At Telescope Investing we focus on publicly-listed stocks, but investing in private companies is another option for investors seeking higher returns, and this is becoming increasingly accessible to retail investors through crowdfunding services. On this week’s pod, we’re joined by award-winning entrepreneur and founder Prantik Mazumdar, to get his insights on private equity and venture capital investing.
Prantik brings his extensive experience working with local enterprises in Singapore and as a business owner to the world of angel investing and venture capital. In a wide-ranging discussion, we talk about the key trends in the SE Asian startup scene, the qualities he looks for in private equity investments, and the personal and financial rewards of investing in sustainability.
For companies at such an early stage of their life, there is a heightened emphasis on leadership. One of the key principles is founder-problem fit – the key question of whether founders are not just good founders, but have suitable skills and experience for the problem they are trying address? What are the dynamics within the founding team, do they have complementary skills and aligned values? Does the underlying equity structure give all the partners the right incentives, and are they able to attract key personnel to achieve their vision for the company?
How large is the problem set the company is trying to solve and what is the total addressable space they are targeting? Is there a strong product-market fit to drive revenue and customer growth? Do they fulfil the “3Rs” to scale quickly – the ability to Raise capital, Race for growth and Remove competition? Less than 10% of private companies have a good exit, and it is important to understand the risks and diversify your investments accordingly. Give yourself time to understand the businesses and to build conviction.
With climate change becoming an increasing focus for many governments, investing in sustainability can be a force for good and a force for growth as new companies emerge in areas such as ed-tech, alternative meat and clean energy. These nascent industries are not just good for the planet but may offer high investment returns and are seeing huge interest from venture capital.
Some of the companies mentioned in the discussion are Byju’s, Float Foods, Eat Just, Stripe, UiPath, Apeel, and of course SpaceX.
If you enjoyed this episode, please subscribe to the Telescope Investing podcast at Spotify, or on your podcast platform of choice
Transcript
Albert: Hi, this is Albert.
Luke: And this is Luke.
Albert: Today is Thursday, the 7th of November.
Luke: Welcome to the Telescope Investing podcast
Intro
Luke: Albert, we’ve got a great interview coming up today, but before we introduce our guest, we’d like to thank our subscribers for listening and supporting the show. You know, Albert and I run Telescope Investing for you.
Albert: And we’re just over a year in and we’re still very much in growth mode, and one of the best ways you can lend your support to the show is to leave us a review on Apple Podcasts. And we only mentioned Apple reviews last week, and we’ve already received a couple of five-star reviews, so a massive thank you to all the listeners that took the time to leave a comment.
Luke: Yeah, thanks, guys. Well, with that, let’s get on with today’s show and I’ve got to say, I’ve really been looking forward to today’s guest episode for well over a month now. Albert and I are delighted to introduce Prantik Mazumdar, an award-winning entrepreneur and venture capital investor.
Albert: Welcome, Prantik.
Prantik: Hey, Luke. Hey, Albert. Thank you so much for the opportunity, and I’ve been looking forward to this as well. I’ve been listening to some of the episodes on Spotify. That’s where I catch my podcasts, and I must say it’s pretty interesting just to get a good lens and perspective on investing opportunities out there across different baskets of equities. And I thought, it provided me a good, fresh perspective, so looking forward to our conversation today.
Luke: Fantastic, very good.
About Prantik
Albert: And just to let you know, Prantik, I also have been looking forward to this interview for a while, so why don’t we get started? Can you tell us a bit about yourself and perhaps how you got into VC investing?
Prantik: Sure. So my journey, it’s probably split across three countries. I’m an Indian, raised in India for the first 13 years. Spent about six years doing my high school in Jakarta and Indonesia. And then last 20 years in Singapore. And in Singapore, the 20-year story is broken into probably three or four pieces. I start post my university where I studied computer engineering. That’s the place where I kind of fell in love with technology. Although I quickly realized that whilst tech is pretty close to my heart, more than building technology, I was probably quite interested in marketing and selling technology.
And I kind of then moved into the civil service. Singapore government, as many of you would know, probably more operates more like a private enterprise. So I had a good three and a half years of experience as a young officer to help local enterprises internationalize. So I was on the other side of the fence facilitating investment conversations, both into the startups, as well as facilitating M&A opportunities for Singapore startups and telecom operators in different parts of the world, Asia, outside Asia, etc. So that gave me my first preview into the world of investor, but purely merely as an observer. And then I had a couple of stints as the head of sales, regional sales for A) a brand consulting company and B) a digital marketing company. So that’s where I kind of got my hands dirty into brand building and digital marketing.
And even as an employee, I could figure the importance of investment. Now investment is a very large world. Most of us think of investments purely from public markets, but I saw how private investments work because some of these companies raise money. I also saw about looking at investments in the softer side of things, investments into talent, because we all operate in the knowledge economy.
And then after, came my journey as an entrepreneur. I co-founded a company called Happy Marketer. Rachit and I who are classmates from NUS. We started this in June 2009 and over a decade, we scaled this up. It’s interesting. We did this without a single penny of investment. We are a pure services company. So we realized pretty early that no VC is going to look at services business. It’s not deemed to be as scalable as the product companies, but we stayed true to our roots and our belief that the best form of investment is client revenue. Creating products and services that clients are willing to open their wallets for. Nothing like it.
So we were very fortunate early in the game. We ran this company for 10 years, grew it from zero to $10 million in billings, and in February 2019 is when we exited and we sold this company to a Japanese conglomerate called Dentsu. And during that process, we got a flavor of investments from the other side where a larger conglomerate invested into us and acquired the company.
And that was fascinating. The whole due diligence process, looking at narrative as well as looking at the road map, protecting future jobs, etc. And then when I kind of, you know, came out of that, I mean, I still lead Dentsu International’s, one of their business units in Singapore, that’s my core job. But once I kind of came out of the Happy Marketer founder role, that’s when I, for the first time, started investing as we talk about the word, investing, investing into markets, investing into the startup ecosystem in Southeast Asia or broader Asia, investing into VCs.
So, I’ll take a pause there, but that’s essentially my journey. The word investment has had so many different flavors, be it the government investment perspective, to SMEs, to running my own startup, to eventually getting investments into that company through an M&A opportunity, and finally wearing the hat of an angel investor or a venture investor, if you will.
