Sandeep Patil of QED Investors joins Nick to discuss From India to IPO: Cracking the Code of Cross-Border FinTech Investments, Regulation, and Market Dynamics. In this episode we cover:
- Investment Strategies in Asia and Australia, with a Focus on FinTech Companies
- Challenges of Starting a Successful Tech Company in India
- FinTech in India, Market Differences and Data Privacy Concerns
- FinTech Trends, Embedded Finance, Digital Infrastructure, and Open Banking
- Benefits of Regulation in Fintech, Importance of Understanding Regulatory Agenda, and IPO Considerations for Indian Companies
- Indian Tech Companies’ Listing Preferences and NASDAQ vs. Indian exchanges
- India’s Startup Ecosystem, Growth Potential, Tailwinds, and Challenges
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0:18
Sandeep Patil joins us today from Menlo Park, California. He’s a Partner and Head of Asia at QED Investors, a growth-stage venture firm investing in FinTech companies. With over two decades of experience, Sandeep has led major growth strategies and advised companies globally, including roles at Capital One, Actis Capital, McKinsey, Flipkart, and Truecaller… and he has invested in standout tech companies, including OneCard, Jupiter, Refyne, and Upswing. Sandeep, welcome to the show!
0:49
Thank you for having me. It’s great to be here.
0:51
It’s a pleasure, sir. So tell us a bit about your backstory and your path to becoming a venture capitalist. Sure.
0:57
So I come from a small town in India. It’s called ujain in India, a town of half a million qualifies as a small town. So that’s a small town we are talking about. I went to IIT Bombay, which is one of the premier engineering schools in India, Capital One back in 99 had a plan to recruit engineers from India to come and work on the business side here in the US. So as part of that lucky cohort to move straight to us after undergrad and work on financial services in the US. So worked in Virginia for five years, then moved to London. The plan was either to sort of decide and come back to us or move back to India. Strangely, I never made the decision. So I ended up living in London for 10 years, first with Capital One, then I was a junior partner at McKinsey and Company. Oh. And before joining McKinsey, I worked with actus capital, which is a growth equity fund based out of London. Then McKinsey for seven years. Then I spent five years in India working with Flipkart, where I ran part of their e commerce BNL. Then was group head of strategy when we raised the $4 billion round and eventually sold ourselves to Walmart. And then I was professional CEO at true collar, which went IPO on NASDAQ in 2021 so roughly two decades in financial services and consumer technology. And then the folks at Capital One came back calling Nigel. Had started QED back in 2007 as a FinTech focused venture capital fund, and they were thinking of expanding east, east of London at that time. So so he reached out. Would if I would be interested. I joined them in 2020 i here. I had our investments into Asia. So that’s Asia X China. So a large chunk of our investments are focused in India. We have made couple of investments in Indonesia, and we are just in the process of closing an investment in Singapore.
2:48
So anything in Korea, anything in Japan, we
2:52
have started looking at companies in Japan. There are a couple of prospects we are evaluating. We are looking at companies in Australia as well. So the plan is to go further and look our new country strategy is usually about going deep before going broad. So we and when I joined in 2020 we entered India, and we made seven investments before we thought of the next country to expand into. Then we are made couple in Indonesia, and we are waiting for those to sort of fructify before we go deeper into the country. And now we are looking for the next and the following countries to to get into. So we go deep into the country to really understand the ecosystem before we expand laterally.
3:29
Perfect. Give me a sense for how you think about team construction and sort of boots on the ground with investors in these regions, like, Do you need a physical presence in Australia before you make an investment there,
3:41
I would argue it’s the other way around. I think you want to build a presence in the market before you put boots on the ground. Look, we are FinTech focused. We only focus on one vertical right. So if you’re trying to source innovation across the spectrum from a market, then perhaps you would want to put boots on ground first, right? But in FinTech when the number of prospects and the number of companies is sure. More importantly, I think we have a very strong brand in these markets. In India, we were a known name before we went in, partly because of Capital One legacy, partly because of the good work that QED has done in the US. So any founder building in India who’s interested in getting a FinTech focused founder and fintech focus we see on the cap table, would be keen to have QED on the cap table. So, so having that kind of air cover right, having the brand and marketing cover, has allowed us to go in into markets without building boots on the ground. And once you have meaningful presence in the market, then you can put boots on the ground, who then have an anchor point, right? A set of portfolio companies, a set of founders they can associate with and then build into the ecosystem around that, that core, right? That’s how we have thought about it. I think also it’s a bit of a fun philosophy that we want to be quite founder or quite partner oriented in terms. Of how we think about deals, right? So even now, when we source deals and we are evaluating a deal, a partner is expected to spend meaningful time with the pipeline. And so in some ways, if the partner is not able to spend meaningful time with the company, then that itself is default prioritization, that this deal is probably not very interesting to us, right? So we are quite partner led in our approach at investing. So
5:23
the sector, the sector orientation is, is pretty focused FinTech, but we haven’t had Nigel on the program yet. We had frank recently from QED. The stage mandate is broad, right? You can enter as early as seed and you can invest at growth stages, in some cases, how? How is that framing for your international and Asia markets? Are you investing super early? You know? What is the stage orientation?
