People First by Matrix Moments: Investing in Human Capital

Rupali Sharma
DIRECTOR - HUMAN CAPITAL
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Rupali:

For our first episode I couldn’t have asked for a better person to start this. I have with me the OG founder of Indian startup ecosystem, also the founder and managing director of Matrix Partners India and mentor to me. Avi, thank you so much and welcome to our first episode of Matrix Moments People First.  

Avnish:

I'm so excited. It’s our first episode together as well so I'm really excited. Rupali, I know we were at one point thinking about what should we name this and then it was so easy, right, I mean founders first has always been our kind of mantra and founders are ultimately people and what function do you manage and so it’s People First, super excited.  

Rupali:

Likewise. Especially today morning, right, when I was thinking I spent so much time consuming Matrix Moments podcasts before I came to Matrix and during the process and today doing this with you feels like a full circle altogether. But just to go back a bit I don’t know whether you remember the first day I joined Matrix I joined at around 9-9:30 am in the morning I get an e-mail in my inbox telling that I need to shadow none other than Mr. Avnish Bajaj for an interview and you could imagine. And it was then, it is now four plus years as part of this team I’ve had to honour and the privilege to work with so many founders, learn a lot of I think what to do and more so what not to do, different sectors, different ecosystems. So, when I zoom out now, Avi, it is very easy to see the multiplier effect of the work that this team has done. However, my question to you is what made the team, Matrix leadership team, think of investing in building a human capital team. You started at Fund 2, and I think you started scaling it in Fund 3, I came early 2019, Fund 3 was announced early 2019. Just wanted to understand this rational because not too many VCs were doing it India at that particular time.  

Avnish:

And now they’re all doing it.  

Rupali:

Yes, everyone, yes.  

Avnish:

So, we’ll have to reinvent, and we’ll talk more about it. But by the way it’s a great thing that they’re all doing. Ultimately, we’re all part of the same ecosystem and the more we can help. So, let’s go back a little bit, you know, if you look at starting way back as the first fund, I would say we were more mid-market PE, less VC, then starting second fund we got lucky. Ola, RazorPay, OfBusiness, Practo, so many of these digital companies. Then obviously the venture flywheel started turning for us, for everybody. The nature of our work started changing a little bit and if I look at even when we were doing mid-market PE we were very, very closely involved in building the n-minus-one layer. And you know, in that world we call them promoters and today’s world in the tech world it’s more founders, but I still remember finance function used to be typically the first one whether you look at healthcare companies, bunch of our companies. So that used to be the core of the IP work. If you ask me, it is something that I used to take pride in, was excited by and thought was the highest impact work I could do which was helping the founders build teams. We’ve had these discussions on what does it take to go through various stages of company building org. Org building is the key. Having had my own background as a founder and also if you look at the US context the MDs here it’s called GPs over there, they really this is the core part of their job, recruiting and team building. So, this is done everywhere, having been a founder the perspective I was trying to bring to that recruitment was that can I help them accelerate their journey. So, the reality is that’s how it started. Then as venture picked up, we started investing in younger and younger founders the pace is much faster. People like you started showing up in the ecosystem because remember 15 years ago there was no ecosystem. So, you started seeing both the pull from the founders, the market, the need to basically scale up and realizing that this is so core and strategic to us and I don’t think of it as recruiting. So like you said now all VCs are doing it, I just think we do it better and I'm not even joking here because I have been in many board meetings with some of the best known founders in the country and there are other VCs on the board and our founders will I think to also tease the other VCs a little bit say, you know, Rupali [0:05:17] [Hindi Spoken] everybody’s name comes out. So also, an opportunity to thank you guys, shout out to our human capital team, it gets us a lot of kudos. But we’re not in the business of kudos, it is we’re in the business of in this digital value creation journey helping them accelerate their value creation. And I think that was very clear and the fact that there would be domain experts who can do a better job of it. I remember you were talking about our first interview shadowing; there the idea was for you to calibrate with our thinking but even in the interview I was calibrating with your thinking saying what do you think of reference.  

Rupali:

I remember. You asked me and I'm like what, how in the world do I tell him what I think. But I think somewhere down the line some things I said resonated.  