Luke: That’s really fascinating, and I guess it’s quite a unique advantage you’ve got. You’ve had the opportunity early to lead venture capital deals, but with somebody else’s money, you know, you’re not bearing the risk, then to be a founder and see that journey from the other side, and now to be an opportunity to invest your own money. You’ve come at this with much more experience than most venture capital investors would have.
Prantik: Well, uh, time will tell if all that really adds up to something, but yes, I am definitely fortunate to get just different perspectives. I think, especially what I realize now, now that I’ve been investing actively into ventures, is I think having a founder perspective really helps because it’s not just a monitoring investment. You really, really think about the market. You think about the people, the team, the culture, even small things in the Asian economy, you think about being prudent as well. The venture market is rather hot. The market’s flushed with cash, but I think sometimes being a founder, especially from an Asian ecosystem perspective, you are trained to, I’m not saying to kind of cut costs, but be prudent with your expenditures and investments and be a bit more, both a short-term and a long-term perspective.
Venture capital
Albert: And so Prantik, so what does your typical day look like? What do you actually do as a VC investor?
Prantik: I like to keep my weekends pretty protected for my kid and my wife, but I think the weekday I wake up fairly early. That’s been a big change. I want to start my day early just to kind of get some time to reflect. I hit the gym as well. And then I kind of just start thinking about, you know, planning the day. My day job is still, like I mentioned, very much at Dentsu International. So I kind of use a lot of my time to kind of just set the date, set the direction, delegate whatever tasks that I can. But thereafter from an investment lens, I think what I’ve done is in my week, I’ve kind of blocked some pockets of time, two to three half-day pockets, where I spend time meeting new companies or meeting companies that I’ve met before, but who are doing something new. So to me, I think what really, really excites me is, and this has been true even in my past at stars because back then my objective was to sell or to market my own services, but I’ve just taken that skill set of networking and being curious and being open with the venture lens where every week I try and at least have a call or a physical meeting, if possible, with at least four or five new companies. Just that listening keeps me fresh.
I have a framework of questions that I try and kind of ask them, just to kind of gather a perspective of what stage they are in, what companies with, what products, what kind of culture are they trying to build. But to your point, I think from an early-stage investor, I think to me so much is about A) meeting new companies, B) spending time to just dig deeper in the evenings and nights about those industries.
Because of course, I get excited when I meet these companies, think of new solutions and products, but I think it’s also important to just calm down and take a look at, okay what does competition look like, and what are some of the indirect competition out there. And then also look at the broader industry trends and numbers.
So, yeah, that’s a bit of my week. I start early, get my gym and my breakfast done, focus on my core role at Dentsu, and then set aside some pockets of time to meet people and then kind of reflect about learnings from that industry.
Luke: Four to five different companies a week, that’s pretty intense. I saw a hilarious tweet actually yesterday that some founders are now charging VCs for a meeting, just to have the opportunity to chat.
Prantik: I’m not surprised. Like I said, the market’s flush with cash. I heard a similar case where a very large VC, I wouldn’t name but I’m sure it’s out in the market, that they call the founder and said “Hey, what’s the term sheet that you’ve got from an existing VC? I’ll double it at a better equity. I won’t take a board seat.”
I’m not sure whether that’s really very healthy or that’s sustainable or that’s good. If I was to raise money, yes, I would choose a good valuation, but I would definitely want good people to come along with me on that journey. What I’ve learned is that be it as advisors, mentors, or as strategic investors, I think the value of a few people kind of providing check-and-balance governance, opening doors, networking, bringing credibility is paramount. But yeah, I kind of relate to that tweet that you came across.
Hot sectors
Albert: It definitely sounds like a good time to be a founder. Actually, which sectors are you seeing the most exciting opportunities at the moment?
Prantik: Yeah, so I think it depends on the geographical segments. Having grown up in this part of the world, the three markets closest to my heart are India, Singapore, and Indonesia. And these three markets are extremely hot right now. And Singapore, I have obviously lived here for the last 20 years, I’ve seen a drastic change, especially the last five, seven years. I think I had just read a report that I think we probably have some close to 30-odd unicorns right now and it’s insane. Bulk of them have been minted just the last 12 to 18 months. So if I look at this region, Southeast Asia, Southeast Asia people don’t realize that yes, there are 10 fragmented countries, but collectively that’s a population base of about 600 million, right.
Of course, there is no unified currency or no unified trading block like EU but to me, I have a pretty strong conviction about this market. Within this market, I think the markets that really excite me are Singapore, Indonesia, Vietnam. Singapore, purely given that it’s the financial capital of this part of the world, extremely high per capita income, extremely good connections to the region.
Indonesia, population-wise as well as innovation-wise. You know, people in the west might have heard of companies like Grab, Gojek, Tokopedia, these have all emerged in the recent past, right. So Indonesia, Singapore, Vietnam. If I just zoom in, the sectors that are really hot: fintech, needless to say, insurtech booming as well, a lot of logistics play, which is growing on the back of e-commerce. So e-commerce obviously has skyrocketed in the last five, six years, but if you want to really deliver e-commerce products, especially in fragmented geographies, you need very good logistics support. So that’s kind of come into play as well. So I think we saw e-commerce and ride-hailing really peak about four or five years ago.
But as those services came into play, you needed financial services, you needed insurance services, you needed logistical services. So I think we are seeing a huge boom in B2B SaaS supporting these industries in these markets. India, of course, is a completely different story. The way companies are not just sprouting in different corners, not just the metro cities, but even in tier-two, tier-three cities.
And I think in the last two, three years, it’s caught the much-deserved attention of western VCs. So SoftBank had come in early, but thereafter, today you have the likes of Tiger Global, you have Sequoia, you have Lightspeed, and the likes. And they are pumping in some serious money to India right now. So that’s again, a very different ball game.
Of course, there, you’re seeing edtech, edtech has been massive. You might’ve heard of a company called Byju’s, where even the Zuckerberg family’s invested, and they have been not just scaling up, they have been acquiring other edtech companies in liquid cash in hundreds of millions of dollars. So India is a very, very unique market in itself.
