Episode 11: Utsav Somani - Building AngelList India
About Utsav Somani:
My next guest on The One Percent Project is the young and brilliant head of AngelList India Utsav Somani. Utsav talks about his early career, his mentor and AngelList co-founder Naval Ravikant, the evolution of the Indian start-up investment space, building AngelList India, and his view on COVID and its impact.
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In this conversation, he talks about:
His early career and learnings of India and Start-up Investment Ecosystem.
Naval Ravikant his mentor and building AngelList India.
Setting up a Micro fund and learning from investments thus far.
Need for EquityList- AngelList’s- Equity Management System for Indian companies.
His view on COVID and its impact.
How to grow and add value in a market with similar investment eco-systems.
The growth potential of Indian Cryptocurrency start-ups?
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Transcript:
*The transcripts are not 100% accurate.
Pritish: Welcome, Utstav, to The One Percent Project.
Utsav: Thanks, Pritish, for having me.
Pritish: You started off with Bank of America in 2009. And in the next 6 years, you landed up getting an MBA joining a family business, which gave you exposure to regional India, Europe, Africa and other parts. And then you entered, the investment space with Mumbai Angels, Indian Angel Network, and LetsVenture. What did these 6 years actually teach you about yourself and India?
Utsav: That's a great question. I basically did my undergrad in Information Systems and Finance. I always had a knack for technology and finance. And those were my core interest areas for life. And those were two areas that I was nurturing as I was just progressing through these different phases of career. I never really settled on something that I wanted to pursue with a deep heart. And eventually, it let one thing to another. And then I got into technology investing because that was the closest I could come to interacting with entrepreneurs building in technology. And that is when I think my passion was reignited and started spending time with entrepreneurs. And it literally just gave me a whole new perspective of how fast-pace companies are being built and new technologies are being utilized. And literally, that's how I got into technology investing.
I wish I had the idea that I could pursue more convincingly to become an entrepreneur myself, but my current role at AngelList India sort of allows me to do some work that, that I do some sort of investing as well on the personal side, but I'm helping build AngelList in India as well. And that sort of satisfies my pseudo-entrepreneurial drive.
Pritish: In 2016, your AngelList journey begins. What made AngelList come to India, and how did they find you?
Utsav: Actually, it is a funny story. Now that I have done an interview in Times of India, I think in 2015, saying that we've explored the India market, but the regulations don't allow what AngelList does in the US: syndicates. And I'll come to that later. But that got me really thinking. And then there was this Tim Ferriss podcast that Naval and Tim Ferriss did where he just talks about a whole bunch of things, including startup investing, his personal operating system of life, and just a few more things that made me just worship the guy in my head, and he became an ideal for me. And one of those days in 2016, I wrote a cold email to him. We got interacting, and then we figured out that the regulations don't allow these pop up SPVs or what syndicates are to come and operate in India.
We eventually figured out that I'll become an advisor to AngelList in India. And once the regulations allow, and I work with regulators along this while to sort of figure out our operating model in India for the venture business of AngelList to come and operate and launch in India, I would be an advisor and I'd work with regulators to figure that out. And that is truly the start of AngelList in India. Took me a year to work with the regulators to figure out what's the best way to go ahead with this, explain to them why AngelList truly benefits a whole bunch of players in the ecosystem. And not just Angels who want to get exposure to this asset class, there's also founders who are paying with the biggest resource of their company's equity. And so, we've really just figured out how all of this fits in together with AngelList and EquityList in India.
Pritish: That's a great example of hustle, how you reached out to Naval with a cold email listening to a podcast, and the whole journey kicked off with your understanding of what can be done with AngelList in India. When you kicked off AngelList in India, what were the three things you wanted to get right with the launch?