Avnish:

Must have.  

Rupali:

No, thank you, I think, Avi, I remember when I was having my conversations it was a lot of how it will span out versus how the role would look like. It was a lot of evangelizing that end role in my head also.  

Avnish:

And I know we’ll come back to this later but I think one of the things I remember telling you is and this was also something I wanted to talk about that you’ve also mentioned to me that how have you been scaling it up more, you know, there’s one of those things and we talk about it with companies that they have to get to product market fit. So, they have to get to 0-1, then there is 1-10 and then there’s 10-infinity. We got very quick product market fit in this function and you guys should be very proud of that. And we didn’t have to do 0-1, we went very quickly from 0-10 and beyond and now I think we’re somewhere in the infinity journey which we’ll talk about saying what next. But it was such an easy fit that we said we have to scale it up. Founders are loving it, investment professionals are loving it, market needs it. I will tell you in my head it was, and I remember telling you this when you were coming on that this is a strategic function not a tactical function and it continues to be like that. I think what happens often is people think of it as recruitment and human capital, well, that's a well-known word. But when people peel it back, they still think of recruitment and for me it’s way beyond that. And you know that in our case, and I think this is specific to Matrix that the human capital team has centres founder leads, the human capital team gets involved with the companies even before deal is closed and it’s actually factored into the investment decision making saying [0:08:10] [Hindi Spoken]. There is a company we’re talking to right now where I think two months ago the team got plugged in, we still haven’t made the investment or shaken hands even. And the core hiring that had to be done has already started happening. So, it’s very, very strategic and then you know my favourite question in our one on ones is what do you think of popular companies. I think the indicators one gets when you guys are interacting – so I think it’s a very strategic function and we couldn’t be more delighted.

Rupali:

But tell me one thing still staying to that stage, well, I understand the rational on why it was needed but our team has been designed to solve for primarily 0-1 while we’re an early-stage company but a lot of our companies have grown to large growth late stage. Any particular reason why you thought 0-1 or early 1-10 is the stage that we need to solve for?

Avnish:

I think it mimicked or replicated the journey we had as investment professionals with the founders. So, for better or for worse all the – even the most storied founders today at the 0-1 stage I have personally been involved even in screening. So, I used to tell founders that this is a a-la-carte menu for you. You can choose to for me personally to do the screening, I will work with the consultants, do the shortlisting, referencing and then bubble up three to you to the other extreme where you do everything, and we do nothing and somewhere in between where you do everything then we do some of the final conformity interviews. It’s interesting what most people would choose something in between would end up in this extreme by the way where they would say [0:10:05] [Hindi Spoken]. But then what I observed was that would happen in the 0-1, this goes back into the org3.0, definitely happened in org1.0, would happen a bit in org2.0, didn’t happen in org3.0 because by that stage you have done what you had to do and you know there’s this famous saying that says fish for a person and you’ll feed them once if you teach them how to fish you’ll feed them for – I'm not saying that we taught them but when they needed our support, when they needed that shoulder, when they needed that crutch we were there. By the org3.0 if they still need us, we have a problem, by then they should have built out an HR function and stuff like that. But most importantly by that stage the founders are very clear, they’re very clear what they want, also I think that piece of the market is well served. Often you need “executives” so there are executive search firms. I have a nuance on that where I think we’ll still need to play a role and it’s changing a little bit but generally you're the big recruitment firms to serve that piece of the market.  

Rupali:

I agree. I think, Avi, also the 0-1 needs a different kind of lens versus a late to exit stage companies because you're looking at different kind of people to solve different scale of businesses. And I think our flywheel of network because we keep focusing in 0-1, right, it’s more deeper than and we can easily create.  

Avnish:

I didn’t think of it like that but you're right and also now that you're saying that so we were saying earlier that the founders know what they want, actually the founders really know what they want by that stage because they may be looking at a particular – generally they’re hiring specialists at that stage, they’re not hiring generalists. By that stage they know exactly that [0:12:03] [Hindi Spoken] because they have designed their org accordingly, so I think that's also the case.  

