Tarun Davda - Building Matrix Partners India
43 mins watch

16th Jun, 2021

About Tarun Davda: He is the Managing Director of Matrix, India. Prior to joining Matrix, Tarun was the Co-founder, India CEO and Board Member at StepOut.com, a venture-backed startup. StepOut became India’s #1 online dating site with over 5 Million users. Before that, Tarun established BigRock.com (incubated by the Directi group) - India’s #1 provider of domain name registration and other web services. Tarun started his career at Infosys as an IT consultant. He has an MBA from the Indian School of Business (ISB), Hyderabad and an Engineer from VJTI, Bombay.

Pritish: Welcome, Tarun to the 1% project. 

Tarun: Thank you for having me.

Pritish: So, let's start it off and I would like to know, has it been hard building matrix India and the background there is that when matrix started off in India, venture capital was in a very nascent stage, building trust and visibility with LPs as well as getting the founders to understand the whole VC ecosystem would have been tough and at the same time, there have been homegrown VCs, other international VCs also coming to the market. So, how has that journey been?

Tarun: Yeah, firstly, again, thank you for having me, Pritish. When you use the word, how hard has it been to build Matrix India, I think it's harder to answer that question because it's a labor of love in a way and so, let me in some ways give you a little bit of a story behind it. I think, we internally at least when an issue come in, we keep Matrix India in two chapters. Chapter one, as you probably know, the form was founded in 2005, 2006 by Avnesh and Rishi. They were the two original cofounders of Matrix India. I think somewhere around 2015, 16, this Rishi had decided to move on to start his own growth stage fund and that's when came together, got closer, almost think of it as the second birth of Matrix India where we consider ourselves now co-founders of the second chapter of churn. So, I can talk about the first 10 years. I'll tell you what's different also in the second follow up. 

I think the first 10 years was really about just understanding the business. I think, for better or for worse, we understood the business was making way more mistakes than we should have. When we started, Avnesh was obviously the pioneer of the internet economy in a way where he was the founder of Bazzi, I sold Bazzi to eBay, eBay became Flipkart, Flipkart became Walmart, he's been the original sort of force behind some of these things. He was disillusioned because there's 2004, 5, he exited Bazzi. His favorite joke is, I got all parts of the business, except for one minor detail that there were no internet users. So, I think when Matrix India was first established, we didn't really make a lot of tech investments back then internet investments which was traditional VC and we basically started with doing a lot more consumer, we did all sorts of random stuff as well in the middle of water and energy, I don't know what now but I would say consumer worked out well for us. 

We invested in a company called W which went on to do really well, we made one giving investment which went on to do daily. We are daily hunt in that era, this was well before mobile, hyper local language, new net was even a term but ended up catching the court quicker. They've had a little bit of an open-door journey. But obviously for a period of time, we're doing really well and also caught a bunch of very interesting offline healthcare single specialty chains, like cloud nine, center, foresight, and a few others. I think only Vikram and I joined the form around the 2012 timeline. Then both of us got promoted to partner on that 2015 ish timeframe around the time recreate started thinking more like oxide materials. That is when I believe we actually got together and said, there was this Mary Meeker report that came out, it was like 12, 13, I don't know when which showed those like famous mobile internet and web sort of traffic intersecting. 

And then we said, ‘‘Hey, this is it''. This is what we all been waiting for. Finally, internet is happening. Obviously, I think 14, 15 all the time, Gio really started aggressively going through their plans and so, we said, Listen, version two of Matrix India will be the traditional venture fund that you all wanted to build but could never build because the market was not just there and since then, obviously did a lot of hard work to build our reputation. Maybe we're fortunate to catch Ola very early, fortunate to cath Razorpay very early, fortunate to catch OfBusiness Dealshare one card. I mean, there are a lot of companies; we caught him that second or third proctor and I think the one thing that we were clear about is that the market is here now. We could see that and it became easier to win deals because the simple thing we used to tell entrepreneurs whenever we found ourselves in a competitive situation is, ''hey, guys, why don't you just look at our website, pick any company you want. Just go talk to the founder. Don't ask us why you should take money from Matrix when you also have an offer from one of our competitors''. 