Utsav: Angel investing, I think, is sort of like a triangle. There are three pieces of the puzzle at the earliest stages. And those were the problems I realized when I was working and consulting for other players in the ecosystem and doing some personal investing as well. A lot of people, the backers are what we call them, LPs, were the early stage angels, were not getting access to deals, the best investment opportunities. And why was that the case? Because the syndicate leads or the people who source these allegations typically are not large check writers. But the people who have access to their peers or founders who are starting up great companies, but are unable to access those rounds or invest in them, because just because they don't have that large check writing capability, we truly wanted to democratize this whole thing by getting people, aligning incentives in the ecosystem that,
“Hey, now you have this pop up SPV structure called syndicates, where you can literally spin up a fund. You maintain your day job, but now you can maintain your back office and infrastructure with us. And we allow you to pull capital from smart valued angels that come and back you for that particular opportunity basis on the merits of that team. And you act as the GP of that particular deal.”
You're like a nighttime fund manager where you're doing your day job, which might in any industry, but now you can actually bring people together to invest alongside you just because you're doing the work the act of the GP of that. And you want to carry for back on a successful exit. And why did it solve for entrepreneurs? Because I said that entrepreneurs pay for raising capital through their equity, I mean the equity resource. And we want to bring them a single check, which adds more knowledge to the cap table than just pure capital. And pooling all of this into a single check, no cost attached to the entrepreneur, I think we solved for all pieces of the triangle of angel investing through syndicates.
Pritish: You have interacted with Naval. How has that experience been? How has he influenced you? And how has his learnings helped you in building in AngelList India]?
Utsav: I mean, of course, he's a great guy. He's amazing person. And of course, everyone's heard his podcast. It's pretty much on those lines as well. I'm deeply inspired by what he thinks and how clear he thinks. And sometimes, you just really have to drill it down to the first principles in terms of everything to really grasp and experience the problem and understand the problem before you go out and solve it. And that truly reflects in the company that he’s built, AngelList, and the different arms that we have, venture, talent, producthunt, and EquityList also. Interacting with him just makes you a clear thinker, and makes you realize that sometimes brevity is just the way of life. And you got to think about problems in a very basic format and just drill it down to the very ground level pieces, and then just bring it all together.
And that's what we do at AngelList. I mean, we've been very lean. Everything has to be thought from a product perspective. And AngelList India, until March of last year, it was just a team of 2 doing the work. Everything noncore was outsourced, just so that we can keep the team very, very lean and very, very focused on our core metrics and serving the 2 customers that we have the investors and the entrepreneurs. And that truly is where we sort of built ourselves as a product, first company and scale this infrastructure. And now, we're going to do a whole lot more with EquityLists and other initiatives that we have coming up.
Pritish: Naval’s conversations and thoughts are, to me, slightly mind bending. I have to rethink every time I listen something from him. What are you learnings from the investments that you've made thus far?
Utsav: Our experience was, I think, I see is... I mean, I was always doing syndicates and personal investing on the side. So, it's just angel investing plus plus for me, to be honest. It's a better way for me to bridge that. I mean, given that AngelList is a global brand and has tremendous presence in Silicon Valley. And there are amazing angels, entrepreneurs who scaled, exited, and IPOed companiesm and wanted to satisfy the curiosity, but also work with Indian entrepreneurs. So, there was always that gap, which was missing at the earliest stages. Of course, if you're backed by a proper venture firm, which has offices everywhere, they can help you out. But at the earliest stages, I think the chances of success of a company also depends on a whole bunch of different factors, but also that how quickly can they access that knowledge bit, right?
And that's why all the LPs of IC are publicly announced, because these LPs want to work with Indian entrepreneurs. I think India got too much capital too fast, and we've gone through a compressed sort of ups and downs in our ecosystem. I think it's all been done in the last 6, 7 years. But do we have the a16z of India? Or do we have the First Round Capital of India? Probably not yet. There are firms which are built as full stack venture capital firms. And venture capitalists, as Naval says, is a bundle of 3 things, money, control, and advice. So, how do you unbundled or bundle these 3... these things as a venture fund or as a venture investor or as an angel investor or a micro VC? That truly differentiates you in terms of how well you can do in terms of generating returns. Of course, the market feedback takes time to come. But you can help the entrepreneur in many different ways. If you just connect the pieces together.
