In this episode of 100xEntrepreneur Podcast, we chat with Shailesh Ghorpade, Managing Partner and CIO, Exfinity Venture Partners.

Throughout the podcast, Shailesh shares his deep understanding of the SaaS startups building for Enterprises from his close to two decades of experience working at Infosys, Suzlon & Azure Capital, and others.

Listen to this podcast to learn about:

02:31 – Intro of Shailesh

03:25 – Background in the VC ecosystem

06:07 – Major milestones at Exfinity Venture Partners

08:36 – Fund growth over-time & thesis change

09:50 – Investing early-on in AI startups like Mad Street Den

13:29 – Identifying Mega-trends while looking out for potential portfolio companies

17:33 – Differentiating factor between top portfolio companies vs other portfolio companies funded around the same time

19:59 – Essential fundamentals to get from 0 to $1Mn ARR early-on

22:52 – Standing out amongst thousands of SaaS businesses in India

25:47 – Approaching Enterprises to validate problem statements as a SaaS founder

35:23 – Challenges restricting founders in between $1Mn to $10Mn ARR

39:50 – India market not completely ready for SaaS offerings

48:39 – Hiring the right people for Enterprise SaaS startups

59:55 – Book Recommendation – Jonathan Livingston Seagull by Richard Bach

Read the full transcript here:

0:00 Siddhartha

Hi, this is Sidharth Ahluwalia. Welcome to the 100x Entrepreneur Podcast. Today’s podcast is focused on B2B SaaS companies, enterprise sales, and what it takes to scale from zero to 1 million ARR for B2B companies, and then from 1 million to 10 million journey. I have with me, Shailesh Ghorpade from Exfinity Venture Partners. Shailesh has over 23 years’ experience in project and corporate finance, M&A strategy and private equity across various financial companies and financial services, energy, IT, real estate sectors. He held senior positions in companies like Birla Global Finance, Tata Finance, Infosys Technologies at PwC. Prior to founding Exfinity, Shailesh was the CEO and founder of Azure capital, a boutique real estate private equity fund. He was the chief strategy and planning officer of Long Energy, then ranked number three globally in wind energy. Shailesh has consulted for several fortune 500 companies in Europe and USA, and has led large transformation projects in his previous societies. Welcome Shailesh to the 100x entrepreneur podcast. 

2:24 Shailesh

Thanks, Siddhartha for the introduction and [its] pleasure to be here. [It’s a] Pleasure to talk to you.

2:30 Siddhartha

I would love to know about your journey. How did you land up in VC and what led you to the founding of Exfinity?

1:31 Shailesh

Interesting question. So, you know, as you said, I was always in financial services for a long time. And then we founded a small boutique real estate fund called Azure and, I mean, the common thread between all of them was that I was investing, you know, so we were sort of, I was managing corporate finance and structured finance in Tata and Birla NBFCs. And in Azure, obviously, we were investing in residential real estate primarily. So, investing has been, you know, sort of central to what I have done so far and then I had a stint in Infosys, where, you know, I worked primarily on corporate strategy and consulting side, worked with the then leadership team of Infosys, and built some good relationships. And somewhere around 2013, you know, it was an interesting phase, because, as you know, the 90s in the 2000s have been really fertile hunting ground for the Indian IT companies. But I think somewhere around late 2000s, with the advent of Cloud, particularly, it was a game-changer because it kind of, I would say, democratized entrepreneurship. And a lot of startups started gaining traction. 2013 was a time when, you know, we were just discussing with Mohandas Pai and Bala both, you know, ex-CFOs, and members of the board at Infosys, and we said that, look, we should really look at the VC space, and we thought that we know only the Enterprise Tech space, we don’t know the B2C space. So, we will focus on enterprise tech and let us build a team which will have people with strong operating backgrounds, who have built companies who have sold globally, you can actually add value to startups apart from just providing capital. And then a few of my other colleagues were there like Girish Paranjpe, co-CEO of Wipro, or Chinnu, who worked with Intel and headed SanDisk or Rajiv Kuchhal who occupied several, leadership positions at Infosys and was a co-founder at OnMobile. And Deepak Ghaisas who probably, arguably, co-founded the first product company in India called iFlex, which is a core banking. So, I think we, we caught up these people together, they were all excited about the space. And that’s how we started this journey of Exfinity. 

4:00 Siddhartha

So, tell us about your journey in Exfinity, which has been almost seven years, I believe, what are the key major milestones in the last seven years?

