last, but not least as I look at red flags and I think is, you know, we back founders based on certain assumptions of their capabilities. If we realize at some point along the journey that the founder is good at certain things and not good at certain things, talk to them early. Have conversations. Who can we bring in to supplement this was I think some of us have experienced. Sometimes you have a great founder who’s an amazing CMO, but not a CEO. You realize that later on in the game. So try to work early on them. And I think sometimes a mistake we, as investors would make is we wait too long to have those conversations. So I think it’s just being open minded. You have the vision, but at the same time, don’t be stubborn about building a team. Don’t be to focus on just cost management. Focus on doing it the right way.

VT: add to what is said in an environment where so much liquidity and it appears so easy to raise money. Be careful about how much capital you raise. You know, strange as it may be, excess of capital also creates a lot of bad habits. You know, you end up trying sometimes too many things, not being focused enough. You end up bloating of cost structure more than it can support. And most importantly, if the business is scaling, not because of product market fit because of what you are doing in terms of sales and channels and margin, you don’t get that feedback. So be careful. I know it’s plenty full time. So of course, we should raise capital if you need it. But it may surprise you to know that more capital than needed can also hurt your business. And that is something to think about. The other thing is, if you’re failing in some particular reason, if you’ve launched a product, it’s okay to acknowledge the failure and quickly try and move ahead and see what you can do versus being stubborn about either a product market or about the choice that you have made. I think it’s perfectly okay. The investors understand that inversely used to seeing that. So I think that is the other thing which I’ve seen people not do fast enough. We sometimes hurt the business the long run.

DS: Let me ask you this. And this is the debate. I have many of my founders, and it’s being asked on the questions I ask it now is what is the right pace of growth? Assuming product market fit has been proven, you have a brand which consumers love. Do you grow a 500% a year, 200–100% a year? You know, a lot of things will break if you grow too fast. So how do you answer that question? Because there is pressure from later stage investors to show as rapid or growth. But those same investors know that if you grow too fast, you’re going to make a lot of mistakes and have a high risk of fatality. So just as you think about this in any advice on how our founder should think about what is the optimal pace for growth for that company at that stage?

AA: First of you, I think there is no number, every company, every situation is different. So there’s no number to say what is the right pace of growth? I think companies who have reached, like VT said, very clear, compelling product market fit. So you’re stepping on the gas on something that is already working. And I would say add to that doubling down on your strengths. So if I look at our best companies who have scaled tremendously fast over a long period of time, they have always grown in a manner where they are continuing to build on their strengths. And while there are a certain gaps which may be their weaknesses that they feel along the way, it’s a lot easier to focus on the strengths and to keep using that to scale. And then you will find your natural path at what pace you will have to grow, I think, to buy growth, especially in today’s age, which is relatively easy to do if you raise capital. It’s very, very dangerous because the effects of this is extremely latent. You don’t know the mistakes even until a year or two later, sometimes even more. And once you know the mistakes two years later, it’s very hard to correct them in the past.

AL: Now, one thing Deepak I want to add is that make sure that you have the infrastructure to support whatever scale of growth you’re doing, because last thing you want is the system to break down because you’re growing too fast. So sometimes even too fast growth can be dangerous. So just make sure you’re the infrastructure you hired, what you need, you build the systems, if you’re manufacturing, you have the capacity, make sure you have that. Otherwise, if you disappoint consumers again, you might not get a second chance.

AA: Absolutely. I will add to that also, especially in CPG context, a lot has to do with capacity. So more or less in the many, many different examples that we have had. The founders initial instinct is to go slightly smaller on capacity, even if product market fit is just catching fire. And we pretty much always push our founders to think slightly larger. When they have this context where everything seems to be buzzing and working, then you put up a bigger plant rather than a smaller plant because capacity becomes a huge constraint to scale in anything you want to add.

DS: Now let me go to the question from quite a few questions from the audience. Let me start with this. In the initial stage, I might seed with limited funds where startup must focus on spend. If we could spend on only two areas fast facing product build, key teams across areas marketing and growing username, what should they do and let me start? And I think the most important thing for a founder is to understand the levers of their business. You can only spend on one or two things. You really need to build a business with strong foundation. If a house needs four pillars, you can’t build two. The question is how deep you go and how high you go after you build your foundation. So again, be very thoughtful. Pace all areas of spend so that not one pulls the other and everything is in balance. But I haven’t seen many businesses from my experience where you only spend on either product or team or marketing or monetization. I don’t know if sort or urgent of anything to add.