Pritish: What are your key learnings from the investments thus far?
Utsav: To be honest, there are no key learnings. Every investment is different thing in itself. I mean, you've invested... I've invested in some SAS companies. I've invested in some consumer companies. And there are people who are building in India for India. There are people who are building in India for the global markets. To be honest, the learnings are that there are going to be so many ups and downs, but you just have to stick by entrepreneurs. You back them once, and you really just have to stick by them, to be honest. And they're going to go through some... it's... it's not a smooth journey. And if it is a smooth journey, it’s probably not the right investment or it's not... I mean, there has to be a little bit of chaos, which has to hit a company at some point for them to be battle tested. And I see that across all the investments that I’ve done. Some have done extremely well from the get go. Some have had downs, but now they're truly like shining in their respective fields. So, it's literally just every investment has been different. But of course, every investment can be... and I can write a book on a chapter on every investment that I've done and what I've learned from it.
Pritish: I look forward to that book.
Utsav: Hopefully soon.
Pritish: How would you define the Indian startup ecosystem? Or the I would specify to say, how will you define the Indian startup investment ecosystem?
Utsav: I think we're still at the earliest stages. Of course, there's a little bit of tech nationalism undertone going on right now with the Chinese capital being blocked and will require some extra sort of approvals to come in. So, there is going... I mean, everyone's going through this flux. Of course, we're in the middle of a pandemic as well. So, people are still trying to figure out what the next year will be looking like or next 6 months will be looking like. But, I mean, given in retrospect, I think we've got great talent, we've got great capital, we've got a whole bunch of different pieces which need to I think, fit... fit in together and collaborate more. We've, of course, seen early successes in Flipkart and the recent geo deal, I think caught a lot of limelight to the Indian ecosystem in a whole bunch of different ways. People are scared. People are excited about it. People are going to pitch the whole India story more using the geo thing. But let's see where it all goes.
So, far, I think we've done a great job. Of course, the Indian economy and the Indian consumer in itself is very price conscious. So, it's not like a copy paste of say a US model where say people pay for convenience or people pay for sort of getting things at their doorstep. It's literally, Indian consumer loyalty will be defined by a whole different things or different set of things. We're in early days of, I would still say that we're in the earliest days of seeing where this Indian ecosystem heads. And it's definitely one of the most startup... exciting startup ecosystems of the world. So, privileged to be doing this AngelList gig with my colleagues. And my colleagues have been super and they share the same level of excitement that I do for supporting Indian startup and startups and entrepreneurs in India.
Pritish: Absolutely. You touched upon geo, and I definitely would like to know your views on do you think geo is India's first (unclear) [11:37]?
Utsav: It could be. I mean, if data is the new oil, then I think they're headed in the right direction. They've got a massive subscriber base. They still have to deliver on some of the promises made in terms of just building services on top of providing cheap data. And I think that's playing out well with geomart and they've got literally the best of the best from the globe backing them. I mean, it's unheard of to get Facebook, Microsoft, and all of these companies go investing together into one single company. That's unprecedented, to be honest. It's exciting times for India.
Pritish: True. Why does India need EquityList?
Utsav: Why does India need EquityList? To be honest, we're such an advanced tech ecosystem in the world... I mean, we've got funds like Sequoia which are managing close to 6 billion, right? And these companies are raising capital managing cap tables and doing employee stock option grants. And all of this is done given that in a high-tech industry, it's done in an offline manner. I mean, there are chartered accountants, there are lawyers who are managing this over Excel sheets. And as you grow and try to as a startup ecosystem and try to retain the best talent, employees will come at the forefront. Company creators and company builders need to be given attention to a whole lot more than they have previously. I mean, you see, employee stock option plans being announced every single day now in India. That's become a common theme. But how do you value this? I mean, as an employee, if I'm joining a startup, I want to see that, sure, I'm getting some monthly cash check. But if I'm putting in the work as well, how do I value that in front of like this other stock options that I have? And a whole bunch of different things, and how can we build liquidity into all of these things?