So it depends on geography, but I think in Southeast Asia: fintech, insurtech, logistics tech is where the movement or the momentum is. I am beginning to see, especially in Singapore, a couple of sectors around sustainability, alternate meat, as well as clean energy because this is something that’s very close to the Singapore government’s heart, and Singapore has a 10-year long plan for the 2030 Green Plan. And as part of that, the Singapore government is inviting startups and founders to set up base here. So for example, Just Eggs, their base now is Singapore, and then Singapore stays true to its word through its sovereign wealth fund like Temasek. They actually invest a lot of money into these sustainable industries.
So again, maybe a bit futuristic, deep tech, sustainable tech, but I dare say the next 10 years, you will start seeing a lot of companies mushrooming in those domains
Luke: It is a little bit futuristic but not a hundred miles away, right? These are things that are going to transform the world in the next five to 10 years. I know Albert is very keen on the whole sustainable meat sector, but actually just to pick up on your comment on edtech, I think that’s fascinating, and particularly as companies like Starlink start to connect remote parts of the world, there will be a huge number of very, very smart people out there who are mostly held back because they don’t have access to education sources and even free tools like Khan Academy and YouTube giving the next billion and the next billion after that people access to these resources could potentially unlock another hundred Einsteins out there.
Prantik: Oh, very well said. And this is a sector, I mean, edtech and health tech are two sectors, very close to my heart because my wife’s a doctor so obviously health is very close to her heart. To both of us, education and health, these are core aspects of our lives. And if you look back, I think we’ve been extremely fortunate, both of us, simply because to put it bluntly, the dice rolled on the right side and we got good education and we’ve got access to good healthcare. And it’s not just about, you know, I must be clear here, it’s not about being charitable. This is good business opportunity commercially and doing good, right? It’s what they call it “force for good and force for growth” right? It’s not either-or. It’s not a false choice. And you’re right, I think at a fundamental level, whether it’s Starlink, whether it’s Jio in India, fundamentally the infrastructure problem, the mobile digital infrastructure problem has been tackled very well.
Suddenly, you know, it’s not far when probably 80, 90% of India’s population could have access to high-speed data, right. Now, if that’s taken care of, then you have edtech content providers, be it YouTube, be TikTok, be it Byju’s, Khan Academy what have you, you have free content and you have curated paid content, right?
So something for everyone, so to speak. And then of course, you have, in India, there are so many interesting edtech companies that are catering to K-1 to K-12, universities. There are companies that are financing education, like I’ve invested one company which looks at study now pay later. It’s taking the principles of buy now pay later and helping people get access to good college and school education.
And of course, you have also support, content and technologies, learning management systems, supporting teachers, because without good teachers, especially this part of the world, you have to contextualize not just in terms of translation, but also contextualize the content that you’re kind of using, right. And so you need to also look at the teaching side of the ecosystem and the administration, and there are tons of good startups in the broader edtech space doing that. So I totally agree with you that the coming decade could be very exciting where hopefully I don’t know about Einsteins, that’s a great desire, great wish. I just hope more people get basic K-12 and college education. I think it’ll have very positive ramifications, not just academically, commercially, but also from a social perspective. An educated society is what we all want to live in
Sustainability
Albert: Yeah, you mentioned that Singapore has this green initiative to support these businesses for a sustainable environment. I think other countries are also doing that as well. I believe China has always committed to be carbon neutral by 2060, I believe. I know that Hong Kong itself, even recently it has announced similar plans. What do you think? Are these going to be a main driver for young businesses going forward?
Prantik: Yeah, it’s a very good question. And I’m really glad that large governments, corporations, multilateral bodies are taking notice because I at least come from the camp that this is yesterday’s problem. It’s not a futuristic problem. Climate challenges are real, as far as I’m concerned, linked to that, energy, sustainable food, these are all linked to it.
So I think that it is a problem as far as I’m concerned. I think it’s quite real and good to see China, Hong Kong, India, and even Singapore taking it very, very seriously. So I kind of see two kinds of opportunities, right? So one is I’m seeing new technology startups spring up from these markets. For example, considering an investment into a green hydrogen generation startup from Singapore. They’re basically going to produce hydrogen from water, right. And that clean hydrogen can be used for various industrial-grade applications, right? So that’s the clean energy as an example.
The other example is alternate meat. I’ve done a few investments in Just Eggs at a pre-IPO level. I’ve also invested in a VC fund from Singapore called Good Startup Fund, which only invests in alternate protein, right? So it’s a VC fund that’s going to invest in 25, 26-odd companies in the coming four years. There is a company that we service at Dentsu International. It’s a Singapore-based alternate meat company called Flowfoods. It’s amazing. You should check it out. It’s the world’s first alternate protein company that’s made a complete egg. So when I say complete egg, both the white and the yolk. If you look at it, it looks just like an egg. So it’s not a liquid form like Just Eggs, it’s like a real physical egg. It’s runny. It tastes the same. It smells the same. The texture is very similar. And you can mix it into your fried rice or your shakshukas, whatever, however you like it, right. And all of this is cultivated and nurtured in a lab in Singapore. And you look at the impact of this, right.
The reason these data points are important is because Singapore, I believe, consumes about 2 billion eggs a year for a population of just five and a half million, right? And off that about 5%, I believe, gets dumped into the ocean because they don’t meet the quality threshold. So already there is a decent amount of wastage. B) a lot of eggs are being consumed, right. And again, we know for certain cases, unless the eggs have are of high quality, they can lead to hormonal issues or health issues. These are natural plant-based so there is no hormones, there is no other substance, right? So you have a lot of positive impacts coming out of this.
So to zoom out, there are a bunch of startups from these markets that are growing zero to one to solve specific energy, healthcare, sustainability-related problems. The other is, which is to be more important, is the larger corporations and the investment community. We obviously have, all of us may have come across the news that BlackRock had issued the letter saying they’re going to ensure that a decent amount of their portfolio have budgets of people allocated for ESG initiatives. We worked with a lot of banks, insurance that have made similar commitments in the coming decade about reducing carbon footprint. I’m very proud to come from Dentsu and Dentsu globally has made this, a public-listed company, they’ve made an announcement that we’re going to basically go net zero.