4:13 shailesh

So, I would reckon the milestones are yet to come. But, you know, I think the first thing that I would really like to mention was when we actually find founded the fund and we closed our first fund, it was a small fund of 125 crores, or, you know, 20 million US dollars at that then prevailing exchange rates. I think it validated our story. So we felt very good about it, that we went and talked to people and said that, hey, look, you know, this is a space that we are looking to work on, because bear in mind at that point of time, you know, there were not too many, I mean, and I think exfinity was probably the first true, blue, focused, B2B tech fund. There were many, many funds, which did B2B investments or enterprise tech investments, but it formed the small portion of the overall corpus. The focus was largely on the consumer tech. But we were here saying that look, you know, we will focus on enterprise tech. And therefore, when the validation happened, it was very nice. But I think over the period of time, it has been a very gratifying experience, because we funded companies at a very early stage, some of them were in stealth mode, working out of garage, literally, and, you know, from there, those companies have become mature, some of them have become businesses now. So, the whole metamorphosis from a startup to a business unit has been very, very satisfying to see. They have acquired very prominent global logos. And it feels great to have them and now, I think six of them have been recognized by Gartner and Forrester, and those, those moments are fairly satisfying. But most satisfying is how do you actually see some of the entrepreneurs really grow into the role because when we funded them, they were working on the product, they had a very a limited perspective, but these guys have been wonderful, they’re scalable, they’ve grabbed the opportunity, they’ve expanded their VISTAs, and that is very, very satisfying to see. So, how entrepreneurs really scale, grow, acquire a perspective, build leadership teams, expand beyond India, those are very satisfying moments. 

Siddhartha

So, how has the fund grown over a period of time? You mentioned the first fund 125 crores – how big is the current fund, and how many companies do you fund from every fund? 

Shailesh

So, first fund was 125 crores. We funded 9 companies out of it and we wrote down two of them. We launched a second fund which in 2016, this was 300 crore fund, we funded out 19 companies. And now, we are on the third fund where we are raising a sum amounting to 500 crores. We have done our first close already, and we are looking at a second close by end of December. So, our thesis has remained steadfast, we will continue to focus on enterprise tech. And with the third fund, we anticipate creating a portfolio of about 20 to 22 companies. In the previous funds, you know, because of the fund size and all, we actually also did seed, seed-plus investments. In the third fund, given that the corpus is a little larger, we will do more of pre series and series A. While, you know, we’ll take very few selective bets on seed, seed-plus companies. That’s how our portfolio construct is going to be. 

7:53 Siddhartha

I have had Ashwini and Anand on the podcast. And she mentioned that, you know, you were one of the earliest believers in AI for enterprise story before there was anybody else. What made you write early checks when there were very little to no validation except a handful of companies and they were not so big back then? There was Freecharge, which is doing IPO now. They were in 2013-2015, you know, growing like 10-200 million ARR journey. So, what made you convinced that this is the right story to build a large front? 

Shailesh

One is that we actually, both Ashwini and Anand have been really stellar founders. I think what we liked about them is the fact that how they were looking at the application of AI. So, AI per se a lot of come a lot of funds route and every second company that you meet is as you know, says that we are doing some AI but I think the way they were emphasizing AI and the kind of use cases that they were talking about really was something that we bought into and we thought that they understood the big picture. Anand himself is a true blue, you could call, a professional and the way he approached the whole product, building ground up the division of course, the product wasn’t there at that time, but the kind of vision he had for the product and the way Ashwini looked at the market and said look, you know, these are the problems spaces that exist and we would like to solve. So, that excited us actually and then we decided to sort of back them.

Siddhartha

So, if you have to make your portfolio across you know, mature companies, which I would say are 10 million ARR plus in the growth stage companies, which are between 1 to 10 million ARR, and the companies work in the early stage, which are yet to achieve 1 million. So how would you categorize the portfolio in these three buckets? 

Shailesh

I think now on the growth stage, if you if I were to take your sort of benchmarks, whatever you said, I think we have about now for companies about 10 million ARR. And between 1 to 10, I think we’ll have a bunch of them, actually, our maximum portfolio would be between 1 to 10, to be frank, so I would say imagine about close to about 13 to 14 companies will be there  in that particular thing, and then there would be a few, about four or five of them, which would be still pre revenue, and still building a product waiting for the product to be built and get market traction. 

Siddhartha

So, some of the stellar companies in our portfolio which I know Hippo Video, Locus, Cloud Sec, what was the key for finding B2B, entrepreneurial DNA founders, as respect to other entrepreneurs? Is there any insight, which you have, for the last seven years where you are able to spot? Because when you are investing, it’s mostly very early stage, before, as you mentioned, in some cases they have they’re even building the product not even done the first sales? 