And we said as "A", we're happy to do together because we generally believe it takes a privilege but "B", you know what, if at all, you want to pick one VC, we will keep saying good things about ourselves. That's easy to do. But what is harder is to have entrepreneurs both where things have gone well but also things haven't gone on to say good things and so, we were pleasantly surprised. I think it's one thing we're very proud of is our founder NPS tends to be very hard, and we can talk more about it to the conversation, but I do believe given that a lot of us come from an entrepreneurial background, how many shows an entrepreneur. I was an entrepreneur become worked at early-stage startup before he started, bunch of us come from the background, I do believe that it shows in our style of engagement with these three founders and they appreciate it and they reciprocated.

They generally say it's great to get matrix very early because a lot of the stuff that is required at early-stage company building matrix is very well placed to contribute towards. I would say the hardest thing for us, honestly, it's not been the LPS. It's not been rising funding on raising getting money into India. I think, honestly, we benefit from the global heritage in that sense. It's not been finding the best companies to invest in, obviously we could have done much better, but we have our own market share within the successful ones. It's just been two things here. It's one is the internet opportunity in India has always been about over the next 10 years will be different and when you keep telling yourself that for from 2005 to 2010 to 2015. Finally, now in 2020, it looks like okay now it's finally here. We can see Flipkart IPO and Zomato IPO, delivery me IPO and Nykaa IPO and bunch of others and we're seeing that in our company or companies, the depth of the market for the first time is visible because we're seeing it in the matrix of a company. Now these companies are growing faster at a much higher scale which goes to show that the depth is really there.

So, honestly, it's not in vain in finding good investments. I think the single biggest thing has been in really making sure that "A", you keep the faith, and you keep the faith of those around you, right saying the hills and it's happened, it's just because I told you five years ago, it's going to happen in 10 years, and it didn't happen doesn't mean the next 10 years. So, I think honestly, we feel it and now the other day, the cycle completes when you finish your IPO journey. I think India will see 10 to 15 high quality IPOs in the next 12 months. There has been clearly one thing where there have been a lot of naysayers. There's been a lot of doubters and just staying true to your conviction that this is coming and I'm not delusional, I would say has been one thing. Second is India's ecosystem is very young. We are, for the first-time seeing settle repeat founders. For the first time, angels are seeing money and seeing exits starting to happen. There aren't experienced VCs. Like none of us have seen multiple cycles of investing in a company helping it grow thicker to exit. 

And so, a lot of us are learning lessons for the first time and in that finding people and building a team that is as focused as passionate as convinced in the opportunity. I'm also not just saying for matrix right. It's for a portfolio companies that if you ask any entrepreneur, what's your number one problem, they'll say, I just wish I could hire people, hire better people, and hire faster. I will say some version of that is something that I consider myself as an entrepreneur at Matrix India and I think we would say the same thing. Yes, that's been one of the hardest things for us. But overall, it's been a fantastic journey. I would not be doing anything else. If not for this, it's a privilege to do what we do. It's a privilege to work with extremely passionate, extremely intelligent entrepreneurs who are looking to change the world and create impact. We are in the fortunate position where we get a ringside view into their journey. It's very gratifying.

Pritish: I think you touched upon a number of things. One thing I really want you to tell Double Click, is that you talked about brand building and brand building when as you mentioned the journey has been from five years to 10 years and now it has arrived. So, how critical has that been for you and how difficult has that been?

Tarun: No, so like I said, it's just been a test of conviction. I remember, I won't name the investor but probably one of the most successful investors in Indian internet actually global Internet. I remember talking to him once and I asked him to say that ''hey, you make it look very easy. You've got all the biggest unicorns in India; you've got all the biggest unicorns globally, what's your secret and he said, Tarun the best companies have tested my conviction. Not once, not twice but multiple times and so, what my biggest successes are in companies where multiple times we've looked at less than 30 days of cash left in the company and miraculously the founder has pulled off a financing round or whatever it is". So, I think it's easy to see it after it's happened but when you're going through it, it's a real test of conviction. I think obviously, everybody goes to those moments. I would say, for me, I would go back and just say, it's a journey where all of us combined alone. The angels are learning, entrepreneurs are learning and co investors are learning to work with each other. 