Just the transparency is the first step. I think all the stakeholders involved in a company, they can be board members, they can be founders, they can be employees, there can be your HR people, your... I mean, all kinds of people who support a company during different stages, and EquityList is that one piece where we bring it all together. I think cap table management and (unclear) [13:36] and whole bunch of different features that we have, it all needs to be unified. Because if you want to build the startup operating system of a country, you really need to just core... go down to the core unit, which is equity, right? I mean, a company is nothing but a collection of people holding equity, and that's where we're headed towards with EquityList.
Pritish: Do you think EquityList is going to also help educate founders and investors compared to the Silicon Valley, which is way ahead and people are comfortable, ESOPs and saves, do you think EquityList will be able to navigate through that and probably up the game?
Utsav: We're trying that, to be honest. We are actually very excited about that, and we're doing some educational initiatives as well. But to be honest, it has to come from the founder also. And it has to come from the investors as well, because those are the important people who typically understand equity of a company. But the employees idly... I mean, in the past have not been given that level of transparency. I might sign some document, but do I know what it's worth in the future of what it’s worth currently, and the tax implications of exercising that? So, there is still some clarity, which is coming in from the regulation side, but also just pure education and transparency will go a long way in sort of clearing all of these doubts out. And EquityList is being headed by (unclear) [14:55] who joined us from AngelList US to do this full time, and he's now the CEO of EquityList. And he's going great concert, our product shipping rate, and he's going great... talking to customers and early customer feedback has been amazing. And some of the best companies in India are using already.
Pritish: You associated to the Village. How did that come about? And how has been your interaction with the partners at the Village?
Utsav: Village Global is basically a traditional venture fund. I think it's 100-million-dollar fund. But their deployment model is slightly different. They work with these network leaders across the globe. And I'm the first one for India. And these network leaders are typically operators themselves who are doing something, but are also investing smaller checks on the site to support entrepreneurs appeals or other founders. And these Village Global Fund will match your check or actually help you co... I mean telco invest with you. And what this means is that it opens up a global peer network, right? And that's why I talk a lot about I see it as a knowledge vehicle than just a pure capital micro fund. Because to be honest, at the earliest days, if you can talk to a peer about say, “How do I scale my employee base from 10 to 100 without breaking the culture? Or how do I hire the best talent? Or how do I fire people who are not performing? Or how do I like just build...?” I mean, product questions about cultural strategy or things that have been done the west or extreme east, and now we want to bring that to India.
My association with Village Global came about when 2 of my LPs, Jake of AngelList, and Jonathan of Thumbtack connected me to Eric, who's the founder of Village Global. India is of course on everybody's radar. And we got associated through 2 of my LPs who connected and we had a great chat and he said that, “We'd like to actively invest more into India.” And Village Global is backed by some of the best names in the world, to be honest, I don't think they've come together in a way like this. Jeff Bezos, Bill Gates, Mark Zuckerberg, and so many more Reid Hoffman and it's just amazing what they've done and achieved.
Pritish: What is your take on the impact of COVID? And how has that changed your view?
Utsav: We went through a tough few months? I think angel investors are, of course, taking a cautious look about how the macro economy looks and how the outlook of the next few months will be. But, I mean, the stock markets are being irrational. I mean, technology companies are of course going to be built, and they're going to have huge tailwind. Some sectors like tech or groceries or food delivery, and all of those sectors have taken such a boost that it's, I mean, what we were predicting would be the growth cycle for the next 5 years is probably being compressed into a year. Some sectors are definitely taking a boost, or if... and the acceleration to cloud as a key trend. SAS, dev tools, enterprise tools are now finding it much easier to sell to customers just because you have to think about cloud security, you have to think about remote working tools.