5:49
Yeah, so, being the fund, we are given the fund size and the mandate, I think we can invest very early. So we write even precede checks of few $100,000 and we can grow all the way to growth rounds, which can go up to $50 million right? The way we have played growth market, so India, Indonesia, etc, is a mix and variation based on the local dynamics, right? So I would say series A is our, is our heart, because we, we are really looking for a few proof points on the chart, in terms of product market fit, in terms of unit economics, in terms of ability of the company to scale exponentially before we invest. So series A investments make the most sense to us. That’s where we have entered most of our investments. But in India, for example, we found gaps in the market at Series B and CDC stage. So we actually went into companies in a very high conviction manner, if I may add, at Series B stage, and then let CDC participated even in series D investments. Conversely, there were some ideas where we had very high conviction, either in the idea itself, so on which access is a company in India called refine, where we led the seed round of the company, or we had very high conviction in founders, another company called upswing, where we knew we had very high conviction in the founders and what they were building. And so we were quite comfortable taking on seed risk in those companies, and we went in with seed checks. So we have played it to our strength in terms of breadth of opportunities we want to capture, and then, based on the company, wherever the best opportunities are from an investor concentration perspective and
7:26
Sandeep, how do you contrast FinTech companies in India, in Asia, versus, you know, what you’re seeing here in the States?
7:33
Good question. So look, I think there are two, two big differences that come about, right? Let me give you a real example, right? We as part of Flipkart for some time. For the uninitiated, Flipkart is Amazon of India. It’s the biggest e commerce company in India. Now, when Amazon was started here in the US, back in 90s, I’m talking about it could still ride on Visa and MasterCard as payment rails and PayPal, and on the other side, it could use US Postal Service, other logistics providers, to manage delivery, right? So in some sense, Amazon was really solving the retail problem with technology, and then expanded into other areas, and now they have everything under the sun, right? Flipkart did not have that luxury, right? When Flipkart was started, they had to not only start an E commerce marketplace, but we had to eventually build out India’s largest logistics company. It’s called E card. It’s a captive company under Flipkart. It’s the biggest logistics company in India to manage door to door deliveries, and we had to introduce a new payment mechanism called Cash on Delivery, because credit cards are not as were not as prevalent in India back then. So I think that illustrates the two fundamental points, right? One, the breadth of problems that you need to solve in doing a startup in India is much larger. Right? Because if you want to really give a distinctive customer experience, then you would have to distinguish yourself on a bunch of different dimensions of the service or the product that you’re offering, right? If you just innovate on a focused area, then things might be so broken in other aspects of that product that the customer may not even observe the better proposition that you’re offering, right? So the innovation has to be brought and the founder and the founding team have to be, have to have the breadth of experience to solve those broad set of problems, right? At least make a meaningful dent on lot of different dimensions, and then be really differentiated on one or two very So, so the overall offering is differentiated, and you can win in the marketplace. So that’s one big part of it. I think the second part of it comes to saturation, right? See, time is classically defined as for a number of users times revenues you can have per user, right? So in us, when you have large enough time, it usually means that you have a smaller number of users but far higher revenue per user, right? And that’s how you can build a very deep niche. Initially, and then eventually, you might still choose to expand it out, or you can stay focused on that niche. But if you conquer one niche that’s a winning company, you’re done, right? You at least have passed the first milestone. So as to say, in being a multi billion Corporation, public listing all the good stuff, not so in India, right? In India, if you’re going for a big time, it usually will have a massive component of very large number of users, because revenue per user will be lower depending on which segment you’re focused on. That might still be a good number, but you still need to tackle a very large number of users. And what this entails, then is the nature of company that you’re trying to build has to be different, because it distinctly has to be able to tackle a large number of customers, a large number of specialization requirement, customization requirements, from those users. It has to have the ability to handle complaints and collections and payments from a far larger number of user base, right down to the org, because your customer base is far more geographically spread or vertically spread across industries, and so we’ll have to service them in a lot of different ways. So those two things, I think, lead to very different types of companies, even if the problem statement may seem similar at the top of the house. Yeah,
11:14
you’ve talked about kind of the differences in product and breadth required in India. What about go to market? You know, how do you think about the differences in go to market in a place like India versus the states?