VT: The only thing I had is you don’t just have capital, right? I think you have a vision, your charisma, your ability to persuade convinced. I think that should allow the founder to stretch capital a lot of the times. Be surprised. Sometimes I see founding people where the founder is higher, some really high quality people very early on and obviously they’re not come because of that. There’s no way the compensation would have been matched. Maybe they’re 50 60% lower. But the founder has been able to persuade around the thrill excitement division and that’s, for example, let’s say something like team building. They can market it. You’d be surprised. I’ve seen founders get he almost like the retainers with high quality marketing consultants who they could never fold but literally working over the weekend and getting the support early on. I think it’s about I agree with you, but it’s not one versus the other. I think some you may have to use capital and some of you to think about what are the other things that you have at your disposal to be able to make sure the foundation is right?

DS: Let me move to the next question. How would you say consumer investing has evolved since 2013, 2014? Around the time we saw VCs back brands like Urban Ladder and Bewakoof. What are two or three things? You saw a star change from the way founders approach things, then then they approach them.

Now let’s start with Ash.

AL: Well, first of all, there is more capital available today than ever was to. There’s more people from the tech world suddenly looking at I think what they think is a gold mine in consumer investing. But I would say that I think there is more open consumer behaviour. I think a lot of things have changed. And I think the pandemic has accelerated some of the consumer behaviour. So if you look at the rise and direct to consumer, it has really benefited from the pandemic in a way, because people so acceptance of consumer products openness to be try new insurgent brands, accessibility to those products. I would say better infrastructure in terms of payments, logistics, supply chain.

So a lot has improved. And I think founders also now have the ability to say that I don’t have to worry about everything. If you go back 7–8–10 years and look at the consumer business of investment, the founder had so much on their of what they had to do to even get basic infrastructure, right? I mean, think about the days when we invested in raw cold chain supply chain logistics today. If you were studying raw all over again, you won’t have as much challenges as you had in those days. So I do think the environment is better. Consumer behavior is improved, there’s more capital, there’s more open mindedness. There’s actually more talent available because people are now seeing that we can leave larger companies and go to younger companies and benefit from it. So it is exciting. But at the same time, I think we also remember that every cycle goes through phases. And again, I go back to the same thing, focus on execution and that will solve all the problems going down the road and pick the right investors, do your diligence and build the right team.

VT: I just had one thing I can definitely see a factual right. The time it is taking to go from zero to 100 crores has crashed. time taking from 100 to 500 has crashed. So I think the founders and investors, you know, it’s very exciting and obviously it’s happening because of if you take India, obviously for per capita income today is to exert what it post it without and even just on an absolute and on a relative basis. And second is the digitization and how it is helping in discovery, distribution and payments so that you’re visibly seeing the journey from zero to 100 has come down. And I think that makes it easier for you to both know if success is coming. Somebody has a question there on product market fit. And I think the way you know, our market fit is the product of getting pulled a big, good gross margins for you. To me, that’s the simplest test of saying is the product market fit. So you’re seeing that and that of making the whole environment and quite exciting to totally agree with it.

AA: I’ll just add that I think the consumer has also evolved significantly. I mean, beyond their wallet. I would add that look the way they search for brands, the specificity which or the scrutiny with which they decide which product to choose and which brand to choose has gone up, which is good. You’re getting a more involved consumer because of the choice that has been presented to them. That is making it a very exciting story.

AL: Actually product discovery, right, Arjun? Product discovery has become much easier for the consumer.

DS: As people will say, it’s become easier but become much more complicated because depending on where you go, there are so many brands. And again, there’s no time to discuss this today, but the importance of community and content and finding that niche. When we started DSGCP. One of the reasons I was excited was that unlike in many other categories where winner takes most think about Windows or iOS in consumer, the window will get nice. But there will be many, many winners because consumers are also different and no one brand there is not going to be a standardized shampoo or standardized anything. It’s the exact opposite. And let’s founders create brands with a true mission. But that’s why I find it exciting.

I had an interesting question.

This is to the panel, anyone. Now you can take it. We are in an industry online DTC cycles and electric bikes, which has proven successful and very large globally. We are growing aggressively, doubling revenues year on year and hitting KPIs VCs are still waiting for the online market to mature and grow larger. Should we just focus on the business and generate cash, or should we look for global investors who really understand our business?