Shailesh

Right. No, I think what we believe is that we, because we coming from a B2B background ourselves, the first and foremost thing we also try and do is that we figure out what are the mega trends that are happening around the around the globe, in terms of whether it is in the economy or whether it is, as far as the industry is concerned? And we don’t claim to be right, but I think we try to paint that look, these are the mega trends that we see. And, and then we see how are the companies that we examine fall into or fit into these trends. So, for example, let’s say Locus. Locus was a company that came to us at a very early stage. And I still remember a boyish looking Nishit, still looks boyish, actually presenting to the IC. And, you know, they didn’t have any revenue, etc. But I think what we liked about Locus were two things. One is that, of course, Nishit and Geet are a great team, and Nishit is a big picture guy. And that is something that we really loved about him, and he presented to our IC, but the second thing, what we liked was the space they’re operating and logistics, in India has been, for example, a very, very hot space in the sense that, you know, we spend close to about 14% of our GDP on logistics costs, the developed countries spend about six to 7%. And that is humongous, right? So, a lot of wastage is happening, because of whatever reasons, you know, at that time, GST wasn’t there. But, you know, our, because of our roads, because of our infrastructure, because of, you know, the kind of country that we have enormously, you know, in hinterlands and things like that, but it was something that we thought was a space that was waiting to be disrupted. And increasingly, we also thought that logistics, for example, is becoming more of a mathematical problem, it was a problem where, you know, with e-commerce and other sectors booming, we realized that look, if e-commerce companies have to meet their SLAs, and fulfil their orders, there are many mathematical algorithms that need to work together, including their fleet size, the traffic conditions, whether the person is at home, or the customer is at home or not, whether there are infrastructure supports, loading, unloading, how many trucks can load and etc. So, you know, there are many factors at play. And he said that, look, this is a good company where these guys have the ingredients to solve the problem. Similarly, Hippo, you know, the way the reason we back because we realized that video is becoming mainstream, and if you look at all indicators, and particularly accentuated during COVID, that video has really become mainstream. But we funded Hippo before that. And we said that Look, everyone, all of us actually engage better when we watch videos. And we said, if we can actually build personalized videos at scale, at a cost, which is not different from a mail, then it can actually disrupt the whole sales and marketing process, even support processes for enterprise. And that’s how we said that Hippo is a good bet. Because, you know, let’s say imagine you getting a PDF document from your insurance company, chances are that you will never open it. But if you get a personalized video message saying that hey Sidharth let me take you through these are the features of the insurance policy, you know, the chances are you will engage better and it has been proven. So, I think this is how we looked at companies, we looked at spaces, and we said that these are the companies that could make a difference. We have not been right every time but that has been the overall, obviously, approach towards funding. And, of course, you know, the founding team, the way they have envisioned the whole solution their go to market, you know, what are the thoughts about it, and things like that, play a role. 

Siddhartha

So, some of the leading companies, which are above 10 million ARR in your portfolio or MadStreetDen, Moengage, for example, and these company would potentially, you know, IPO in US, because US has been one of the key markets for them. And I believe, once they hit 50 mil ARR, so what do you think differentiates your top four portfolio companies, from the companies which you funded at the same time?

Shailesh

I think, you know, 2-3 things. One is that their agility and nimbleness because it is not that every time in enterprise tech company goes in the market with a certain hypothesis about his product and the proposition that it works. But I think what is critical is that other founders having an open mind to come back to the drawing board, and then rethink about their product, we think about their proposition, I think this is something that, that both of these companies, or a couple of other companies that we have did do continuously, I think that is one thing. And the second thing, what I fundamentally believe is that execution is the key. So, you can have a great product, you can do a lot of research, you can have a bunch of patterns, and all of that, but how do you execute? You know, how do you really acquire customers? How do you manage your operations? How do you deliver your product? How do you implement it? You know, how profitable you are? How do you manage costs, and that is something that, you know, these companies do exceedingly well which could be a learning for others, because, execution is one thing that you might have a great product, and if you execute badly, it is actually a crime, you know, in that sense. But if you execute well, and you can actually make wonders out of even a product, which is not ordinary. So, I think execution is the key. And what differentiates both these teams is, of course, they have a great product, and they are continuously improving, they’re listening to customers, they made several versions of the product, in terms of how better they can get, how they can improve the margins, but they execute really clinically. So, I think that is the difference. 

Siddhartha

Shailesh, now across a portfolio of 25 plus companies, what do you think are the key challenges when an entrepreneur is building for the enterprise SaaS to hit 1 mil ARR, which you have seen, you know, a common pattern across these companies? For example, some companies like Mastery 10, who have hit 1 million ARR, within a span of one year, whereas others have taken more time out, some of them not even hit that milestone.

Shailesh

18:14

I think, the first million obviously is critical, and then getting between 1 to 5, and then 5 to 10. And then going beyond 10, adding every milestone is a huge learning and to get to the 1 million, I think fundamentally, one has to get the hypothesis right. You think that this is the product, this is the target segment, and this is the price and this is how I’m approaching the customers. And that is something sometimes you get it right, and sometimes you don’t. And so, the ability to do really, as I said, if you if something is not working, and if you believe that, look, I’m actually trying to sell but either my customer segment is not is not the right segment that I’m targeting, and/or the proposition that I am selling is not resonating with the customers. Those are areas that, you know, startups have to learn on their own, and they have to get data and say, Look, you know, I have to make a change, and have to pick the product. And this is what, you know, will probably resonate well. And that is something that actually results in that 1 million threshold being delayed or being achieved much earlier. And beyond 1 million that again, you know, you have to continuously figure out really, do we have the wherewithal, can I do the same thing repeatedly and get to 10 million? Or do I have to do something differently to have to target different customers, do I have to go to different markets? Do I have to build more features functionalities on my product so that I can get a better pricing on my product? I can cross sell and upsell to my customers. And those are the things that then kick in really like how do I then expand from 1 to 10 and build a sort of foundation to be a more scalable business.

But I think, as I said, one has to be very, very, very customer-centric razor-focus on customer to figure out really because all SaaS companies really essentially what they do is workflow management. So, their understanding of the client workflows, their pain points have to be of a very, very high order. And unless you really achieve that, and unless you appreciate the issues of that workflow, you can never design a proper SaaS product. 