11:26
Yeah, go to market differs a lot as well. Look over last five, six years digital so mobile penetration India has really grown. 2016 17 onwards. India had a massive cost reduction in mobile data cost and that, and so mobile phones are everywhere, therefore it’s consumers are lot more accessible, but that also means that there’s a lot more noise when you’re trying to reach your customers, right? So go to market is complicated from that perspective, because you can’t just rely on digital channels, especially for something like FinTech, you would need a physical component, especially when it comes to things like collection, because you’ll need to be in the market. And market there being the particular cities or particular geographies that you want to tackle, your customers will tend to be dispersed, and so you’ll need need a hands on model to an extent to be able to reach those customers. Cost of advertising is much lower. So it allows you to spread more. And customer acquisition cost is lower for that reason. But ultimately, the revenue to CAC ratio is what really matters, right? Or LTV to CAC, whichever you want to look at it. And so from that perspective, efficiency might be still lower than what you might observe in us. So again, you need to be far more efficient in your dollar spent. And when it
12:41
comes to consumer data and privacy, my understanding is that, you know, India, everyone has sort of a data profile that the government is away aware of. And I imagine this is for tax reasons. And I mean, is there any pushback amongst the public in, you know, the access level that the government has to all of their transaction level information. Yeah.
13:04
So look, so digital revolution in India started with these things called, there was, it’s called jam Trinity, right? So it had an element of national identity. So India didn’t have social, social security number. So they created that kind of infrastructure. It’s called Aadhaar in India, right? Then the government had an objective of opening a bank account for every Indian. And so over last 10 or 15 years, they have opened somewhere between 600 to 700 million bank accounts to cover every Indian. Wow, right. So if you want to provide a benefit to an individual, you can drop money straight into their bank account. Now, right? It used to be said that in growing markets, India included, if you had $1 of developmental spend, probably 15 cents or 18 cents would end up in the end customers wallet. That used to be. That’s how inefficient development the spend was that this, I’m talking in 70s and 60s and 70s during that time. Now, that efficiency has gone up to, like high 80s, 90s, even. Right. So they build out this jam Trinity over last 15 or 20 years, which is why now government has a centralized database of every individual, but then that database can allows them to deliver digital services in a very bespoke manner for every individual, right? So from an end customer perspective, you actually see a lot of benefit from having the centralized database, a centralized source of information, as you said, it creates data protection challenges. So India has come up with a data protection bill. I think the new government is planning to revamp that as well, which will enhance customer protection on the core data set that sits so far in financial services, RBI, the central bank, right in India, Reserve Bank of India, which is the main regulator in financial services. It’s quite protective of customer data. So they have created sort of separation between, for example, the marketing entity versus the lending entity. When it comes to FinTech again, so the marketing entity, so Google or a face. Book cannot access any financial information, even if you are taking So, even if you are taking an apple card. In India, Apple, unless Apple is a registered financial services provider, won’t be able to see any of your transactions, right? That’s very different from what you observe here, right here, if you’re an apple card, then on your Apple app, you can see everything, right? That can’t be true in India, like there’ll be lots of caveats to making that happen. So there is degree of data protection, but a lot of it is guaranteed by the financial regulators and the data protection bills that have been passed. And so the country is improving. It’s not as restrictive as a GDPR in Europe, for example, right? With GDPR, you have to consent literally every website that you go to for the cookies that website might might send to your computer. It’s not that restrictive in India, but there is a higher degree of customer protection, for sure,
15:52
very good. So let’s talk FinTech here. QED authored a report called the Global FinTech 2024, report with BCG. What are the maybe just start off by telling us what the four major themes and drivers are that you believe will shape FinTech in the coming years. Yeah.