Employees are finding value in equity. Like till a year ago, I don't think any employee in India had or maybe a couple of years ago. I don't think there was a meaningful chunk of people who really value resorts. So, in India, it was all about, ''oh, give me a 30% pay hike''. Oh, and now okay, throw in a few options because I need to negotiate on everything and so, it was never, ''hey, if you're giving me real equity in your company what's the tradeoff between the right levels of ownership wasn't the right level of cash flow for lifestyle or whatever it is'' and I think today, finally, people are understanding because a lot of companies I'm sure you read this news recently not only companies that are exiting but companies at CDC onwards have started creating largely supports started in buybacks, a small amount whatever it may be but, in every round, it just makes it real. Till now, it's not like some small paper that I signed when I joined the company and never to see it again. The day I know that every single option is worth real dollars that's when it starts becoming real and so, I think, just overall, seeing that maturity ecosystem has been a journey and it's finally great to give idea.

Pritish: Great, so I think that leads me to asking, is investing more exciting or exits?

Tarun: Do you like to put money or take out money? Always take out money. I think it's hard to separate the two. Honestly, I think the two go hand in hand, it is a cycle. Obviously, for a lot of us a large part of our time has gone in investing and it's a long feedback loop business. Like, it's not that you invest today and you can exit in what three years. This is a five if you're really lucky but more likely a 10 year plus journey especially in India and maybe it's closer to 12, 13 years in India. So, right 2005 or 6, it started or 8, I can't remember 2021 is going on. The reality is that it is I don't know the exact date, but I know its maybe 12 years or there about. I think the reality is that the true rewiring, VC is a pattern matching business for you to close the loop. You need to go through a cycle where you see the value creation and the value unlocking. Yes, there are markers along the way to know that a company is doing well. But the proof is in the pudding and so, the reality is it's only when you exit, do you ''A'' build enough self-confidence to say hey, yes, this whole thing is somewhere the loop closes and it starts making sense. I would say exit it's, we've had a few of those and Matrix India and it's always a big booster to send back money to investors because finally, you can look them in the eye and say, ''hey, you know what we've been telling you since so many years is actually coming through''. 

But I truly enjoyed industrialism. It's like finding an entrepreneur that you're excited to partner with somebody that you share the vision with somebody whose dream you can relate to somebody solving problems that you think is a problem worthy of solving and we don't do too many of these personally as a fund. We'll do, 15, 20 investments a year. Personally, I might be associated with 2, 3, maybe 4 at most a year and so, it doesn't happen as often as people think. There are really three or four people that you're really pounding the table for every year and saying, ‘‘Hey, I want to be in business with you anymore'' and so, I truly enjoyed that and not obviously all of them will go the way you want. That's part of the journey as well and over time, you just learn to deal with the ones that don't work. Initially, you end up taking it very personally. Initially, you end up like being defensive and not really trying to objectively see, ''hey, what really went wrong, what could I have done differently as an investor as a board member but over time, I think you realize that every such investment is an opportunity for you to learn and narrow the pattern of what you think would be a successful investment going forward.

I think these are all important data points on the other part which a lot of people in the VC business know. The reality is your lemons always right which is the problem in VC where you make a bunch of investments in your first you know, 2, 3, 4 years and obviously, the ones that don't work or I've been very early, there are a lot of cash, co-founder issues complete doesn't work, don't get to PMS and so, it almost seems period of time that oh my god, like I really suck at and every company around you is like going belly up. But then there's, so if you're lucky and if you're fortunate, there's always hopefully a couple of them that are tracking that are doing well that have some external markers of success that are raising larger financing higher prices than what you invested in and I think it's when those go on to create real material value and exit. That's when the real sort of loop completes right. But yeah, I would say I don't know if I answered your question. It's hard to pick either or but I think the whole process in itself is, it's hard to separate the two.

Pritish: No, I agree. I think both of them are a part of the whole process and I think you touched upon a great point again that the more you become unemotional about a nation's investing I think you'll become a better investor and you're able to (Crosstalk).

Tarun: It easier said than done. It is much easier to say. 

Pritish: It's very tough. 

Tarun: All these biases are internal to each personally. There's a reason why it's called a blind spot. You just can't see it. Maybe people around you, will have seen the World War when you can see it that you're going through that bias but it's not visible to you at that point.