Rupali:

But, Avi, in the last few years the founders’ archetype has also changed from inexperienced founders we call them IF to experienced founders now and experienced operators, we have a very clear bias towards experienced founders, operators at least last year but the dichotomy of that founders while they tend to create more value is because they’ve experienced org building in their previous roles, they also command very high followership so I think the human capital served a great purpose for young founders who may not have that kind of a network or didn’t have a lot of use case of org building to refer to how do you see this new archetype of founders optimizing this function.  

Avnish:

You don’t like it when you have less work to do?

Rupali:

I'm in a VC, I have FOMO.  

Avnish:

First of all, just clarifying I think we have built a lot of goodwill with experienced founders, but I do believe inexperienced, let’s call them first time founders, they’re still the world changers. If you look at the maximum value creation till date in India it’s by the first-time founders, they’re just fearless. So, both will continue, and both will create a lot of value and they bring different things. Our goal is to help in value creation, I think the nature of our engagement with experienced founders is more bang for the buck because they do start with followership, they generally have a core team already in place but they’re not l-minus-2. You know, often what is happening is people have kind of come together but because they’re mature and all of that they also don’t want to poach too much from their older companies. They need help here, right, and that again is 0-1 for us. So plus, they really know what they want so in some ways when we were talking about founders' graduate to knowing what they want and the gaps and you’ve only told me that the clarity, role definition, JD, everything is clear, so I actually think it is a force multiplier.  

Rupali:

That's true by the way, Avi, I think the clarity, they have a clarity into what kind of, how do I org build, what is the nature of the team that should look like. So, I think it’s more ROI for the time spent and more clarity also in terms of org building and I think they reboot also very fast. If they’ve made a wrong decision, they take that as an information and change.  

Avnish:

You know, I used to talk about stumbling from insight to insight you gave me this framework of inductive versus deductive thinking which is deductive is something happens and then you decide, inductive is you imagine what all you need, and I think the experienced founders and those cofounders are very inductive in their thinking. So, they will think of [0:15:07] [Inaudible] so a lot of our role where to your point that they hired and there’s a hiring mistake. They’ll probably make that once but then they will have the whole org design in mind in saying how we have to do it. I’ll tell you one other thing which doesn’t necessarily connect with experienced founders but that is changing in the market, and I was going when I mentioned we have to also think of evolution. See, we used to be very as a industry founders will run their companies throughout. If you look at what happened in the US, Google, the founders handed it to Eric Schmidt or brought in Eric Schmidt, he ran it for a while, then they came back. Then they handed it over again, Microsoft has blossomed under Satya. So, I think this model is also evolving in this market. We’ve seen in our portfolio Dailyhunt we brought in Umang actually Viru brought in Umang. So then Five Star Ranga and team and Srikant and then Manish Patel and so I think this model is also evolving and I think that's where we have to also evolve because typically it used to be that we didn’t even used to think about it or broach the topic. [0:16:26] [Hindi Spoken] that is a very different level of skillset, so I think that's where the market is heading also.  

Rupali:

Now, Avi, I think I agree with you a lot of VCs are doing it, in fact we do get a lot of reach outs telling that how have you done it, right, and I think it’s great to know that finally it’s a huge ecosystem and I think yeah, we’re also mindful of the fact that the playbook has to be still created but what is your opinion of how do you see this role evolving now?

Avnish:

I think we have to keep evolving with the market, so in my view we’ve spoken about founders going through multiple journeys. We spoke about first time founders, experienced founders and then we spoke about infinity founders. One of the recordings we’ve just done today is this concept of digital industrialists. We have a few in our portfolio actually we can count two to start with, Asish at Oxyzo built out a new company, Bhavish built with by the way in Ola Electric, those are again 0-1 journeys and when we were doing Ola Electric at that time I think you had come in, Rajinder himself was driving some of the search so I think this is just so exciting because I think we’re going to see more and more of this. Founders as they’re traversing their journey also – so my view at a very macro level we have to keep pace with our founders and the market. They’re growing far faster than we are, we can and it’s very aspirational actually. Companies that are looking to do IPOs will want investor relations, they’ll want --  

Rupali:

In fact, last week we were talking about that.  