So I think it’s important that whilst the startups and the investment community look at it from a zero to one perspective, but more than that, to be honest, we need the larger Fortune 1000 companies and their investors questioning them and literally institutionalizing the process and awareness of the ESG element, not as a checkbox, but to genuinely look at this because I personally believe there is economic opportunity here. It’s not just about doing good for the world as a charitable act. I mean, that’s good enough in its own right. It’s the world, the only planet that we live in, but there is massive economic opportunity here for us and the future generations.
Luke: That same ethical investing lens really makes sense as a public markets investor too. If you really want to build conviction in a company, there’s nothing like being passionate about their mission and feeling that your dollars are doing good in the world, as well as helping your own portfolio and your family. Well, I wonder if we could twist the conversation a little bit towards some of the more technical things and ways of operating as a venture investor.
Evaluating VC investments
Luke: Albert and I do have a number of small-cap investments ourselves. We do treat them differently and look at them differently to large-cap stocks. Often we would give a small-cap much more leeway, particularly around financials, if they’re in growth mode, maybe pre-revenues. As a VC investor, what kind of things are you looking for in a potential investment? Is it very different to an early-stage stock?
Prantik: Yeah, it is because I think even if you’re looking at small-cap, the fact that they are listed means they already are of a particular threshold and size. They may be small in relative terms but they are big enough to be listed on a market. And the very fact that they’re listed on a market, which means they’re regulated, there are reporting requirements, so on and so forth. As a venture investor, I typically look at pre-series A or pre-seed stage companies, and usually, 90% of my portfolio is in post-revenues, so I haven’t really invested in just the idea or just a PowerPoint presentation. Most of them are very much in some sort of a revenue scaling segment.
I look at a bunch of factors when I look at companies in Southeast Asia, right? Because again, the early-stage market, it’s hot, but it’s relatively, compared to the west, it’s still nascent, so to speak. So I started by looking at the problem that they’re trying to solve. How large is the problem set or how large is the problem size from a market size perspective? So I would sit with the founders to understand that, how critical or important or large is the problem.
Next, I’ll kind of zoom into from that market what’s the addressable space, because obviously, the market could be a $10 billion market, but maybe they’re only looking at solving for 5% of that market. And that’s fine, at least you know where things stand. So once I analyze that, if that problem is close to my heart, if I have a good conviction about that market size, that’s a check, then I look at what’s, in my opinion, what I call the founder problem fit. So there are good founders, but I think whilst the world talks a lot about product-market fit, I think we need to zoom out and look at the founder problem fit before PMF. And that’s simply because I could be a great founder, but I may not be a great founder for all industries or all problem sets. So to me, it’s important to just make an assessment that if this is the founder or the founding team, how passionate is he or she, or how credible or how capable is he or she for that specific problem? So that’s the next bit.
The third is to really look at the founding team dynamics because again, generally, I would like it. Again, I’ve come from a background where we were two or three founders at most points in time. It has to have a co-founder because it’s just too much of a risk or too much load on just one person, especially at that early stage. So I look at what the founding composition is. From my experience, what I really value is complementary skillsets but aligned values. Also what matters to me is the underlying equity structure and the vision of that founding team. Because for example, if the structure is 90/10, one founder has 90, the other has 10, it doesn’t seem very balanced, right?
The second founder may not have too much skin in the game. Also, I would want to know their perspective on key staff. I’m a big believer that if you’re going to be growing this venture for the next 7, 10, 15, 20 years. You need to have good staff, good people, rallying around you. And I think that’s where to me what matters is the ESOPs. There are many founders, unfortunately, in this part of the world who don’t understand the ESOP game well. They want to be very controlling. They don’t want to be very open with ESOPs. To me, that’s a red flag. I rather that they at least carve out anywhere between five to 10% to begin with, just to ensure that there’s a pool to incentivize good staff.
Luke: There’s a term I’m not familiar with. Could you bring down ESOPs for us?
Prantik: Yeah, so ESOPs is basically options, employee stock options. You know, if I’m an early-stage employee and, let’s say I’ve left Google and I’ve joined you, you may not be able to afford my salary, but you give me some stock options to execute on. Of course, they come with caveats like you’ve got to stay for, let’s say minimum three to four years, or there are certain terms and conditions. And in the West, this is well institutionalized, but in this part of the world, it’s just about beginning to happen. So that founder mentality matters a lot.
And the next is of course, you know, taking a look at the product, taking a look at the product-market fit, which one can judge by not just revenue, but the quality of the revenue. I’d rather invest in a company which has just two clients but there is recurring revenue than clients but none of them have repurchased from them. So I’m looking at small revenue but stickiness in revenue. I’m looking at qualitative metrics like net promoter score. That just kind of gives you an indication that whatever little that they’re doing, the customer is happy and they’re coming back again.
Of course, at that stage, I’m not keen and I’m not looking at profits because most product companies would need a decent amount of runway before they can turn profitable. But I think these four or five elements are quite close to my heart when I look at an early-stage company. Of course, I have a bit of bias towards serial entrepreneurs, people who have done this before. Not to say that young first-timers can’t do it, but I think I do value experience. If someone’s done this before once or twice, they perhaps would not repeat the same mistake. They perhaps have a decent network from their corporate career or from their previous startup, and that might just make ramping up easier.
And the last thing, I have a philosophy at this is as they kind of scale, I look at a 3R philosophy. Can the founding team raise capital, get the race for growth and get the remove competition. Because to me, if this company has to scale up, that you could be a good business, but that does not necessarily make you a good VC investible business, right? So for example, Happy Marketer, the services company that I ran, a very healthy business but profit margins anywhere between 35 to 50%. Pretty good, happy as a founder, but does that necessarily make us a good VC investible business? Not really because we’re not a product company. Our growth is a function of people, right, and that’s limited.
So for a VC investible business, the mindset has to be scale and scale quickly, in a structured manner, of course, in a predictable structured manner. And that’s where the skill sets of being able to raise capital, race for growth, and remove competition comes in very handy.
Luke: I guess when you are invested in VC, you’re always looking ahead to some sort of exit, whether that’s the company to grow and scale so quickly, it becomes public or for it to have such a great product, that it’s an acquisition target. You get stuck as a venture capital investment if you’ve got a really good, healthy, medium-sized business that generates revenues but it never gets to that breakout point.
