What is the split on your asset allocation?
For any founder, the biggest asset they have is their business. It is not the most liquid, but it would be the most scalable. So, which is why percentage is hard because it would be like 99%.
But, if I want to talk about the remaining portfolio, then 70-80% is in equity and debt mutual funds. It is more like invest-and-forget-it sort of an approach; letting it grow over time.
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Remaining 20-30% is in more risky bets like startups, some real estate here and there, etc. But the majority of my investment is in the capital markets, where I park it for the long term. My fundamental belief is that for the next 20-30 years, India’s growth story, India’s markets will continue to grow at an explosive pace. As long as you don’t touch, it is going to compound well. So, you need to be consistent and patient. And you should avoid any knee-jerk reactions, irrespective of where the world is going.
How do you pick your mutual fund schemes?
Now, I would go through wealth manager and invest based on their recommendations. But earlier, I used to just take the most diversified, best-rated kind of funds. I don’t have the ability to spend too much time getting deep into every sector.
So, I would go with a mix of blue chip funds, small caps, mix of different sectors. Of course, slightly more on consumer sector because I have a strong faith in India’s consumer story. Also, slightly more on tech, but rest is all like a mix. I’d try and stay away from certain sectors such as real estate, from the stock market perspective.
What percentage of your investment portfolio (excluding SUGAR) would be in startup investments?
It would be around 20%.
Has it gone up across last two seasons of Shark Tank?
Yes, earlier it was much less. I have only started seriously investing in startups over the last couple of years. Zero to 20% has happened only because of the opportunity we have got through Shark Tank India.
What would be the largest cheque you have written on Shark Tank this season?
It would be ₹1 crore. Last season, my largest cheque was of ₹75 lakh.
How many startups have you invested through this season of Shark Tank?
It would be about 25 startups. Last season, it was 15.
Do you worry about the veracity of the claims made by the startup founders during their pitches?
So, we do a due diligence after the season ends, before actually cheques go in. My team goes through the financials of the startups, from disclosures available on the Registrar of Companies (ROC). If it is very early-stage startups, then it takes about a month. We check if there are any deviations from the claims they have made, or in terms of the financials they disclosed during their pitches. Some small ups and downs always happen and that is fine. But if the deviations are very wide off the mark, it can change your entire investment thesis.
The big red flags would be if there are any major compliance issues or the paperwork doesn’t check out. No investor would want to get stuck with a startup, where there is any possibility of scrutiny from government agencies.
Then, if some product-related issues surface. For example, if there is a medical device but no FDA certification, then this could be a major deal-breaker.
If the business is slightly more mature, then the due diligence can take about two to two-and-a-half months. Like this season, we had business pitches coming in with annual revenue run-rate of ₹100 crore. So, my team will go through all their financials, as well as go through their actual sales to reconcile all the numbers.
What would be the IRR (internal rate of return) on your investments (excluding SUGAR)?
The investments made in startups are all illiquid. So, there is no IRR. I will be okay with an IRR of 15-20%. The IRR of my market investments (mutual funds) is in the range of 34%. The hope is that — of course some of these startups could potentially give IRR upwards of 100% — but on a net-basis maybe like 15-20% IRR.
What are the three-four things that you look for when investing in a startup?
The most important thing is the founder and her ability to stay the course because there can be so many known and unknown challenges along the way. Problems will come every few months and every startup goes through those near-death experience multiple times. We went through so many of them. So, does the founder have the ability to survive that?
Then, it is the market itself. Is it fundamentally a growing market, which could continue to be large enough over the long-term? Because in a bad market, even a great founder cannot build a great business. The other factor is whether there is a founder-market fit. Can this founder deliver in this particular market?
And then third, of course, is the business fundamentals. So, those are the three things I look for and in that order.
Sometimes, it could be that they are even loss-making businesses or they are still quite small pre-revenue. You still take the call. In this season especially, I have taken bets in loss-making companies because I feel that they have it in them to turn it around.
With startups going through funding winter, did it help to get deals at good valuations?
Absolutely. The market is really tough right now. During season one, the market conditions were still fine. There was so much negotiation during the deal, post-the deal, etc. This season, of course, they are negotiating because they are better-prepared. But we are able to get deals at good valuations because a lot of these startups will not be able to raise outside of Shark Tank, as there is really no funding happening outside.
The total amount of funding on this season of Shark Tank would be a significant percentage of the overall ecosystem as this year has been a dry spell for startups in general. And it is going to continue being bad. So that’s why, I think on Shark Tank we are getting great deals, great valuations, good founders.
Last season, several startups came in with asks, valuing them at ₹100 crore. How has it been this season?