Avnish:

Yeah. So, I think we have to keep reinventing. If you look at ultimately in a very different framework Adam Smith’s economics there are three resources, land, labour, capital. Land in our view of the world is generally product, IP, whatever. Labour I’ll come back to, capital of course there’s fund raising happens once in a while. Labour which is human capital is the core resource so as this is just my view. The other thing we’re going to see is which we’ve already seen this industry is going to be a talent magnet. Yes, we go through ups and downs, layoffs are happening, if you take a ten-year view if this is going to be 20-30 percent of India’s GDP which I believe it will be that's what we’ve discussed in multiple episodes as well that that's up to 2 trillion of market cap. And up to 20 percent of India’s GDP may end up in the digital world. That means up to 20 percent of India’s skilled work force and also semi-skilled I mean they will be in the digital world. So, I just think that things it throws at us to constantly reimagine what the function can be also like I said its strategic, it’s beyond recruiting, org design, org benchmarking.  

Rupali:

So much.

Avnish:

Sometimes you have to actually think about the fact that this has not been done before so how do you do this. But you're in the throes of it so what do you think?

Rupali:

No, Avi, not that I haven’t thought of it. I think when my colleague Dev, Alex and all had already started it and so thankful for them for taking those first steps -- but I think it has been a playbook creation, there is no use case to refer to and so just like entrepreneurs throw a lot of that in some work I think it is for us also building org is the base problem to solve that is there but so much more to be done. So, I think there is this subconscious pressure of what more and I think creating a playbook like People First is one big try, how do we create more awareness in the ecosystem around. So, there’s some bit of wrong romanticism is broken into so you're attracting people with the right mindsets so that is one way of contributing. I think when you said three labour, land capital I think the other two constant in the long run people will be the only differential between companies, the competitive advantage. And hence I think it will continue to be very strategic and I think Matrix has hacked it in terms of – because when we get introduced to our founders, they don’t treat us as recruiters because they have already been sensitized told that what the human capital team can deliver. So, at day 1 we’re starting from position of respect and conferred.  

Avnish:

No, I’ll tell you when we’re in competitive deal situations if we’re investing in a founder who is not well-known but is sought after we know all VCs will be running after them. These founders are very thoughtful about their selection in choice and decision. And when they speak to other founders, they hear of us, so which is great. So, I completely agree with that in terms of, but I’ll tell you in terms of going to the next level of saying they’re these founders who’re growing, what more can we do like you said we’ve now started this podcast. Maybe we facilitate a community, you know, the community of all the human capital people coming together. Because often we don’t know the solutions but there is also no forums to bring people together. So, I think it’s just very exciting and will continue to grow.  

Rupali:

I think, Avi, overall whenever I get to ask what next I said [0:22:18] [Hindi Spoken] but broadly I think you said smart founders – I think the best founders have the bandwidth to design their capital width and when capital becomes commodity I think I feel human capital team has the advantage to become the moat for a VC in terms of everybody can give me your cheque but what else. So, I think that I'm excited about and definitely digital India and the propensity, you know, what impact can we create. This has been great. Avi, I cannot end this conversation without asking you about Matrix, very close to my heart. If I'm allowed iota of pride someday doing my bit in building the team that we have for the B1 but and we’re almost 60 now, the operating team is for the first time larger in size than the investing team. For 17 years of building this I'm sure the ecosystem has evolved and similarly the VC ecosystem has also evolved, the talent. So just I know too short a time for you to just wrap up 17 years but would love to take a sneak peek into your learning of how you’ve seen this ecosystem evolve and some of the dos and don’ts.  

Avnish:

I think couldn’t be more excited like we’ve said before, digital nation building is underway. I would actually pay for the privilege of this job, and I think that applies to all of us. We want to be paid but I think that applies to all of us. And the next decade is just going to be so exciting, right, but when I look back last 15-17 years it’s not been easy. We ourselves have gone through this organization 3.0, I wish I could go back ten years and the clarity I have of the next 10-20 years I did not have ten years ago for the following 10-15 years. And that's because of the market context has changed, maybe I’ve also grown, I'm sure some of that is there. But just like with our founders I was just having another episode with Rajinder digital industrialists we spoke about the fact that look, for the longest time it was about surviving, now it’s about thriving. So, when you're in your thriving mode and you know, I'm a neuroscience believer and higher brain then the kind of thinking that unlocks is very different from when you're in your lower brain and survival mode. So, the learnings are there for in that context, I think what we did well is that or what we did well and maybe not so well depending on the perspective constant change and adaptation. Went from a midmarket PE from we were a firm which was very 2-3 people at the top then we put lot of analysts, younger people, added operating team, latest changes you know we’ve brought in domain experts even on the investing side, so I think constant change is something we thrive in. I think personally I really enjoy, and I think that has been a strength, can sometimes be nerve wracking for people but adaptability therefore is key. To me what we have done very well and very poorly is communication. When we’ve done it very well it’s worked very well when we’ve not done it you know the problems because you have to deal with them. So, I just think for advice to founders if there is one is the power of communication, and it is about when you're in this change is the only constant people don’t know all the context. When we’ve had discussions here saying hey, somebody has joined who has never informed us and then we said oh, maybe we need to have a newsletter. I think communication, I think everybody is signed up – I would say communication and transparency. If people believe they’re in a fair equitable transparent high communication org they can generally put up with everything. But I don’t think we’ve been consistent in it and like I said we’ve been excellent, or we’ve been very poor. You know at off sites you and I have done some of this that didn’t articulate the change also that you know, I used to have this issue that why do people come and complain. Because my assumption was, I have been a founder, I'm not telling people what they can and cannot do. I remember you asking me once I want to do this can I do this. I said who’s stopping you? As long as you're increasing to surface area for the firm, as long as you’re doing something that will help the firm overall go ahead and do it, that's called founders mindset. And then I realized wait a minute, but we haven’t communicated that expectation.

Rupali:

To them, yeah. We assume that they know.  

Avnish:

We just assume.  

Rupali:

Yeah, yeah. True.  

Avnish:

And they don’t know that they’re allowed to go and just do it. So, communication, and you know that with every off site we have themes, we’ve talked about founders’ mindset, we’ve talked about thoughtful executions, you know, various things. So, I think that's been one big learning. On the future like I said very, very excited thinking about now with this new so called somewhat new domain expertise coming in the way I think about it because you also spoke about at one point ops team, IP team, I don’t even think like that. I actually don’t think like that, to me there are skillsets, and our job is to generate great returns for our investors. We have chosen the path fully of partnering with the best founders to get to that outcome. That path of partnering with the best founders has various skillsets involved. Skillset is you should know something about their sectors or various sectors. Okay, that's why we’ve had people with domain expertise in the IP team. You should know how to help them raise money, okay, its corporate development, if that Ops or IP you should know how to help them build teams, you should know how to help them market, finance, legal. So, to me it’s skillsets and we’re continuing to round out skillsets and we’ll continue to do that. And very excited about where that takes – I remember first we did when you came, we did M25 what does Matrix look like in 2025. Then I think about a year, a year and a half ago we spoke about 2035 because that's a fantastic opportunity. In my head I'm thinking I'm 50 so when the next stage becomes clear you have to start thinking, I mean I'm joking because it’s a little bit – I think at 35 itself you have to first achieve but that's it, constant change and constant evolution and in my mind therefore constant excitement.  

Rupali:

Yeah. If I can say for the entire org, I think privileged to be part of the team now and doing what we’re doing. I know you said to be privileged we should be get paid for what we’re doing, I agree but the salaries looks good. But jokes apart, Avi, thank you so much. Very excited about People first and couldn’t have had a better episode to kick start this.  

Avnish:

Another example, Rupali, of founders' mindset I know you suggested this in one of the meetings and the answer was please go ahead. There’s a joke in the US or somebody said that you people normally put up a sign, right, in private property, trespassers will be prosecuted. In our case people with ideas will be asked to do it themselves so wonderful initiative, very excited about it and I’m sure it will be very helpful.

Rupali:

Thank you so much and we look forward to hosting a lot of our founders and founders from the outer ecosystem.  

Avnish:

Absolutely. This is for the ecosystem.  

Rupali:

Thank you so much, Avi.

Avnish:

Thank you, Rupali. Wonderful.

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DIRECTOR - HUMAN CAPITAL