Pritish: Absolutely, so, now you probably would have gone through hundreds, if not 1000s of decks and founders of pitches. How have you seen the Indian founder evolving over these last 10 to 15 years?

Tarun: Yeah, it has been, if I look back that has been one of the most positive things that have happened in the last decade. See, again, it goes back to the maturity, maturation of the ecosystem. If you look at Silicon Valley, if you look at China, what really happened, there was an ecosystem built, there were a few successful companies in the US, it was whatever Cisco and Juniper Networks and a bunch of these companies which started with sort of hardware companies and became software companies and over time, the whole ecosystem evolved. But what happened in that is there were a lot of people who learned the trick of building high growth startups and the playbook is different. It operates very different from a typical traditional company. So, if you are in the L minus one, L minus two layers, if you're part of an early stage, early founding, like early team at a startup and you were part of that success, you just learned tricks that nobody else knew and then some of those people went on to start other companies, some of those people went on to become COOs at some other companies.

And that's how overall the sort of skill level or the knowledge level of the overall ecosystem grew and same thing in China, if you see most of the current unicorn founders in China, have spent some time at Alibaba, Baidu, Tencent and a bunch of others. In India, guess what, till 2 to 4 years ago, they weren't to me, like real scale successes and so, it's only now where people who are X Flipkart, X Ola, PTM, X obon company, X Amazon. Finally, these are the people who are either taking up key leadership positions at some of the youngest startups  who are starting up and I think to me that has been the biggest change. I remember the decks and I remember the pitches that we used to hear in early days when I joined and some of them that are here today, its chalk, and cheese. People are just better prepared; people are just more aware and I'm sure founders say that about investors say that ''hey, you know what the kind of people I used to pitch to 10 years ago and the kind of people I pitched too today is just so different because we didn't know which questions to ask. We didn't know how to think about some of these early-stage disruptive ideas. We didn't know, I remember very well, Ola Pitch. One of the biggest questions was like, ''hey, can I see a driver literally sitting with a mobile phone and locked into an app and taking a booking and none of us could imagine the future.

And been two years, the whole country changed, every driver at that and so, I think people have more patterns that they can match to now. I think overall, there's a lot more basically, the quality of analytics, you look at the quality of bread camping that companies in China do and the kind of analytics they set up and I remember people like, for me, it's a very small thing. When we talk about companies in India, generally, they say, I'm going 3X in one year or I'm growing, whatever, 15% month on month, whatever it may be. I went to China, companies were talking about, here is my weekly economy growth and so, it's a very small thing. It's a very small nuance but suddenly you're like, okay, these people actually measure weekly growth like I had never thought of that. I mean, again, it's not that companies in India weren't growing week to week, it's just the mindset was different saying that opportunity is so large, like you should be measuring every week, how much you're growing.

And that's how the culture flows top down and just knowing what to measure and knowing what are the things that are important, knowing which metrics of entity and which ones can be gamed knowing which metrics are less so easy to game and stuff like that. All of that is stuff that overall ecosystem we've learned. So, I would say the quality of pitches we see is significantly better. It's because people have been around the block a few times, people have made the rookie mistakes that were there to be made. It's not that there aren't other mistakes made. Yes, people will keep seeing mistakes happening. But we will not play ugly cricket anymore. Well, I think it feels like it's real global investors are benchmarking these startups. The best startups in the world are coming in with as much money and as much conviction as they are backing local startups. Finally, it's real and it'll only get better from there.

Pritish: Yeah, I think that two things associated to this one. Among all these pitches and the evolution, when do you see what kind of things in a pitch or in an idea makes you think that this is disruptive because a lot of ideas that come across may have a similar nuance, an extra layer but when do you figure that there is a disruption in this idea, and this can really change the way the consumer uses or thinks about using a product or a service?

Tarun: Yeah, I'm trying to think about the best way to answer the question and I was trying to see if there are any anecdotes. I think the most disruptive ideas are the ones that are also the easiest to dismiss and I'll give you an example going back to Ola and a lot of people don't know this, but Ola was not a copy uber. Ola was and we were there when like when Bhavish had raised series A round. This was just two entrepreneurs in different parts of the world, looking at the mobile phone and looking at the smartphone and then looking at the state of the streets and saying, ''hey, you know what, there's got to be a better way for me to go from point A to point B and it happened, obviously, that Uber was maybe a year and a half later Ola and obviously because of a much larger domestic market scaled up much more rapidly early on and overtime, obviously, we all understood what Uber is and they've applied to black cabs, they weren't even like the typical local taxi whatever it is. 