Prantik: Yeah, that’s a good one. So again, like I said, I probably wear two hats. One is an individual angel investor and the other is as a limited partner in existing VCs. I’ll maybe share my perspective on both. As an angel investor, yes, there are some companies who, to be honest, if I draw a bell curve, there are companies that may eventually not succeed. They might just die a natural death. That’s the part of the portfolio. Then there will be companies that are not rocket ships, but they do are doing decently. They’re probably going to give us some dividends time to time, and we might have an okay exit, maybe, if lucky, between two to three X over some period of time. And that’s fine.
And then you’re obviously rooting for those which could hopefully give you anywhere between five to 10 X. So, yeah, you’re right. It’s a portfolio. Hence anyone who’s looking to get into angel investing, I would say, give yourself time, build your conviction, but use time and your knowledge and conviction to grow a portfolio of at least 10 to 15 companies because no matter how great a company may seem or a founder may seem, the odds are always stacked against them. As they say, only 10% of companies have a very good exit. So that’s from an angel investor perspective. From VCs, which typically bulk of their capital is institutional money, I think the difference or the good thing is that their contracts are structured such that the downside is protected very well. The contracts are way more investor-friendly and then generally use a portfolio approach as well, but they’re generally rooting for the rocket ships, right? Which means typically they say that in a fund if you have, let’s say 20 companies, chances are three or four companies will pay back the fund and the rest, whatever comes in as bonus because they are playing a long game. A VC lifecycle could be anywhere between seven to 12 years. So in that seven to 12 years, their goal is to hopefully return three to five X of the total capital raise back to their LPs. So they are not really interested in dividends or small returns. They rather fight and push hard to get those one or two mega exits, because that’ll do the trick for them.
Diversification
Albert: I don’t know if you spend much time on Twitter, Prantik, but we do, probably too much time actually, and on Twitter, there seems to be a debate between concentration and diversification when it comes to stock portfolios. We at Telescope Investing firmly sit in the diversification camp. I think one reason that we do that is that you want to increase the chances of catching that breakout stock like a Netflix or Shopify or Tesla. And I get the feeling that because of the high-risk nature of VC investing, that is how VC works as well. Is that the case?
Prantik: So yeah, there is diversification in every world, the question is how diverse is your diversification? For example, one can diversify by geography, size of company. Even if I look at my own portfolio, the whole portfolio is diversified fundamentally across cash, bonds, fixed income, public markets. In private markets, further reclassified into pre IPO, late-stage or early-stage ventures, right? So by definition that are about six or seven baskets, but I think diversification in terms of asset classes, yes. Although, even there, to me it’s not an equal split. I’m probably more bullish at this juncture towards the private side and the public side, very less on bonds and fixed income. So I’m more of a, someone who’s looking at holding specific companies. Like I’ve not done really too many mutual funds or ETFs. I’d rather have a conviction on an industry and a few companies and diversify within that. So what I’m trying to get at is yes, asset class diversification to me is important, but I think the common thread across all of that is I have invested most of it within those asset classes in two or three industries which are being disrupted using technology.
So if you look at my portfolio, if you open the hood across all asset classes, what you will see is technology as a common spine, either across education, healthcare, or finance. So to me, I think, yes, everyone has their own reasons and own flavor of diversification, but I don’t think it’s necessarily to diversify because, you know, I forget whose quote that was probably, you know, I realized that every time I forget a quote of the finance world, I tend to attribute it to Warren Buffett, but that’s something that I may be right in this case, is that diversification for the sake of diversification is a sign of lack of intelligence. You’re basically spraying and praying.
And nothing wrong with it, then in that case, you hold the market. Just buy S&P 500 and hold. Nothing wrong with it, but I think if you want to really get into it, I would rather that everyone has a point of view or a conviction. And of course, it can change periodically. Hopefully, not too short-term but every five, seven years, you want to back a trend that you believe in.
So, yeah, that’s my take on diversification. Not really randomized diversification, but choose two or three industries and then maybe diversify through asset class.
Albert: How many VC investments would you normally make, say in a year? And what is considered a good hit rate?
Prantik: Yeah, so I must qualify, I’m relatively new in the game. I’ve only started doing this since my own exit about two and a half years ago. And I think in the last two and a half years, my angel investment portfolio, I have about 30-odd investments. From VCs, I have backed four VCs in the region, one in health tech, one in alternate protein, as I mentioned, one is consumer web of the other B2B SaaS. And each of the VCs, they typically in each fund, they would have anywhere between 15 to 20 companies. But the VC is, is basically I’m backing the VC. It’s a blind pool as they are then investing it in the industries or the markets that they are keen. But from an angel investment perspective, my goal was to get to about 30, 35. I’m kind of there and I think by the end of the year, I’ll close my portfolio. And then I need to give them time because you know, this is rather early-stage. So my general thesis is I want to hold for three to five years. Of course, if any of the founders want to offer us exits, I’ll consider it because, again, truth be told I haven’t had any exit thus far. It’s still early. So just to feel comfortable if I just started getting back some money back, happy to consider those. But I don’t know about per year, but I think if we’re looking to build a portfolio, 15 to 20 startups in two or three industries that you’re comfortable in, you understand, have a liking for, in one or two geographies. I think is a good basket to work on.
Luke: I’ve been quite lucky myself, I think. My first foray into venture capital investing exited within about two years. And then I’ve got another three live deals at the moment and we’ve got one that’s doing a very slow exit at the moment. So I think unexpecting some reversion to the mean at some point soon. I’m sure my deal sizes are far smaller than your own.
Prantik: No, that’s fantastic. At any point in time, I think, as a venture investor, when you actually start seeing money coming back to the bank, I think it’s exciting. I mean, if I look at my portfolio, two moments that gave me financial joy, one was when my late-stage investment into Palantir came back with pretty good returns. I was overjoyed because that was the first time I enjoyed an exit, and thereafter, the pre-IPO markets that I’ve had decent exits with, companies like UiPath or Blend Labs. But I think of the angel investments, I’m still waiting.
Of course, just this year I started dabbling into Bitcoin as well, and I was lucky. Again, it’s a category that I’m still trying to figure out. I wasn’t definitely one of the early backers. I’ve only started this year. But even within this year, things have doubled, and I’ve seen cash come back to my account which is always a good feeling.