Siddhartha

So, what would your advice be to an enterprise SAS entrepreneur who’s starting today, based on insight, which he has, you know, he may have already an enterprise or have uploaded a pain point from from a distance to do right customer research, because as you mentioned, the right customer research and finding the right problem to solve is very critical. Because the feedbacks are slow. The feedbacks are not as quick as the consumer tech companies, where you can mention, you can measure cohort month on month basis and figure out whether the product is sticky or not. And you can you know, change it. Because here the founder has to balance between at early stages between product and sales. So, he might not know where he’s going wrong. When enterprises are saying no to them, no to him.

21:31 Shailesh

No, you’re absolutely right. And I think my thing is, as a today, if you look at the SaaS space, right, there are some 10,000 SaaS companies in India and maybe 50,000-70,000 companies globally. So, it is a space which is crowded. So first and foremost, I think while there is interest in SaaS companies from a funder’s standpoint, and you know, very clearly from VCs and all, but at the same time, there is a realization that should happen that look, it is a crowded space, there are several SaaS companies attacking maybe one problem at some point, whether it’s a horizontal SaaS or vertical SaaS, as you say. So before any entrepreneur gets down to really building a product, I would really say that look, you know, validate your hypothesis, really figure out, which are the segments, you’re going after, you know, whether it is the SMB segment, whether it is the small business, whether a mid-businesses, whether it is enterprise businesses, and really talk to them and figure out and understand their workflows, so that you understand their workflows, or whatever workflows better than what they understand. And really talk to them and figure out, you know, what are the issues? Where is the, value depletion happening in that workflow? What kind of pain points does it work to present to them, and things like that. So, unless you really get deeper and understand the customer before building a product, I think that to my mind, is the first thing that, and then figure out who are the players? And what are they trying to sell? What is their proposition? How are they positioning the product, and you might then actually have a phenomenal insight in terms of, really how I should design a product number one, and how I should position a product because a similar product can be positioned differently and it can make a huge difference between a successful startup and a not so successful startup. And, and this is something that, that I would really emphasize that we really need to understand the customer segments and their workflows and their pain points better before we get done designing a product. 

Siddhartha

And how do you advise? Because see, if I’m an entrepreneur, today, a first time entrepreneur with less, or enterprise connects, and between the same age, as Nishit started to Locus and how do I go about approaching enterprises to validate my problem? that this is a problem you’re facing and should I build for it? 

Shailesh

You know, you have to read a lot. So and when I say read a lot, you could read a lot in terms of annual reports of companies, you could read a lot on analyst reports, and things like that, because that helps you form a belief. Because, let’s say enterprises and when I look at enterprises, when I mean large enterprises, some of them are publicly listed. Yeah, for small businesses also, there are several reports that come out. So today in your space and when actually, while I’m a pretty old professional, so during our time there was no internet to begin with. So the reading was also confined to you know, what is available or what is available in the library in terms of physical reading material, but now I think you have access to a lot of material whether analyst reports whether annual reports, you know, Gartner reports, etc, and really figure out the connecting dots and really figure out what is it that is a little hot button to press and then zero down on that and then I’m sure you know, today, with LinkedIn and others other things, you could easily reach out to people figure out, you know, what is happening? Where are the pain points, what are the challenges businesses are facing? So, I think there could be one a primary research as well as secondary research. And it is not too difficult if one sets asides like this is the area that I want to really go after, there will be enough material available, so that I can tell you whether, you know, you have to really sometimes hunt for it, but it is available. 

Siddhartha

Can you take an example, for example, one of your key portfolio companies either Mad Street Den, or MoEngage, or any of the other top two, how they approach this, what you were mentioning about or reading reports? And what are the key behavior you observed from the founder?

25:56 Shailesh

So, first of all, let me again, give you an example of Locus, right, I think, and why give you the example, because when you funded them, as I said, they didn’t have much revenue to talk about, and what they were doing at that point of time was last mile delivery. And, you know, which was and probably, there was a word called hyperlocal, very prevalent at that particular point of time, and that hyperlocal was a problem, the last mile they were trying to solve, and, you know, so when we actually, the board, and we can’t claim credit, a couple of others, other of my friends also on the board, and we all actually sat down with Nishit, and we said, Look, Okay, last mile delivery, something that you are doing, but why don’t you look at the problem in its entirety? We had a lot of experience ourselves, you know, looking at, and having worked with enterprises and all and said, Look, you know, look at everything from the first mile to the last mile, how do you move a particular piece from point A to point B? And really figure out, you know, what is it that you can do to optimize that moment, and Nishit was quick to sort of grasp, and we said, Look, let us not bother too much about, about revenue, traction, if whatever we are selling, we continue to sell. But unless we really build a company that will address the entire nine yards of logistics, and still have a lot of way to go, considering the logistics, we are still covering only road logistics, we don’t cover ocean logistics, for example. So, that’s how we actually looked at the market. And we said that look, you know, if you approach a customer, with these kinds of proposition where you’re trying to optimize from the first mile to the last mile, including the long haul, then you will have a better chance in terms of really growing with the customer. Otherwise, you know, enterprise, customers and enterprise is a different beast, right, you take a lot of time to get into it. But then if you don’t have a solution that can then milk, the relationship and really having done all the hard work to get into enterprise. And if you really don’t have a comprehensiveness of a solution stack, then you know, then it is a sub optimal use of your time and that is how Nishit actually built it. And now that the vision that we have is even more extraordinary that he presented in the board. So I think this is something that

we all evolved. And it was a result of interaction with customers, as well as the board members contributing and Nishit himself, validating some of this hypothesis in the market and building this product. 