And I remember initially, people were just so dismissive. I remember one of the questions in our sort of what people call it IC meeting, we don't call it IC meeting. It's a team meeting. But I remember when Bhavish come to pitch. His app screen was just a map with a simple button saying book now and I remember somebody saying, ‘‘this is your app''. Like it's got one button, like, how hard can be this. Can this be to build, and people weren't, like, who's going to see look at cabs moving around in an app and live on a map and this big book, it sounded really disruptive at that time. But it also was very easy to dismiss saying that all these guys were delusional and if you see housing, they had the same interface for home search and if you see, I remember sitting in one of the early pitches of, a miss for us, there's a company called Sharechat. I remembered and we talked about a couple of new ones also and I remember when we met free, fantastic team, a lot of so like, who's sending the good morning, good evening messages. Like, why are people sending this every day, every morning, multiple times a day and it's very easy to dismiss that especially as an urban Indian who's not necessarily the right demographic. It's very easy to be dismissive of the stuff and say, ''hey, this makes no sense and then oh, it makes sense''. 

But you know, what, it's only like, it's only large or where it's going to be large. But what, how to  monetize. At every stage, there is a new way to dismiss it. But I would say in some of those were disruptive at that time, you go back to Tech Talk for the longest time, people were like, who's going to look at teenagers dancing, I would like mine to see on the screen for a second and suddenly, we have the US government and the president like deciding whether it should be allowed to operate and so, I would say even the recent ones, there's a couple I'll name both of them. Again, for one reason or the other, we aren't in either. There's a company called Kutumb which is a social network for communities. So, if you're a chart or if you're whatever, some particular Jain community within Rajasthan, Jaipur, there's a separate now a lot of people are like, why do I need this? Like, how will you want to build a business around it, and I don't know how they're doing now. But from what I heard in the middle; they were doing extremely well. There's a company called animal now which is used for cattle trading, believe it or not. So, it's a marketplace for farmers to buy and sell cattle.

Pritish: I did not know.

Tarun: The first time a lot of these ideas just sound silly. Which farmer is going to be sitting and buying cattle on a mobile phone with a click of a button? 

Pritish: And especially in India

Tarun: And you will not believe, how well some of these companies are doing and so, I would say same thing with like, there's one in our portfolio called toucan, which is basically in some ways, Shopify for emerging markets, mobile for Shopify for emerging markets. Now, in the pandemic game, nobody really believed that small store owners will want to have a digital presence where they can upload the catalogue and engage their regular customers to just by using the online link. Today, like millions of stores that have been created and people are using it to place orders and get deliveries they've integrated with payment providers and logistic providers and we can see getting built, it's still obviously very early days and there are 100 reasons it may not work. But there's a lot of reasons it will work and so, I think a lot of ideas that people do, I think the most disruptive ones are the ones that you just for whatever reason can't see and will dismiss but I've just learned from painful experience over time that those are the ones you should pay attention to.

Pritish: Great, I think you brought up two points, one foreign investment and the second one share chat. Share chat recently raised, I think, from China as well, a good amount of money and the one thing that I would really like your views on is how has maybe not very recently but in the last few years, the Chinese investment into the Indian ecosystem, how has that helped or disrupted the evolution of the entrepreneur as well as the tech landscape in India?

Tarun: Yeah, I think they are looking for a known story. So, the benefit that I think US and Chinese investors have when they're looking at Indian company, very often they have the benefit of hindsight and so, they're able to look at a company and pointed to another company that they founded in China where they have a very unique insight into what worked. They were very unique insight into the team and entrepreneur it took to make that model work and they have a unique insight into potential sort of pockets that the company will get over time and so, they're able to help guide the company fairly well through data and so, I think, especially a lot of these social models, content models, I don't think there were a lot of either Indian or US funds that were willing to back at least at the very early stages and so, I think the Chinese investors definitely will played a role in opening up our minds towards, ''hey, this could be very interesting business run. Chinese investors have made truckloads of money on Tick Tock in question and so, they are coming from like, how are you not able to see this. We've seen just, how insanely profitable these companies can be. 