Luke: It’s good. Nothing like getting a bit of skin in the game just to build motivation and build your interest in understanding a sector better. Yeah, I like it.
Prantik: I think you make a very good point that it’s not just about financial returns. The two other reasons why I do this, one is learning. There is no better way to learn this than putting in your own money, no amount of shadow practice, no amount of books can ever give you that sentiment or the fear of losing money. The lessons come from there, isn’t it. And also the network that you build. I mean, I’ve been really fortunate that through this, the kind of network one gets to build with founders, VCs, other investors. The very fact that we are doing this probably stems from that as well, and I think that’s really fortunate to be in that position to have that opportunity.
Crowdfunding
Albert: I think one reason why many investors don’t consider VC investing is because they don’t believe that having the funds to do that. But I’ve seen some crowdfunding sites that allow people to invest smaller amounts of money. What do you think of these?
Prantik: No, you’re right. I think in the last three, four years, it’s become supremely accessible. I mean, be it the likes of AngelList, be it Wefunder and their equivalents in different parts of the market. In fact, even pre-IPO late-stage deals through websites like EquityZen, SharePost, Forge. You can start anywhere between 5k and above, right? And that suddenly makes it accessible to a common normal person just to say, “Hey, you know what? I have a little bit of savings. Can I start putting some money every few months?” In fact, I started seeing that in Singapore and Southeast Asia where, yes, you may not be able to become a limited partner in a big VC because there you might need 200 to $250,000, or depending on the regulation, you’ve got to be an accredited investor. So that’s different, but you’re absolutely right with these crowdfunding sites. That’s one trend that I’ve seen.
The other is unofficial syndicates. I personally am just part of literally 10 WhatsApp groups where literally a bunch of friends have come together saying let’s pool in money, let’s do a deal together. So suddenly 10 friends put in 5k, you can certainly pull in about decent 50K check and be one of the early-stage backers. So yeah, very, very accessible of late.
Luke: Suppose one of the disadvantages of coming in with a smaller ticket size or perhaps through a crowdfunding opportunity is you might if you’re lucky, get access to the founders for a meeting, but not really an enduring relationship. And certainly, you have no influence or the opportunity to get a board seat. So when you’re pooling your investible funds with friends, does that give you a bit more leverage, do you think, in a relationship with the company?
Prantik: Yes, it did. I think what really helps is if you can create that syndicate to pool in money so that it gives you a little bit of negotiating part, and then typically, go into a special purpose vehicle, a SPV, and you’ll nominate someone as your representative and he or she becomes a potential board member or advisor.
And again, the idea is not really control. The idea is to have purview, visibility, and be a sounding board for the founder. Let’s face it, venture investing, angel investing is a very risky game. So I think it’s only right that there is some amount of scrutiny, if you will, on how your money is being deployed.
SPACs
Luke: So should we come up the maturity curve a little bit and move away from VC and a bit closer to what happens as a company starts to get to the public phase of its lifecycle. I suppose over the last 18 months, we’ve seen the rise and fall of SPACs as one of the ways of getting access to the public market. And there are just a ton of SPAC filings right now. How should a public market investor think about SPACs and whether something is a good opportunity, do you think
Prantik: Yeah, SPACs have been around for a while, but they’ve suddenly come into vogue in the last couple of years. Legendary investors like Chamath have made it a very, very popular vehicle. It’s part of popular folklore right now. In Southeast Asia, they’re playing a pretty critical role because one thing that people had been questioning the Southeast Asian startup ecosystem is where are the sizeable exits?
But today, if you look at Grab, which is the Uber equivalent of the entire region, if you look at PropertyGuru, which is like a Zillow equivalent in this part of the world, they’re all exiting via SPACs. So again, it’s fairly new as far as I’m concerned. Honestly, a SPAC is nothing but a vehicle to which a company goes public in an easier way. It’s a blank-check vehicle that’s raising money and then absorbing different startups.
To me, I think I would look at it two ways. If I’m a new investor, I would firstly scrutinize and understand the people behind it, their credibility. So for example, in this part of the world, the SPAC that PropertyGuru is exiting through is backed by Richard Lee from Hong Kong and Peter Thiel. Now, of course, that inspires confidence because these are two legendary people, very well networked. Of course, I’m not saying that successful people can’t fail. All I’m saying is the probability of success hopefully is higher given their backgrounds. I will also look at their documents and look at their thesis because many of these SPACs, yes, it’s a blind pool, but some of them also have sidecar opportunities to look at specific opportunities.
You also got to be very careful about the terms and conditions in terms of which markets, what are the options. Assuming they’re unable to acquire companies, will that money be in an escrow? Will that money be returned? So I think it’s important to be aware of those details. And at the same time, I think eventually, if possible, if you get a chance to have conversations with SPAC owners, it’s good to get a sense of which companies are they going after and then study those industry sectors and, if possible, study those underlying assets, I think we want to avoid a situation like the subprime, where you’re blindly investing into a derivative tools, which you don’t understand too much about and you have no idea what the underlying assets are. Hence, as I mentioned earlier, I’m still a believer in backing specific companies and specific assets more than a group, a collective, just for the sake of diversification or just for sake of access. My conviction is more towards a company, an industry, a thesis rather than just putting in money into a blind pool.
Albert: Yeah, I get the feeling that there’s just too much hype around SPACs or just a word SPACs, and I believe just this week, the Hong Kong government has announced that they are evaluating the use of SPACs in Hong Kong as well. I think the danger is that people will just invest in them without actually knowing what they are investing in and pay these high valuations for things that they don’t know about.
Prantik: Well, you’re right. I think any new shiny object, that is always that hype. I’m not really jumping around on SPACs, right. There was one opportunity, but I’m just playing the waiting game simply because of nothing else but I want to spend time observing what happens. Also just reading and learning. I am new to it as well. But I don’t want to just jump into it because a friend or a neighbor is doing it. To me, that wouldn’t be doing it justice.
Private companies
Luke: One interesting thing we do see in the markets is there seem to be a growing number of companies with an enormous private valuation. For example, Stripe I think nearly a hundred billion dollars. You mentioned Elon’s company SpaceX earlier, another huge private valuation. What do you think the reasons are for this? Why are some founders, reticent or a bit slower perhaps in coming to the public market?