So what’s your value?

AL: I think I get this question a lot Indian investors to invest. Let me go global and find it. But do you remember the global investors have much given the fact that they might not have feet on the ground in India, they will look at what the local market is, who the local investors they could partner with to come in. It’s not automatic because they understand the space that they will back the same space in India. They will look at the India quotient and figure out whether it fits their thesis. So I think global investors until today, I I agree that some of them are coming in and they’re looking at consumer on the tech side. Of course, it’s different tech side. Global investors come in very fast and furious. But in most cases, global investors will follow local investors and they would like to see early growth rather than an early stage.

So I would say focus on the business and try to find some good, high quality, early stage investors who will help you in that execution strategy. And if you do that, global investors will follow in the future who have conviction of the space. But I don’t think you completely change your strategy. Just say global investors will come in just because they believe they’ve done this globe in other countries,

AA: as I would in fact, even add that global investors who don’t have a presence in India will be the first to receive if the market falls off by 20 30%. And these things do happen in cycles. So even if they come in now, they are the first to recede.

DS: Yes, I want to add one thing. I think not everything that works globally will work in India. And I think having that lens is India is very different from the rest of the world. Many things need to be localized and it can work. But many things, given our culture is ability to spend, regulation isn’t going to play out the way it has anywhere else in the world.

Next question, or we may run out of time how to accurately predict that we have got product market fit and it’s time to expand rapidly. So when do we step on the pedal? How how does a founder know?

VT: I think is it do things right as you look at your unit economics, look at your gross margins. Look at how much you’ve been spending on performance marketing, which is really a variable cost, unfortunately, and that’s how Google and Facebook have made it and see how much full you’re gaining without and what does it look like and that looks healthy. That means you’re having product market fit. The second way to see product market fit. It is when you are supplying the product to moderate trade or stores, etc. What kind of terms are you getting? And are you able to get better terms? And if you start with X, are you able to improve the terms over the period of time? And that’s the second indicator because modern trade is pretty rough, the very tight, very frugal. And therefore is there giving you money on time and they are allowing you to improve terms. It means that there is real product market feedback and the product is getting pulled versus getting pushed. So I would say those are the two things. Look at your organic economics and not just those margins. Look at performance marketing. Look at everything that you’re doing to push the product to the customers and on the terms with retailers or channel partners. See how they’re working on an Amazon and Flipkart art and are you able to improve them? Are you able to push? If you’re able to do that, then you probably have product market fit. If you’re not, then that means at times look back at the product, get feed back on the customer, make changes and keep fine tuning it until you get attracted.

DS: I’m going to ask the last question. It’s an interesting question given our topic on scaling. Every fund has some underperforming companies that aren’t scaling well or an scaling well at that stage in their journey. What is your strategy is fun to deal with these? You actively look to exit turnaround change management, ignore or move on. How do the founders think about engaging with us as investors when they just aren’t delivering the way they thought they would? Ash, what’s your view?

AL: Well, I think the ignore and move on option doesn’t exist. That just doesn’t exist for us. We are used to kind of helping companies survive. And management change in India is hard in the US. It’s a known practice either the there will be some change founders will stay on, but they’ll take a different role. And so he should be joke in the alley that takes the third CEO to take a company public. But obviously in India that does not apply. So I think a turnaround we first were to focus on what the management the founders want to do, right? Do they believe that this game is over or do they believe there’s still a fight in there?

And I’d like the fact when founders are honest to say, guys, listen, we tried it. We looked at this. These are the hurdles. I don’t think we can be competitive given how the market has changed and that’s OK. And that’s the situation where we go help them look for an exit and we in all of us out here. And the fact that the exit market right now is open, we can look to find that solution and obviously will do what’s right for the founders and what’s right for our LPs turnaround. We have to have conviction, right. And I think turnaround also, this goes back to where we have to have a board that’s an investors who are in line with each other who believe that the opportunity is. And we’ve seen companies where we love the product, we love the brand. They could have been a shot at a turnaround, but they just wasn’t an agreement between founders and investors or betweenthe investors to take it to the next level. So I think every situation is different. But to me, I think turn around or look to exit is the way to go. I have never till today in India shut down a company complete. There’s always been some outcome and it just has to be balanced between what the founders want. And I think we put you an IED situation where we always say founders, what do you want to do first? Tell us what you want. This is your company, this is your baby. And then we’ll help you get to the solution.