16:11
So look the report. So we co authored this report with BCG. This is the second edition of the report that we have done. The first edition was last year. Last year we focus more on the regional lens of what FinTech would entail in terms of the overall magnitude. The few main takeaways I would point out, right? If you look at the total revenues from financial services globally, FinTech still is a tiny 2% chunk out of it, right? So both in terms of growth for FinTech, in terms of growth of financial services revenues and transfer of share from traditional financial services to FinTech, this massive headroom for growth in financial services, right? I think that’s one kind of big theme that comes out. It came out last year as well. When we look at the numbers this year, that theme is even more emphasized depending on markets, that headroom is even more than certain markets. So APAC is still
17:05
what explains that Sandeep is that just a lack of digits digitization overall, that so explains, like such a small percentage of GDP comprised from FinTech, yes,
17:16
share of revenues from fintech. Look, I think the stock and flow effect, right? A lot of us still bank with the banks that we used to bank with 1015, 20 years ago, right? So a lot of stock has still not moved to digital providers. The second part of it is conversion of population, not just a conversion of population, but within population. The conversion of some services also is taking much longer. So for example, in wealth management, we see that converting customers to digital is much harder than, for example, in lending, right, if you were offered a mobile first credit card, you’re much more likely to take it up versus if your wealth is more than, let’s say, a million dollars in cash, in investable assets, then you would still want a human in loop. You’d want an advisor to tell you that, hey, these stocks and these indices are the best ones to go after, and you should stay away from those things, right? So there is a mindset aspect to it, but there’s also product nature aspect of it that is slowing down, that that is driving the traction. I won’t say slow traction. Every industry goes through this with adoption is slow. These are massive numbers, right? The total revenue of financial services would be like 10s of trillions of dollars. So even a small movement in this number is actually massive growth for FinTech as an industry. But I think it will take time, as any adoption does.
18:34
And what are some of those other major themes and drivers that are shaping fintech? Yeah, I
18:39
think, look, call out a couple of them. So embedded finance is one thing that we expect a lot of traction around. This is sort of financial services become, becoming ubiquitous, with a number of journeys, e commerce, retail being the primary one, but across across industries, and the flip is also happening where banks are becoming more and more participant into, for example, ad revenues and building out platforms that help them tap into non interest and more feel like feel like offerings. So that’s a big trend. We see digital infrastructure becoming a big driver. India and Brazil are primary examples where kind of central digital infrastructure has made a huge tent. The jury’s out on something like open banking, how effective it will be. Europe and UK were the first to drive open banking there. They haven’t had a significant impact, but juries out in growth markets such as India in Brazil, if open banking will have a larger impact, because there’s a massive chunk of population that still needs to be underwritten for lending, that still needs to be underwritten for insurance and open banking data sets can really drive a lot of difference in underwriting capabilities, just to take one one example. So we talk about different aspects of industry going across and where we feel there is a lot more room for optimism and growth. And the industry,
20:01
I have to imagine that incumbents will fiercely fight against open open banking. Yes, yeah,
20:09
that is true. That is true. Look, incumbent banks, in some ways, in the short term, at least, have the most to lose from open banking, right? If you’re banked with Chase for 30 years, they know your banking history going back, not just how much salary you have earned, how that has grown, what transactions you have conducted, how your spend has evolved, as your kids were born and then grew up and went to university and all of that stuff, right? And a FinTech or a challenger bank even would be very keen to grab that information, because that will help them cross sell better, right? So incumbent banks would would resist open banking pretty, pretty substantially. So I think there is a need for central push for open banking. That’s how Europe pushed it. So the regulators pushed open banking onto the incumbent banks and forced them to adopt that’s what we are seeing in India. The incumbent banks are being slow, but they are being actively encouraged by the regulator to adopt open banking standards, which then the regulator believes will drive better penetration of credit, payments, insurance, etc, into the into the country. So there’s a lot of customer good that can come out of open banking, but there is there needs to be a regulatory push for it. The second big thing was the kind of infrastructure that this rides on is quite important, because the this is not just very highly sensitive information, but it needs to be accessible in a very portable format, right? If you’re building if it’s a challenger bank that’s trying to access your centralized, open banking information, you should be able to gain one consent from you and then be able to access your banking information across all the banks that you are, that your bank with, across all the insurance companies, taxes, even wealth management, etc, etc. So the underlying infrastructure has to be very robust. If that infrastructure is not robust, then players will be discouraged from from relying on this information, and that will really slow down the progression of it. So far, what we have seen in developed markets, at least, is that open banking has not been the big miracle that it was expected to be, right and there are for the challenges that I mentioned, that large banks are being resist. Are resisting. Progression of open banking. Infrastructure is not as reliable, and so the value that you can derive from open banking is not as significant as one had anticipated. But I think for growing markets in particular, the jury is out, and let’s see where it where it can go.