Siddhartha

Shailesh, what is the key of a journey where Exfinity as a team impacts the most? Because I believe once a company has a 10 million ARR, or any internal number, which you have, you might all be on, you know, set the company on autopilot, or from a board perspective.

29:08 Shailesh

I think, you know, see beyond 10 million to be very frank, because we are an early stage fund,

beyond 10 million when the round sizes become bigger, and companies raise 20,25,30,40 million dollars.And the growth funds kick in and they have their own expertise in terms of then scaling the companies.  So, I would imagine that beyond 10 million is not something that we add a lot of value, be very candid. Yes, we can we can provide some inputs on strategy, etc, because you know, the company but I think I would imagine that after that we have seen growth fund providing a lot of value to them to the next level. But I think between 1 to 10 level is something that we believe we add value in terms of various things, I think, in terms of, first of all, instilling you know working with them, and in a disciplined way. And really saying that, hey, look, you know, this is how we should plan our business, these are the milestones that we should go after, this is how we should do a review, this is how we should validate our hypothesis with the customer, this is how we should price, we get them, we allow because of our connects, particularly in the Indian ecosystem, I would imagine that we have helped quite a few companies getting them customers. And that itself is a is a big thing, because when you have a product ready, what you need is a validation. And if you get into a good customer and customers who are looking to embrace new digitization ideas, that’s when they are actually learning because no matter how much we sell them, but or whatever, and VC is not always right. But a customer validation is something that, you know, hits the founder very hard at whether it is working, not working, what is the customer looking at? You know, are we solving his problem or not? And those are the learnings that we grew, I think so that is one part that we do. The second is we have helped companies hire, you know, hire at the leadership level. And we have got them people, you know, based on our own connection, the industry, we have had them set up interview processes, you know, and build a team around that. So that is another area that we look at. And the third is, I think we coming from, background like Infosys etc., we also work with them a lot on other aspects of finance, you know, pricing, you could save at some level governance, and even hygiene issues, like, you know, how do you really keep your books, and how do you find etc. So, but those are also important things in the journey of a startup that they should really look at. So, it’s a package that I think we help companies, particularly at an early stage to really sensitize them to some of these things and help them in their journey, in terms of product development, or getting customers.

32:04 Siddhartha

Do you also help them initially to validate the hypothesis, as you mentioned, in case of Locus, you helped him see the whole picture, rather than just the last mile delivery, in most of the companies, even those which are focused on US? 

Shailesh

So, we haven’t funded a company at that early stage, where, you know, we have helped them to validate a hypothesis, because when they come to us, typically they would have a minimum viable product, which is there. So obviously, there is there is a good starting point. And, and we understand the space that thy’re working in, and that’s why we fund them, actually. So 

I wouldn’t say that we have actually gone into any company to validate the hypothesis, but hypothesis validation is a regular exercise, like just like a product development is always a WIP. Your product is never complete. And successful companies are those companies only which keep on improvising their products. So those hypotheses as we go along in the journey, we keep on asking them the right questions to really probe their own thinking in terms of their product validation,

33:17 Siddhartha

Sailesh, so what are the key challenges you know, you mentioned the journey beyond 10 million, you’ve mentioned the journey from zero to one. But what are the things which get companies stuck between 1 to 10? Because I have interacted with 10s of SaaS companies, where zero to one they have achieved through hustle, like pure hustle by the founders, but one to 10 many SaaS founders this could say 70% of the SaaS founders I have interacted with get stuck. And what have you observed? What are the challenges which founders are not able to overcome in that journey? 

Shailesh

I think that two or three key challenges right. One key challenge that I see is that beyond one to 10, you know, companies typically then go beyond the Indian market. And what we find is that globalizing your business is a challenge that many companies face. And the challenges are faced in several aspects. One is that, if you want to target US customers, what kind of people you need to hire, what kind of marketing strategy and budget set you need to have, what kind of product requirements and processes that you need to have in terms of really engaging with customers, what pricing policies you need to have? And those are the areas particularly in terms of building a team overseas, building a marketing strategy, building a sales strategy, engaging with customers. So, the go to market and teams are an area in US where many startups actually flounder and the problem becomes acute because at that time, you may not have raised too much of capital and US is that way, in a market where you need capital. So many times, then you actually end up having suboptimal solutions because you have to keep an eye on their on your fuel tank. And then you never really get down to hiring the best or you’ll always be very, you know, frugal in terms of doing marketing spends, or doing certain things like free POCS etc. Because you’re always looking at how much money I have with me and the globalizing is the number one factor which a startup should consider because that’s a challenge that you feel

startups have particularly when they when they go from one to 10. The second thing is that what works in India may not work in the US and that is in terms of everything, the way you actually sell into the customer, the sales cycles could be different, the way you engage with the customers could be entirely different because you are a company at the end of the day from India and unless you have a local presence with a face that is that resonates with the customer, that becomes very difficult. Your marketing collaterals and things like that have to be of a certain order of magnitude, different than what you’ve been doing here. So, it is a completely different mindset that is needed when you actually globalize and that is, in my view, the single biggest challenge that companies face between one to 10. 