And if there are those, like Beagle, I know a lot of us don't use it and do not talk about it. But that was insanely profitable for the company and so, there are a lot of these content, live streaming, live video kind of models which just worked really well in China and in India, we haven't seen that kind of tipping economy as yet but it's coming. There are already proxies towards that in multiple segments that we see and it's going to happen sooner than later. I think ''A'' they open our minds to some models that maybe we're being more dismissive of than we should have been. The second is, I think, because they've also seen how large these companies can get. I think they've also been fairly aggressive in giving good valuations writing larger checks than what and they're willing to tolerate losses for a longer time. In a content company, for example, it could be like five years before you have your first dollar of revenue; it's probably 10 years before you have any meaningful revenue coming in. I don't know, until now, if a lot of Indian investors would have had the wherewithal to say, ''hey, I'm going to fund it for 10 years, it's fine, don't monetize''. But in these kinds of businesses, you have to take their carnival and so, you need to have that deep pocketed investor who's willing to underwrite that longer, you need deep-pocket investors who are willing to underwrite a such a long journey.

Pritish: Actually, you touch upon a very good point. I was speaking to another friend of mine, he's a VC in Europe and when he speaks to LPs in the European context, five years ago, what he figured that the second and third of rather the seventh or eighth generation, who are the LPS, they were slightly skeptical in being venture capitalists or putting money there because they are with the mindset of preservation of wealth. But when he looked at the US market and the China market, the second and third generation because they were closer to the money creation, they were more proactive towards the VC fund and how do you see that evolving in India?

Tarun: That's an interesting point. China by the way, there's a lot of local money now. Like most Chinese funds. Don't need to depend on US LPs anymore, if they don't want to raise is this probably 10x more money in 10x more local money is now available and I think it's starting to happen in India. I don't know if you're familiar with IFL. I was just talking to one of the guys yesterday; they have raised late stage private pre IPO funds. There's in seeing a moral desire and interest from HNI and family offices in India and obviously, in the AI structure. So, I think it's changing. Some of our PR firms have raised substantial amounts of money from India, so, have we. I think, I don't know about a few foreigners but whether it's E91 or whether it's some of the smaller see stage funds, many of them are largely Indian and domestic LPs also. I think its changing there is definitely a lot of interest, a lot of the disbelief, a lot of the dismissive nature of, oh my god, these companies will never make money. This is a bubble, no valuation bubble. These companies are.... How our investors giving so much valuation to these companies when they are lost making. There is more awareness and education happening that technology companies will burn more than what most normal people can fathom in the early years. But because of the scalability of these businesses, they can generate significantly higher ROIC over time, assuming the business model is working. They can generate significantly higher and at a much higher scale, one then was earlier seen as being possible and I think that recognition is happening and so, there is definitely a lot of openness to now exploring this asset class in India.

Pritish: So, would you say that the Indian founder is improvising or innovating?

Tarun: I don't know everyone will have a different definition of the term. But let me ask you this right. In your mind, is Flipkart an innovation or improvisation, let me ask you this? 

Pritish: Yeah. If I knew answered, I think it is an innovation because every market, I personally don't think that what people say copying is a bad thing. But unless and until that copying does not have the nuance for your own market which actually is the innovation, it won't write for your customer base.

Tarun: Absolutely, we will see by that definition after I can't remember, first marketplace, doesn't mean every marketplace in the world online marketplace is a copy, it's not, and doesn’t mean that every commerce company is the same. No, it's not. Doesn't mean every social company is the same. No, it's not right. There's always a lot of innovation that happens on the ground and we've been part of some of these stories. Think of it who pioneered COD in India. It was Flipkart, if it wasn't for Flipkart, the basic thing that in India, one of the biggest and it continues to be today even today, 60% is COD. Despite of all the leaps and bounds we made, as a country with cards and UPI and everything. The reality is, it's still 60% your takes COD ecommerce business around which all verticals and so, I would say a lot of people don't understand this, the difference between a US and China and India. In the US, ecommerce was built on top of existing supply chains in several cases. China, like the largest retailer in the US was the offline sort of supermarkets for the longest time malls and these super stores like Walmart and stuff. They had built massively large scale national supply chains.