But I think ignore and move on doesn’t work because you can’t bury your head in the sand like an ostritch. It doesn’t work.

DS: Arjun how does Verlinvest deal sort of these situations.

AA: So Deepak, I would say the most straightforward of these situations is when the founder and the investor recognize under performance, and they are on the same page. But you’ll be surprised that’s not what always happens. The more common one is when the investor feels as under performance. But the founder feels everything is fine. And where we have seen a dangerous situation is if somehow you’re able to you’re running out of capital, but you’re able to go and raise some amount of capital from somewhere. And that keeps you going for another couple of years, not recognizing the underperformance of the issues in the first phase. So I would say the way we deal with it is we first very transparently tell them. And if we don’t back them in the next round, that is, I guess, the harshest way of telling them. But we do bring up the conversation as early as we can. Obviously, it’s not always as early as we would like, but as early as we can. And we first check if the founder is on the same page as us. Is he seeing the same issues that we are seeing? And I would say more than 50% of the cases they don’t see it that way. And so in that case, like, as said, we let the founder, we ask the founder what they want to do, but at least they understand what our position is in cases where there’s perfect alignment. That, frankly, is the more easier way to solve it when there is perfect alignment that look, this is not working either we, you know, figure out ways where there is no turnaround story and so you part ways or there is some changes to be made. And we, you know, provide some support to make those changes.

VT: Yeah, I can add just two practical things. One is I would encourage founders to have a mentor, coach, a friend, you know, who can really show the mirror because, you know, sometimes it to agents point. And as this point because founders and investors may feel like folks on the opposite side, but they but they’re not. But sometimes it may feel like it may be helpful to have someone who also you can kind of share the picture with. And then now it’s like mirror on the wall. I’m saying, hey, look, what was the real situation. Second, is our encourage founders, especially in a market like what it is today is the most important cost is the opportunity cost, your opportunity cost. And I think that given the market environment, given the opportunity set in India or Southeast Asia, there is so much to do that I think it is in the founders interest.

Founders interested see and recognize and act on it. And I think the smartest founders have done that. If I go back and look at some of the investments that me and my partner and was made in 2007 to 14 was just kind of now ten years for seven to ten years. And if you look, you will see a mix. You will see companies have been public. You would see companies that got sold. This is a happy situation where everything works out well. But it’s on the smart ones where four years down or five years after the investment, the founder said, you know what? It’s not working. Let’s just find a home because I have a better thing to do. I have more faith in myself. And I think India and Southern Asia today. You must not have the confidence to see it for what it is, and you have the biggest opportunity cost. So why would you waste it?

DS: On that note, as Arjun, VT thank you for a very engaging session. And as we close, I have one question for Arjun. On a lighter note, Verlinvest announced a $40 million investment in a company called Who Gives a Crap Yesterday. I just caught the headline.

AA: Let me place my product. it actually is toilet paper for all of you who are wondering.

DS: $40 million into a toilet paper company backed by some of the biggest funds around just talk us through the investment pieces. And I’m curious, maybe we should back toilet paper brands in India.

AA: So one global theme, we are seeing which the consumer and it will come to India. It’s already started to come to India, and in a small way is sustainability. The consumers making the choices that they make because they feel it is better for the planet, not necessarily because it is better for them. And so this brand and it’s really an amazing story. When it came to us. It was started in Australia where the founder of the company sat on a toilet for 48 hours to raise money for building sanitization in Africa. And then he said, we will have sustainable toilet paper, which is 100% recycled made from bamboo, et cetera. And we will donate 50% of any profits that we make. Two building toilets in Africa and increasing sanitzation. And so it was started in probably a very different way than most businesses start. It was profitable from day one, because if you don’t have profits, then you don’t donate anything to the consumer. And what he was, I guess, surprised by, And so were we is the amount of consumers who came in such heaps and hordes to buy this product purely because of this mission. And then that mission became a business. It became a company. And so today it does a little over a hundred million dollars in sales, 50% of the profits, which last year was $20 million. So they donated $10 million to building toilets in Africa. And so we felt very strongly in such a mission driven brand on theme where effectively consumers are choosing them because of their mission and the product being more sustainable. So that’s the story.

DS: thank you very much. And I want to remind all the founders, right. When we say a mission driven. We actually mean mission driven. Find something you’re passionate about. Build a business. Consumers will resonate, and they will come on that note.

Thank you very much. And we look forward to seeing you at the next session.