Siddhartha

And if you have to categorize across your portfolio, how many companies are India focus like say have all their or majority of their customers in India, and how many companies have majority of their customers in us or globally? 

Shailesh

So Siddhartha, that is a pretty much, you know, see in India, unfortunately, you can’t really build a SaaS business out of India. You know, and it is just our, you know, the Indian the way Indian enterprises or the small businesses think. I don’t think they are ready yet to really embrace SaaS in a big way. In terms of various things, right? 2-3 things. For example, SaaS, how it is sold. Normally sold remotely. People, you know how to, let’s say, download a particular application on the Cloud and then start working. In India, typically what happens is people and the CTO still expect you to do an enterprise sale for a SaaS product. And which means it’s a high touch sale, it’s a low, long cycle time, they still have to get used to the fact that you can pay per use. And so those kinds of things have still to come to India and I think the mindsets have to change. Because if you are doing a high touch sale of your sales cycle on longer and you’re going to pay me a revenue that is you know, SaaS then it doesn’t work because SaaS by nature is served remotely and by nature therefore, it becomes a very high margin business. And that becomes in India, it becomes a complete opposite. So, I think there needs to be a lot of work that needs to go into to Indian enterprises in terms of really evangelizing how SaaS can help them and how it is delivered, how it is serviced, how Customer Success is managed and things like that, and then you know, I think that is a that is a journey that we have to undertake before SaaS becomes mainstream in India. So, I would therefore, imagine that India is still evolving in terms of its SaaS journey. Because enterprise tech by nature, and we always say that we should work in the Indo-US corridor, because companies can actually test their products in India, they can actually achieve scale in India, they can maybe learn from Indian corporations, they can debug the product, but unfortunately, they can’t make money in India. So, if you have to, if you have to scale if you have to really grow faster, and you have to get better revenue productivity for your product, I mean, the choice is only to go to the US or, you know, Southeast Asia and Europe.

I believe, you know, you should be advising that you know, for the time you fund, the entrepreneur should only focus on the US market because since monetization is poor in India, why build even a product for Indian enterprises, when they have to change for later on for the US enterprises? 

So, you know, so let’s take, when we come in, right, when we come in the company is raising around about, you could say $2 to $3 million, some cases may $4 million. And so, there is always this whole tussle as how to how do I use my resources optimally, because I’m also expanding my team and I have to achieve a certain product market fit. So, therefore, with that kind of a war chest, you know, you can Yes, you can sort of test the US market, but you can never go wholeheartedly into the US market, which you can go beyond Series A. So, it is also a function of how much resources you have at our disposal. So, what we also do is that, look, you know, let us let us strike a sort of balance, let us try and test the Southeast Asian market. And we believe that the Southeast Asian market is a good transition market between India and the US, because, one, it is a different market, then than your home market, although, of course, it’s an Asian market as such, so, certain traits are similar to India, in the way they buy and all that, but I think it helps you to, to do a soft landing, if you will, particularly before you go to the US because, you understand how global companies work, you understand their, the sales cycles, you understand how pricing is done, you understand how contracting is done, how do you actually engage with those customers, and things like that. So those are invaluable lessons. I’m not saying that some of our companies don’t go to the US, they do go, but, but I think our belief is that when the stage at which we come in, the companies do not have enough capital to actually craft and execute a very robust us strategy, then they will just test the waters and testing the waters with resources that are not there. So, idea is to really get down to a couple of million dollars of ARR, between, you know, Southeast Asian markets, etc, and with some presence in the US, etc, and then go for a bigger round. That is our typical concept label. 

Sidhartha

So what kind of watches do you think a founder should raise before fully establishing a US entity or before even the founder things of moving himself to US? 

Shailesh

I think, you must have a proper market that you’re built in, let’s say the Southeast Asia, which gives you a proper recurring revenue, which is growing, the growth is not impacted. And then, on the back of that, then you enter US, I would imagine that to really, again, as I said, you know, the two ways of looking at how do you enter the US market, one is, you go all out, and you hire, you know, not, if not the best, but the best guys that you can afford, who are willing to bite into your buy into your vision and willing to take deferred gratification, I would imagine that a proper US strategy for a couple of years, if you have to really test and execute would cost to anywhere between four to $5 million. So, at least a founder should raise a $10 million round $6 to $8 million round with a proper markets that already exists in Southeast Asia and India and maybe some clients in the US some initial entry in the US and that is where, you know, you must have a $4 or $5 million of war chest, because you will learn the hard way, it is not that you will go and you know, hit the bullseye on day one. The guys you hire may not work out. And you will know after six months, for example, that is the sales guy is not working out. And by the time you would have been maybe 300-400k on him. So, there are hits and misses. And of course, you’ll have to spend on marketing and other things and those things don’t come cheap there.