Same thing with China, which is the biggest supply chain Milton, the cab networks, DB were built on top of existing cab inventory to begin with obviously, we're at scale and then it expanded the marketing further. But these are cab aggregation plays of existing cabs. Moolah built, the cabinet work. It did not just aggregated, it built the cab, it brought on 500,000 additional cabs onto the network. It wasn't just a simple aggregation play and I think if you go vertical by vertical, you will see the story playing out that in India, we talk about this whole leapfrogging thing where we leapfrogged. We basically went from fixed line to wireless. There was no wireline or whatever it is, we straight leapfrog to mobile internet and smartphones. We didn't have the PC revolution or whatever it desktops. So, I think in India, the other level of leapfrogging that I see is that companies and industries are being created in parallel to the internet distribution of those industries. It's not that the internet aggregation of those industries is happening as a second step. It's all happening at the same time. 

And if that's not innovation, what is it. Imagine building an industry and building the plumbing while at the same time thinking about cab, online customer acquisition and distribution and retention and engagement, these are not simple things to solve for it and even in India, I remember and also what we used to have this debate for the longest time in Uber today when you book an app, when you book a cab, it shows you for the longest time it will keep blocking and saying looking for a cab matching you with a cab. In Ola, you click book instantly you got assigned a cab. You know why that happens. Because in in Ola in India, they assign a booking to a cab driver, it's not sent as a poll to the 10 drivers in the area and the one who first clicks accept gets the booking which is why in Uber it clocks for those 30 seconds because it has gone out to the drivers in your vicinity and now one of them will accepted it. In Ola, they say, I need to ensure that I get threshold and earnings for every driver because that's the only way these drivers will stick to one platform. If I don't give threshold earnings to a particular driver, I will likely not be able to these drivers are drawn out worse, the customer is waiting those 30 seconds wait time is a pain and so, I think it's all very small product nuances, but they have a very big effect on how your marketplace develops.

Pritish: You initially also talked about that you also do some personal investments, right, so in that space when you look at the pitch. When are the three main segments where you talk about team product and market size, what do you look for in these specific areas when you're listening to a page or going through a deck?

Tarun: Yeah, like you said everybody is looking at some combination of team business model and market opportunity. I think at the stage at which we invest its team and market opportunity which is just supremely more important than anything else. Generally, they say that should at which we invest there is almost never revenue. In many cases there is almost never a product also. So, as the market gets more competitive, all of us are going earlier and because we want to get do business with the best founders and so, I would say, and I don't put a percentage to it, there are firms which are definitely more mindful and very publicly, so where they say market, Trump's great market, bad founder, market wins, great market, great founder magic happens and bad market, great founder, nothing happens and maybe some of that's true by the way. But I also believe somewhere that in a country as complex as India where on the surface, everything looks like a large market. But when you drill deep and you start excluding all the complications and all the friction points, the market may also look too narrow and too small adjust to all the realities of like doing business in India and licensing and all the other things. 

And so, I think, in India, it takes a special entrepreneur to pierce to the market very sharply find the thin edge of the wedge to penetrate the market and then the market can expand as much as the entrepreneur wants it to expand and so, I would just say, we've fallen into this trap very often where we found a great entrepreneur and we've analyzed ourselves out of investment saying it's a small market and all of a sudden, you just see that the entrepreneur has just kept building around the circumference and basically kept expanding time and they've added new services, new products, new geographies, and all of a sudden, you're like, ''oh, my God, what are we thinking, why did I just not met on this individual the moment I knew that there were exceptions'' and so, at matrix, the philosophy, we believe we are founders first and when I say founders first, I think of that as an investing philosophy which is over all else, I will invest in the best round, I may not believe in the market. I may not understand the business and how the company will make money. But at the stage at which I invest, the most important thing is find exceptional people and just back them and be on the journey with them. They are smart enough to figure it out. 

Pritish: Following that response, any of the businesses of one founder who pitched you, so clearly, probably did a back of envelope mathematics or whatever and you just said, this is it and it really worked out.