COVID has definitely positively impacted some of the sectors, but also negatively affected all of the consumers out of which are doing more offline things, just because people are not, in terms of ride sharing, people are not stepping out outside that often. Or people are not going out to eat that often. It's a whole bunch of mixture of things. But at AngelList, we are obviously going to support every startup that we invest in through different means and never been more optimistic about technology companies. Let's just summarize with that.
Pritish: The Indian ecosystem has a number of angel networks You have LetsVenture, you have INA and others. How does everybody coexist and grow.
Utsav: 2 sides. There will be entrepreneurs who need more traditional angel investors, large-ticket investors or more in-person contact with their angel investors. Every person in the ecosystem is solving a real problem, like be it other platforms, be it other angel networks. And we collaborate with some of them. And our model works for a specific set of people, syndicate leads or micro VCs who want to scale their... institutionalize their angel investing practice. Everyone is trying to solve a very unique problem and caters to a very different set of audiences. Of course, there will be overlaps and we're happy to collaborate with everyone. And I think we're excited that there are more people doing this at the earliest stages, right? Makes our job of educating people about this asset class and supporting entrepreneurs and getting more entrepreneurs to start more companies. And I think gradually as risk capital becomes more abundant in the ecosystem at the earliest stages, the stigma attached with failure as well will go down. I think it's a net-net positive for the ecosystem that everyone's trying to solve for the same problem in different ways, and overlapping in some ways, non-overlapping in some ways, then just net-net benefiting the Indian ecosystem in general.
Pritish: So, much is going on for you working, interacting with the brightest minds in the world. Where are you heading in the next 5 years?
Utsav: I don't know where I'm heading in the next 6 months, to be honest. There are so many things to explore and do and just keeps our head... keep our heads down while executing. I think it's really just execute, basically. I mean, I wish I had some magic words to ponder over or think about or say. But I think it's really just been one day at a time, to be honest, because there's so much going on. Until a year back, we didn't know we'd be doing EquityList. It’s the first software product to come out of AngelList India. And we're exploring whole bunch of new regions. We're doing a lot of initiatives which come around. I mean, given that it's a small team now AngelList India from 2 last year, we went to a 10-member team this year. Now, I mean, everyone's experimenting and a whole bunch of new initiatives. We did the collective last year. I raised capital from actual matrix partners and a whole bunch of different funds to come together and support companies on our platform and syndicate leads on a platform. There are so many new things which happened. And given that we're technically a startup ourselves, we are a startup ourselves, we have to just be so nimble that predicting 5 years out is something that I cannot do at this point of time.
Pritish: The next set of questions are from listeners of The One Percent Project. And I got a few of them, so I will try to go through them. And let me let me know what you think. The first is from Varun Mcgoon, he has actually interacted with you previously sometime in India. And he wants to ask saying yes or no to any deal, how does Utsav think of going through this pivotal decision and some deals that you may have said no to and they have worked out successfully? How do you reflect on that?
Utsav: To be honest, it's very little time for regret. I mean, you're... you possibly cannot, as an angel investor and somebody who does not have that kind of liquidity, you cannot actually say yes to every deal, then it's just going... and you will be wrong. I mean, companies will pitch you x, and sometimes might pivot into something else, and said... I said no to meet you at the earliest stages. But I couldn't get myself to understand that how people will sell and resell on WhatsApp. So, you will be wrong, and that... the thing is that you just have to reflect on it and just know that you cannot have any biases, you really just have to be an open-minded person. And you can't live with regret. Of course, there will be a big chance that you will miss the next big thing. But sometimes you just have to bite the bullet and just move on.
Pritish: (unclear) [19:30], “How are you planning to approach investors in second tier cities?”