44:09 Siddhartha

Shailesh, also help me understand you know, among your portfolio, where the average ACV the annual contract value is about 100k between the say 50 to 100K or less than 50 How would you categorize that? 

Shailesh

So, that is also part of evolution. I think the larger companies as you said which have crossed eight to $10 million of revenue, they now do contracts and it is normal for them to grab contracts of 200-300-400k because it is also a part of what work you have done what if what referenceable customers you can project and then based on that, obviously people buy. Also, people have initially worked on the small businesses and the medium businesses and eventually migrated to the enterprise businesses, and typically in enterprise businesses, the ticket sizes are higher. So, it is a part of the evolution that we have seen. We have, you know, while there are always exceptions, but when companies are between, say a couple of million dollars to $3-4 million of ARR, you know, their average account sizes would be anywhere about $50,000-60,000. But as they grow, start growing beyond that, then we see the 100k dollars being breached, and then eventually you start doing multiyear contracts etc. 

Siddhartha

And what about the like companies like Locus which are focused on India and Southeast Asia, where they have marquee clients in India, like Tata, Myntra, Big Basket, Lenskart, BlueDart,

are they able to hit 100k ACV regularly, or is volume on more focus for them? 

Shailesh

They have able to hit 100k ACV quite regularly. In fact, they have one account, which is a very large account, which is now a million-dollar account, the two accounts actually one is very close to the threshold of a million dollars. The one is crossed a million dollars, but they always started small. And then they expanded in the account across different geographies across different SBUs. And that’s how they’ve grown. But now I think, you know, Locus, almost every account that we get is more than 100k. 

Siddhartha

Fantastic. Yeah. So you advise entrepreneurs to grow from small but to be in a market where they can increase their ACV to 200K and above.

46:42

Because you know, in an enterprise market, you have very little margin for error. Yeah, typically, you know, when you actually enter enterprises, it’s always that you start small or you’ve had an experience of doing small businesses, medium businesses behind you, then you enter an enterprise you start small and obviously the enterprise also not going to give you a very large chunk, because one you are caught up secondly, they have not tested you. So, you start small, start delivering benefits, make sure that you engage well, show them what metrics are, you know, you are impacting and gradually get their confidence. And that is exactly what Locus and many other companies have done. So, for example, locusts started with Unilever India, and depending on the work that they have done, now, Unilever India has become a champion, and they are taking them to various, you know, Southeast Asian countries, actually six or seven of them.And they are sponsoring so in the sense that they are actually saying that, hey, look, you know, these guys are good. And that is really working for them. 

Siddhartha

And, Shailesh,the typical challenges which I have seen, you know, enterprise SaaS founders face is building the right, sales engine and team.Do you have a playbook for advice for your portfolio companies, let’s say with your recent fund on that, because it’s almost like, as important as, or even more important than distribution for B2C companies? Because even if you have a fantastic product, you don’t know how to sell it, you don’t know how to create the right sales engine, you can’t go very high.

48:33 Shailesh

And again, here, you know, I would, I would say that look, many entrepreneurs are young.

nd but while creating a sales engine, while getting people in leadership roles, particularly on the go to market side, you should really look at people who have actually delivered in the past who have carried quotas or delivered consistently, in those markets, who are not learning from you, you know, while they grow, actually, they can hit the ground running. And many times, founders are reconciled to the fact that these guys could be more experienced than them, or more qualified than them or, you know, more accomplished than them in certain aspects. And that is where founders have to take that leap of faith that look, this guy is senior, he’s probably had more years of experience, etc. but he’s the right guy for the job. Very important for us to actually understand that, what is the sales guy looking like, you know, is he does he buy into your vision? Does he have openness to have a high variable pay and link to performance? And, and things like that? So, I think those are areas that we look at, but there is no easy answer. We can’t say that selling a new age product is you know, you might I have done a lot of selling for companies like Infosys or Ikeler, whatever, that doesn’t mean that you can sell a startup product. Because at the end of the day, you know, you have the backing of an entire large organization behind you, you might be a great guy, but you carry a card. But in the case of a startup, you know, which doesn’t have much of a presence, is a different ballgame. So, really look for people who have that drive or the energy who can do consultative sales who can, you know, open doors and who buy into a vision and are willing to link their long term to the success of the company. 

Siddhartha

And at what point should a startup focus on building a marketing engine for enterprise, like, beyond a certain ARR milestone which they have closed? Because once they have built the right engine, their marketing can generate MQLs and SQLs for the sales team, then it really starts to scale for enterprise SaaS? 