Tarun: Many, I'll start with an offline company example. There is a company that my partner Vikram invested in a company called Five Star Business Finance, exceptional entrepreneur. I don't think I've met an entrepreneur who understands his business as well as his name is Lakshmi Pati, you call him Pati. I don't think anyone understands his business better than him . His clarity of thought, his conviction on the model is nuanced insights on every aspect of the model, it was just so crisp that every statement he speaks is a blinding insight and it was almost clear in that first meeting when he came and pitched us saying more, just write the check. Don't overthink. I'll give another example. Razorpay is another example of that. It's a company we funded on video, it was a seed check, they were still at YC, met the founders, the way they were thinking of building our payments solution was vastly different from anything else that we had seen or maybe took that back recent times, I would say, take for example or deed share or a stanza in both of these companies I'm involved in. 

I think it was very apparent to us in the first meeting like the first time we met the guys, we were like, okay, nobody understands the market better than these guys, nobody's thinking about this the right way. We've met a lot of companies and I've also learned one thing, an entrepreneur who changes if you go in negatively predisposed into a meeting with the market, about the market, about the opportunity and if an entrepreneur is successful in changing your mind in that one meeting that's generally the entrepreneur, you want back. Because if somebody can come and turn around weeks and months of predisposed view that you have, “A”, they know something that you don't know and “B” they've been successful at changing your view with their knowledge or their insights of that segment and so very often, I think, for me, the most enjoyable meetings are the ones where everybody's looked at the student housing market is bloody messy, it's very hard to make money. 


It's very hard to scale, too many services quality issues. Real Estate at a local level is just a pain to deal with, is too many sorts of elements that you don't want to deal with on a day to day basis. Online grocery, like multiple companies have tried the bond money hand over fist and trying to get to auto scale the model. There's still many of these companies in several cities haven't been able to make the business model work and then we saw the detour guys and they were like, listen, you know what, I'm 5x more capitalization than any other ecommerce company in India and the metrics showed it and then when you spend time with them to understand how they're broken up the business model that led to this 5x sort of improvement over any other commerce company. It was just very apparent that these guys have just gone so deep in the understanding of the Indian consumer and what they need and also the delivery model to make the economics work at that sort of auto size. We'd never heard that in with other people and so, I think it's happened more than one. 

Pritish: Before we get into the exciting part of rapid fire, my question to you would be how much of venture investing is gut feeling versus analytics?

Tarun: I think the answer is different for each person. I tend to be much more intuitive about the bets I want to take. But I don't think it's either or again. I think everybody who's instinctive over time learns from the mistakes and starts applying analytical models to take away the right learning from the ones that didn't work and starts, hopefully complementing it with a deeper analysis of the business of the opportunity and stuff and I think the most analytical ones will miss some of the biggest ones out there. Because you get into analysis paralysis, you're looking for too much data, you may end up missing the forest for the trees, you have an exceptional entrepreneur in front of you, but you have too much data that you're analyzing and you may just not see it and so, I think, we've seen versions of both PCs. I'm probably in the former category where I backed more on instinct and then realize that more analysis would have helped me prevent some mistakes that are made. At the same time, I've seen people who are extremely good at analyzing things top down but we just can't spot an entrepreneur and I think the best ones over time learn to do both and find the right balance.

Pritish: So, now we're going to get into rapid fire. Are you ready, the toughest thing about your job?

Tarun: I won't say, no to entrepreneurs. I think that's a very lame cop out. I think the toughest one is to be proven wrong more often than you have to in.... 

Pritish: One book or a blog that has influenced you the most personally and professionally

Tarun: So, professionally, one of the books that I think is very relevant to our business is a book called super forecasting. I think at some level, every investor is forecasting 5 to 10 years out and I think you're forecasting about an individual and how they will grow your forecasting about the market, whatever it may be. I think that book is very instructive. At a personal level, I've been reading this book and I just finished reading it called the 5AM Club and I think some of the lessons from that are just truly mind opening.

Pritish: Your most favorite superhero

Tarun: I only have one, so I'll probably pick Spider Man because ''A'' my son loves him and ‘‘B’’ he flies.

Pritish: It was a pleasure having you on the 1% project.

Tarun: Thank you so much.  It's been a pleasure. Thank you so much for the great questions.

This podcast was first published on: The One Percent Project