This season as well, at least half of them have come with ask of ₹1 crore for 1% equity (valuing their businesses at ₹100 crore), irrespective of where their revenue is. They are basically so well-prepared. They have seen what happened last season. So, they know that we will negotiate. They come in with the expectation that let me say ₹1 crore for 1%, then they will finally close at 2% or 3%.
And they now know exactly what to say, how to play their cards, how to share their business metrics, how to tell their stories so that it appeals to each of the sharks. So, the prep has been phenomenal. Now, I am just dreading season 3. They are going to be even more sharky than us (laughs) because they’d be even better-prepared.
When we are going through the pitches, we are seeing the entire set-up, the business, the founders for the first-time, but they already know so much about us. They know our kids’ names, what kind of companies we have invested in, what our businesses do, etc. So, it is a different level of equation now.
When you decide to pair with a co-shark for an investment, is there a method to that?
Typically, who I have the most chemistry with and who can help the most in the deal. Like most of my paired deals are with Anupam (Anupam Mittal, founder, Shaadi.com) because he is also Mumbai-based. Our teams worked so much together last season. So, it is so easy and efficient. I know that all those board-level conversations are easier with him and we have like a complementary skill-set.
He is more tech, e-commerce. I like to talk more about brands and distribution. Apart from that, I sometimes do deals with Namita (Namita Thapar, executive director, Emcure Pharmaceuticals), if there is a social cause or something that we both feel passionate about. Sometimes, if a deal comes in with a woman founder, then I would reach out to Namita and say let’s do this together.
Some deals I would do with Aman (Aman Gupta, co-founder and chief marketing officer, boAt) and Peyush (Peyush Bansal, founder, Lenskart). I mean depending on the deal, figuring out who is the best partner for this particular situation.
What is your investment time-horizon with these startups?
So, in early-stage, I think the average time you stay invested in the company is like 5-6 years. There will be ones which get follow-on rounds quicker, in about two years and there will be the ones that of course go down even after 10-20 years. But on an average, you need to stay invested for 5-6 years for it to make sense.
What were some of your misses from this season?
There were some where I felt I could have invested. So, I go in with a valuation thesis; that this valuation makes sense for me from an exit perspective. And I don’t budge too much on that because then I feel that you are just overexposed.
I mean the risk-reward has to be sort of proportionate. But with some of them, I feel I could have gone a bit higher than my valuation budget because there was so much demand for the company in the tank. So, those cases, there were two-three of them that I really regret.
Maybe I should have been a bit more flexible. These were mostly consumer brands businesses. With consumer brands, I know I can help them, I know that this is definitely going to explode as a category. I understand it well. So, there aren’t too many moving parts there.
The only moving part is the valuation. And your entire IRR is based on what valuation you come in at. So, which is why I always have a number in my mind and I stick to it no matter what.
But I think sometimes taking a bet on a good company even if it is an expensive bet, is better than staying out of it. So, if I look at this season in hindsight, that would be my learning.
How do you identify yourself as an investor?
Because of the fact that my biggest investment is in my own business, I consider that I have taken a huge risk with my finances by putting everything into my own business, right from my salary paychecks.
I have now been an entrepreneur for the last 15 years. So, that’s like such a big risk that with everything else, I am risk-averse.
So, as an investor in the market, I am a very risk-averse, safe, very passive investor. I have invest-and-forget-it sort of an approach.
Overall, because there is such a big risk over my entire net-worth, with this other part of my life, which is my personal finance, I am very risk-averse.
Will you devote more time to your investee companies?
So, I would have liked to devote more time, but like all of us have the pressure of running our own businesses. So, I do a mix. I spend my own time talking to them, guiding them and I also give them access to my team. So, many times they come, spend a day with the team, getting exposed to what different functions are doing. I think that is also very valuable. At the end of the day, they need mentorship and there are a lot of CXO-level people at SUGAR, who can help them out with their specific issues.
So, yeah it is a mix of that. This season there are more deals. I think I will rely not only on my team, but also other investors to guide my portfolio companies.
How do you monitor your startup investments?
So, there is a monthly MIS statement. It is short, if there is something to discuss, then we discuss. But, conversation on where the business is going, is once a quarter.
What does wealth mean to you?
Wealth is freedom. Freedom to follow your dreams, take risks. Shark Tank is a brilliant opportunity to be part of India’s mind-blowing entrepreneurial eco-system. Next 10-20 years belong to India from a growth perspective. But all of these are super-risky bets. Imagine in those few minutes you are taking a call and deciding to invest crores of rupees.
So, wealth is the freedom to take these risks, to follow your passion, follow your dream and to play a part in getting somebody else’s dream come true.
That’s all. I don’t think beyond a point anybody really cares for the amount of assets one accumulates.
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