Prantik: Simply because in one line there is a lot of money in the private markets today. For all the reasons that you just mentioned, retail investors, do they have cash? The big countries are minting cash. That money is coming into our account through quantitative easing policies, low rates. So today, if there’s a lot of cash, that cash is bound to find ways into various opportunities. And the other thing that we discussed is access to early-stage investments. A) it has become a hot topic. B) it’s become accessible. So suddenly there’s a lot of excitement because every day you open the papers, there is a lot of conversations about soonicorns, unicorns, big exits. So it’s become part of popular media, and it’s become financially accessible.
So if you look at these functions, if I’m a founder, that is very good reason to remain private because being a public-listed company is a tough job. You are constantly scrutinized. If you look at the public markets, it doesn’t necessarily always behave rationally. You could be growing your revenues, but it’s so much about narrative and sentiment, and your stock could be crashing because of reasons beyond your control. And if you, as a CEO or a founder there, if your compensation is pegged to stock price, that’s quite risky. So to me, you will see more and more companies remain private for longer. Till the time there is private capital out there, which I think we are still in that phase where countries, despite of crises like pandemics or other financial crises, will come in pumping cash and pumping capital. And I think till we are in that loop, till there is easy money in the markets, I think this is a trend that’s going to continue.
Albert: One effect of companies staying private longer and getting larger and larger valuations is that they get more well-known before becoming public, and that makes them more sought after at IPO. And because of this interest in the IPO, the stocks are priced quite highly. Do you think that retail investors are getting a bad deal with most IPOs?
Prantik: Yeah, this is a very, very good debate. Two examples that come to mind recently is, if I look at the Indian market, the two latest and the largest IPOs in India. There’s one tech company called Zomato, which is your Uber Eats or your DoorDash. And then there is Paytm, which is Alipay-backed India’s largest fintech player. So if you look at them, they’re going to be the largest IPOs of the country. Each of them are extremely high loss-making entities, and that’s paradoxical, right? These companies are going all guns blazing on the public markets. If one has to go by Zomato, Zomato had a fantastic upside when they went public. And I think that also shows the exuberance, the irrationality, and the free cash available in the market, which does not necessarily reward profit-making companies.
That narrative has also shifted into the public markets that we are looking for fast growth, we are looking for these new age tech toys, that’s going to grow very rapidly and make us money in the future. But once they are public and my hypothesis is you can’t keep playing that game for too long, because at some point in time, the game has to stop. The buck has to stop somewhere. At some point, you’ve got to turn profitable because otherwise, how will you sustain, you’re no more a private company. So I think that narrative-driven privatization and private growth, yes, works very well at the early-stage private journey. It will probably work quite well when these guys list. But if you look at the U S markets, if you look at Uber, if you look at many of these new-age tech companies that went public, I think very soon the lost sheen, right? Because A) at some point you got to make profit, B) time is a great leveler, you no more remain the new shiny toy. For every Uber, there was a Lyft, and for every Lyft, there was an Affirm, and that’s the nature of the industry we live at, or life in general. You’re not going to be young for too long. So I think, yes, probably companies will remain private for 10 to 12 years if they can, then find either strategic exits or SPACs or IPOs or private listings. And then they probably are buying themselves another three, four years compared to the usual IPO route for which they could stay private, get better valuations and then use that time to hopefully hire professional management, to turn these companies around.
Interesting opportunities
Luke: So you’ve given us a ton of names over the course of our last hour of the chat, Prantik, but could I ask a bit of a cheeky question? And you mentioned the next shiny toy. Who are the next shiny toy private companies that you’ve got an eye on that perhaps are coming to the public market over the next 12 months?
Prantik: Well, if I look at my own portfolio, I think the ones that I am backing are the two names that you mentioned, Stripe, SpaceX. I look at these two companies, right, and the valuations. Obviously hard to justify the valuations on an Excel sheet. If I look at SpaceX, I think literally this is an earth-shattering company. This could change the course of life on Earth and another planet. I am a backer of Musk than just SpaceX the company because here it comes one man, who is after a success at PayPal, he’s not looking at building another app that can make money transfer easier and another app that can help you get food cheaper or faster. He is fundamentally trying to use science to change the way. So even if that money goes down the drain, I’ll be happy that it was in the pursuit of something meaningful, hopefully, and earth-shattering.
Stripe, I’m a believer, not just because of anything else, but I just love the way they have built their business bit by bit. With a small piece of code, these two Irish brothers, they have captured pretty much most industries across the world today use Stripe as their preferred payment gateway. There, I fundamentally believe, I don’t know about the valuation, but I fundamentally believe that it’s a strong, good business, and I think it’s going to be a trillion-dollar company at some point in time. It’ll follow the parts of the Apples and Googles and the Facebooks of the world. I definitely look at Stripe and SpaceX as two big bets in my portfolio.
I think the other one, probably not at the same tier but the one that recently went public, I think UiPath, that’s done well. I think they’re a market leader in what they do. The other two companies that I’m quite excited about, one has been around for about seven, eight years. It’s the space of sustainability. It’s called Apeel, A P E E L. It’s a scientific technology as the name suggests, it’s a peel. So it’s a thin film that’s transparent that’s applied on fruits and vegetables, that basically helps them last longer. And that reduces food wastage at a massive level. Of course, the roadmap has technologies to do x-rays of the fruit from within so that the farmer can make a judgment that this is a good apple, this is an average apple, this is a bad apple. So you throw the bad apple out, too bad, but you know what? I can use dynamic pricing to charge more for the high-quality apple. So the yield as well as the price increases, right? So from a sustainability perspective, I think Apeel is something I found very unique and I’m also quite bullish on Eat Just, they’ve been doing pretty well for a while. I think their liquid eggs have done well. They have now shifted base to Singapore as headquarters. They are Temasek-backed. That makes it closer to home and closer to heart. So yeah, I would probably put Stripe and SpaceX right up there and followed by UiPath, Apeel, and Eat Just.
Albert: Yeah. I read about Eat Just last year, and I believe they’re doing cultured chicken. Have they released that yet?