Shailesh

So Siddharth, I would say that marketing is something that you have to build as you grow, right. So now, the scale of marketing that you do is different for companies at different thresholds. But there is no denying the fact that you can get away from marketing. You will continuously because the fact that you are in the business of building a new product or a new proposition, and that proposition ultimately has to be sold which challenges the status quo of an enterprise, you will have to create material, whether it is you know, your own case studies, whether you have people talking about it, whether you it’s a PR or whether anything else, you will have to continuously create marketing, you can say, interventions across the journey of your startup because you can never stop that, because your customer acquisition has to go relentlessly. And yes, you might then have a chief marketing officer, at some point of time, you might have a marketing budget, you might hire a marketing agency that will do it, you might attend events, and things like that. So, that is a part of the evolution, you might not be able to do all of that when you are very small. But that does not mean that you should not do marketing, because this is where I think Indian startups where we believe we have to really work hard is that, we make great products, and we have phenomenal imagination, the innovation is great, and all that, but really how do we market and and when I say marketing, a startup founder is always in the business of marketing, either he is marketing his proposition to the VCs, either is marketing his proposition to employees to buy into his vision and come on board, or he’s selling to the customers or any other stakeholder. I think that is something that any founder should be up for it because that never stops. You just have to up the game every at every threshold.

Siddhartha

And Shailesh, how do you feel you know, because in case of consumer companies, the fund cycle the consumer companies tend to either go very big or they come home very quickly, the span of three four years later. How do you imagine you exist for exfinity will be like?

53:38 Shailesh

I think there are primarily, Siddharth, that I will look at it from up to two major sources. One is the fact that most of these companies will be found valuable by strategics. So, the exits that we see are you know from the larger companies who want to buy in, fill in a particular gap that they have in their portfolio.  The second exit is could be that, given the liquidity and the surfeit of liquidity that we see now, there are a lot of secondary funds which are quite active. And secondary funds are essentially looking to buy out existing investors at some point of time and get into it, and then, of course, scale the company further. So, that is another route that we see.

Recently, we have talked about, you know, we heard a lot of things about SPAC and other things. Personally, we have not seen my but this could be another route that companies might get to see an exit. IPO is a possibility, as you said, but then for IPO, you know, the company has to reach a certain level before they can IPO and things like that. And we believe that in most of the cases, while there will be of course, some IPOs that will happen. But there’ll be few and far between many companies will find its exit from a trade sale. 

And an IPO also in currently taking India perspective and the cycle of for a venture capitalist, you know, usually seven to 10 years to return the fund current, IPOs in India, Indian companies have taken India Mark took 20 years for an IPO. Right? So, there is no easy route for IPO, like you have to grind it out for 10-15 years to reach $100 million ARR company, establish yourself in us build those relationships with the leading bankers, invest a public image so that you know, and that takes a lot.

It takes a lot. It takes a lot. While in India the SEBI has come up with regulations on, you know, smaller companies getting IPO. But we have not seen much traction there.

It’s not yet attractive and mainstream yet, 

We have several things that we need to fix there.

56:00 Siddhartha

Shailesh, you mentioned on your Twitter bio, that you are an avid runner. And you enjoy reading. Any personal habits, which you want to share with the audience that led to your personal growth in the current avatar we see of you today.

56:16 Shailesh

2-3 things right. I mean, I also play golf. And particularly when you play golf, sometimes you are actually, and you play for 18 holes, at one of the holes, you will actually do everything right, right. You might get a par, you might get a birdie if you’re lucky. But the next hole is entirely different. And you might actually, you know, fail to, you will do disastrously on that hole. So, I would say, golf, I would I would see as a metaphor for VCs in the sense that you will have a bunch of companies, some companies, which will do very well, there are some companies, which will be slow starters, you’ll have to work harder on that. And golf teaches you a lot of those things that you never take anything for granted, work hard on every company, make sure that you provide the right inputs, make sure that you partner with the founders in the true sense. Help him problem solve, help him get another perspective and things like that. So that is something that I believe that sport teaches you that you don’t get too excited about something, you don’t get flustered about something, just get fun with the game and get on with your work. I think that is something that I that I’ve taken away a lot from golf. 

Siddhartha

Can you share any recommended books? Would you like to advertise for young enterprise SaaS founders? 

Shailesh

I think I would not advise any particular SaaS book or any other technology. But I think, in my view, every founder if they can, it’s a small book, actually, which I have read, and I keep on rereading it because the underlying message is very strong. But if a founders can read Jonathan Livingston Seagull by Richard Bach, I think that is an excellent book, it doesn’t take you more than maybe an hour, hour and a half to read it. But the underlying message is very, very, very strong. And the key message is right, like never give up. Keep trying, push the boundaries continuously. So, there’s never an end state. So, I think this is something that every time I read a book I, this book, I come up with a different learning. So, I would I would suggest that this is easy on the time. It is easy on your mind as well. But the message is quite telling in this book. 

Siddhartha

So, the name of the book you said is Jonathan Livingston Seagull by Richard Bach. Fantastic. Thank you so much, Shailesh. It has been an insightful conversation with you on the whole spectrum of how to build an enterprise SaaS companies and what are the various hurdles or milestones that you need to achieve, What are the challenges which founders have faced, and typically key learnings on how to work on them.

Shailesh

Thank you for your time, and I hope this is helpful. So, thanks so much for everything

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