Utsav: We're actually doing that using a platform. I mean, I think most of the people are not living in... I mean, of course, a majority of our platform investors are based in Metro cities, but we're doing a whole bunch of different initiatives to go into the lower-tier cities as well like 2 and 3 where people are still being exposed to this asset class. So, I think it's a gradual process. And that is why I say that AngelList has truly democratize angel investing by allowing people to do smaller checks, because startup investing is extremely risky. So, we don't want to say that the numbers really just... we just don't want to open the floodgates, right? Because of course, you have to be accredited, but you also have to understand the risks involved with this asset class. So, that is why we're taking it very slowly, but educating people about the risk and telling them that you have to invest, at least in 10, to 15 companies to get started and to even get the exposure needed to sort of deliver a return or even follow the good lead investors on the platform so that at least you can latch on to their experience. It's truly democratizing access, but also making sure that they understand the risk. So, it's a gradual process. Of course, it's just been a 2-and-a-half-year journey. We've invested in 180 companies across the country... across India, and we're investing an extremely rapid pace now. And over thousand active angel investors on the platform just from India were investing actively. So, it's a gradual process, and the word of mouth of course, but it's that once an angel investor is happy with the experience that they get using a platform, or if they've had a successful round in a very short time, they get excited about it, then they tell other people. And syndicate leads, he or she also does the work sometimes inviting their people to their syndicate where they think that they might add value. So, it's a gradual process will penetrate the market slowly and steadily.
Pritish: Brilliant. (unclear) [21:24] said, “Do you think there is a market for more micro VCs in India? And if yes, how should you think about or one should think about building a micro VC?”
Utsav: There will always be, I think, market for more capital. I think given that now we're going through a tough time, people are going to be out of jobs. And I think entrepreneurship will be the only choice that they have. There is going to be a tremendous pool of cap... tremendous pool of entrepreneurs and talent in the market who are going to start up the next gen of companies. And I think given that history also says that best companies are born during the toughest times because, of course, you have to rethink how your cost structures are starting up as a founder and just a whole bunch of different things, you're born in the toughest of times. There's going to be amount... I mean, the requirement of capital is always going to be there. And micro VCs operate in a very different space. They co invest with other investors, typically you're the coinvest with, say, a larger fund as well, because micro VC needs to have a unique value proposition. And the rise of solo capitalist, I think there was an article which went out recently, which says the rise of solo capitalists is an interesting trend. And that's going to become... I mean, I think a key defining factor of micro VCs that people want to raise, not from just a fund, but actually the person who's leading that fund. You will truly see people doing a lot of micro VCs. So, there is definitely a market for it, but what value proposition do you bring as a micro VC is what you need to clearly define.
Pritish: Okay. And the last question is from (unclear) [22:55], “What is your take on the growth potential of Indian cryptocurrency startups?”
Utsav: Oh, that's my favorite. So, I invested in a little seed round from CoinDCX. And they were pre-launch then. And actually, I discovered the company over a Twitter chat. And now they've gone on to become India's largest crypto exchange in terms of volume, in terms of just the sheer number of users, they raise capital from Polychain, BitMax, Coinbase and Bain Capital Ventures now, so they're a super large startup. Now, so I've experienced this very closely. I run a small crypto fund as well called B1T Capital, which is already invested in some of the best projects globally presale token projects. And the thing about India is that... I mean, the whole blockchain industry first, looking at a macro perspective, I think it caught more hype than it delivered. And we're going through that phase where we’re now, I think, resetting our expectations to the level that, “Hey, this is going to take some time in terms of scaling, in terms of real use cases coming out of it.”
The only use case which is there is people buying crypto, storing crypto, trading crypto. So, that's why exchanges make for a great investment. But in terms of blockchain, delivering hype, versus real potential, that I think is yet to be aligned, and we're going to see that happen very soon globally. So, I think coming to that, I think Indian startups, of course, that there is not too much activity in blockchain and crypto in India. But there are a few interesting teams doing... tinkering around with a few ideas, and let's see where that goes. But at this point of time, it's too early in the Gartner Life Hype Cycle to define where this goes.
Pritish: Utsav, it was brilliant speaking to you. Thanks for your time.
Utsav: Pritish, my pleasure. Thank you so much for having me.