Prantik: In some markets, in some markets, they’re still testing it. Yes, but that’s right. That’s their road map as well. So after catering to the egg problem, that’s the next thing. So the Impossibles of the world are, I think, now looking at pork after doing really well with beef. And now Eat Just is looking at chicken.
Albert: Yeah, I’m really keen to try that cultured chicken.
Prantik: You should. In fact, in Singapore, there are a couple of companies. One’s called Tindle. Their cultured chicken is really, really good. I’ve had it in the form of schnitzels, pretty decent. There are a bunch of companies who want to solve for cultured seafood. There’s a company called Shiok Meat. It’ll take a while before it is commercially viable, maybe the next five, six years. But yeah, I generally see that my kid, by the time he grows up, this is going to be a very, very viable tasty and a healthy option.
Luke: There just has to be a day when we look back at eating animals and animal products in the same way as we used to look back at smoking or not wearing a seat belt. It will seem a barbaric behavior I think. That’s certainly the trajectory in society.
Prantik: Absolutely. I mean, I was just reading an Economist article yesterday and I think the answer has been on the wall for a while, but it beautifully captured that compared to various other things such as coal, etc., consumption of beef by far is the largest contributor to the environmental challenges that we have. So I think the writing’s on the wall. It’s really about technology making it commercially viable and of course, human perception. So I think, our generation might take a bit of a while because we’re all creatures of habit, but I think our kids’ generation, they’ll grow up with it as you said. To them, it would be a no-brainer.
Luke: Well, Albert has just completed a nutrition degree and so he’s been lecturing all of our friends about our bad nutrition habits over the years. Well now, he’s able to do that from an accredited position so we’ll pay a bit more attention.
Albert: Not all our friends, Luke, just you.
Prantik: One mouth at a time. That’s all it takes!
SpaceX
Albert: I just want to say, Prantik, that I’m really glad that you mentioned SpaceX because SpaceX is Luke’s favorite company, so when you talked about it, at least we don’t have to hear it from him again.
Prantik: I love watching each of their launches, and in fact, you spoke about Twitter. I’m a big fan of the man on Twitter, whether he’s talking space or he’s talking crypto or whatever else. I mean, he’s just a fascinating mind to just follow. What a revolutionary.
Luke: I planning to head out to the east coast of the US as soon as the border’s open. I’d love to see a launch and landing live. It looks like such a vision of the future.
Prantik: Absolutely.
Luke: And as you said at the top of the episodes, right? If you can make money at the same time as doing good for society, then that’s win-win. And I personally believe that SpaceX are likely to be the world’s first $10 trillion company.
Prantik: Yeah, I would want a second that, and I think it’s just, when you look back, hopefully, 20 years later, you want to be proud that look, I backed a company. I’m sure it’s minuscule, but I think the fact that someone’s trying to figure out Hyperloop, someone’s trying to figure out Starlink, someone’s trying to figure out launches. I mean, the least we can do is be curious and support that because there are very few such minds who do this in the private sector. Of course, the NASAs of the world do it, but that’s at a government level. They might have different agendas. What I love about Musk’s vision is his vision has global impact, right? I mean, I’m seeing his conversations about Hyperloops in Asia and India, where traffic… you know, in Asia, so many metropolitan cities suffer from traffic problems. And if Hyperloop actually becomes a reality, this could have a huge impact for lives, not just within the American soil but pretty much different parts of the world.
Where to find Prantik
Albert: Well, Prantik, that was fascinating. That’s a really interesting chat. And just to close off, if listeners want to find out more about you, where could they find you online?
Prantik: The easiest way is LinkedIn. So if you can just look out for Prantik Mazumdar, search for Prantik Mazumdar on LinkedIn and you will find me, drop me a private message. Generally, probably will respond within a day or two. And yeah, that’s the easiest way to connect, and then of course, if the conversation goes deeper, we could connect on WhatsApp and email.
Luke: Fantastic. I’ve really enjoyed today’s conversation. One of our best interviews.
Prantik: It’s a privilege. It’s a pleasure. Thank you so much. It’s always great to kind of just bounce off ideas and share perspectives from different parts of the world. And it’s just great to learn. I had no idea that you’re doing something in the nutrition field and I had no idea that there’s another interested soul in SpaceX. So really good to connect and thank you for the conversation.
Luke: We look forward to continuing the conversation in the future perhaps.
Prantik: Absolutely, Luke and Albert, wish you guys all the best and likewise to all your audiences. Stay invested. I think this is a great time to be, not just a founder, but also an investor, but yeah, look out for interesting opportunities. As Luke said, not just for commercial reasons, but something that could be a force for good and force for growth.
Quote
Albert: And, Luke, I believe you have a quote for us.
Luke: I do, we normally round out our episode with a quote and perhaps this one brings us a little bit more back to earth. It’s Peter Thiel reflecting on portfolio construction, and I noted he said several years ago, “The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the rest of the fund combined.”
Prantik: Phenomenal. I don’t if you guys have read the book “Contrarian”. I’m waiting to get my hands on it. It’s a biography on Peter Thiel and as the title suggests, it’s just phenomenal. And I had no idea that the man was a lawyer, a Wall Street investor, a philosopher. He did the whole PayPal thing and then, of course, he has his own fund and he’s backed companies like Facebook, Palantir, etc. He’s gone into politics as well. Just like Musk, I think to me, what’s fascinating, it’s these polymaths who are not just one-trick ponies, they’re not just trying to solve one problem, but they have a perspective on life at large. So yeah, that’s a lovely quote indeed.
Wrap-up
Albert: Well, that’s all for this week. Thanks for listening.
Luke: If there’s a future topic you’d like us to cover, you can message us on Twitter. I’m @LukeTelescope.
Albert: And I’m @AlbertTelescope, or you can email us at feedback@telescopeinvesting.com.
Luke: As we said at the top of the show, one of the best ways you can show support for the podcast is to leave us a review on Apple Podcasts.
Albert: And if you have a friend who you think would also get value from Telescope Investing, we’d love it if you could take a quick moment now and spread the word and send them a link. Thanks, Luke, and thank you, Prantik.
Prantik: Thanks a lot, guys. Have a great weekend ahead.
Luke: Thanks, Prantik.