22:38
Sandeep, we’re all learning all the time. You have produced this report before with BCG, as you said, but give us, like your biggest surprise insight that you know you experience from from the data this time around. Yeah,
22:53
look, I think actually tweeted about this, the biggest surprise was the difference in top quartile and sort of middle of the pack performers in FinTech, right? So there is, kind of, there any number of sayings that adversity is the best differentiation between the winners and the laggards, so as to say, right? But over the last two years, as the equity markets have been private equity markets, so venture capital, PE or even to an extent, have been low in terms of the capital induction into into startups, you have seen a real differentiation come about in kind of startups that are sort of leading the pack, not just in customer innovation, but also in unit economics, and therefore turning profitable and then driving growth across across markets, right? We didn’t have a very sharp articulation of this phenomena, because sitting on boards and observing the ecosystem, we could see this every day. In doing the work with BCG, we were able to separate the performance between publicly listed fintechs among What are, what we would consider top quartile fintechs versus sort of laggards and middle of the pack, if you will, right? And the the difference in performance is really dramatic, right? It’s very easy to tell sort of not just a few basis points of growth in terms of like 20, 30% growth versus five, 10% or even negative growth in case of various verticals, but also pretty significant difference in terms of profitability of these, these FinTech players, right? So that was the most dramatic site. It’s sort of like you hope for an experiment. You know, a theoretical physicist hopes for an experiment, but you can’t conduct all the experiments, and suddenly circumstances present you evidence which confirms your theory in one shot. So this was a massive confirmation of what we really believe, that times of adversity are the times when winners really differentiate themselves. And that data is a wonderful illustration of of that expectation,
24:51
that hypothesis power law at play in adverse time Exactly, exactly,
24:57
very good. One more question here. And then I kind of. Want to pick your brain on IPOs a bit. So with regards to FinTech, what is the impact of regulation? And, you know, how does that curtail innovation in these, you know, developing countries,
25:13
yeah, yeah, I think that’s a very good question. Look, typically in tech, we view regulation as something restrictive, right? Right? But I don’t think that case in FinTech for for a few different reasons, right? So again, taking Flipkart as an example, but any consumer technology company would spend tons and tons of capital to win customers over and to gain their trust, right? Whereas in financial services, if you get a regulatory license that actually gives you some customer trust to begin with. Now the amount of trust you gain in us is less because in us, bank failures have happened. So even established institutions have failed, and therefore customers have an inherent skepticism of how stable, how trustworthy the banks would be in a market like India, where bank failures have not happened, that trust is much higher, right? But irrespective, the point is that operating in a regulated industry where the regulators are well regarded gives the players an inherent amount of trust, right? So I think regulation, in that sense, is a good thing. The second part where I think regulation is a good thing is in most industries, it’s sort of a Brownian motion of innovation, right? Everyone will try to break apart the traditional industry on various small, different vectors, right, and then the customer feedback that comes back in terms of product adoption, and then eventually revenues and growth really drives the direction that innovation is supposed to take, right? Like, if there’s one direction, in many cases, the path breaks, and then the new direction emerges. From that perspective, that’s what usually happens in consumer technology. In regulated industries, the regulator has a very strong point of view right on how the industry should progress. One can argue whether the regulator always gets it right or not right. That’s not what I am debating here. What I am really debating is if the regulator is able to give you an indication of the direction in which innovation should progress by restricting some aspects of innovation that actually then enables founders and startups to innovate in a direction that will be supported by the rest of the ecosystem, right direction of innovation that banks will support, that non bank entities would support, that service providers would support, that payment networks will support, and so and so forth. So it actually gives you a head start in your strategic thinking, in onto where you want your sort of startup to point towards, that where you want your company to build towards. So I think from both those aspects, regulation is a blessing in disguise for fintech. What has happened in some countries? So again, India being a prime example where regulator has been very strong in managing the the managing the bad actors or bad actions that they perceive in the ecosystem, right? And that has reset some of the innovation in the market, innovation that the regulator believed is not aligned with their master circulars, the direction they wanted the ecosystem to go. Right in the short term, that feels like a step back, but again, in the long term, I think it’s a step forward, because then, you know, there are set of things that you should not be really worried about, and you can really focus on things that matter to the customers and matter to rest of your ecosystem partners, so that can really allow you to build for better. So, yeah, in short, I think for FinTech regulation can be a blessing. Yeah,
28:31
does this suggest that you must have a presence, a relationship and some influence with the regulatory bodies in an emerging market that you’re entering? Look,
28:39
I don’t know if so presence may or may not be necessary, but I think when we look for founders, we definitely look for founders that have that demonstrate a strong regulatory understanding, right? So either these are, these would be individuals who operated in regulated entities, or at least have an appreciation of where the regulator is taking the industry right because FinTech, I
29:04
meant more though. Sandeep for QED at the QED level, you know, if a lot of the regulation is going to steer the technology development, then how close do you need to be to the regulators to understand their agenda and potentially influence
29:19
it? So as an investor, we want to understand their agenda as well as we can, right? I think that is very important. We certainly don’t want to chase innovation that will fall foul of the regulatory mandate, right? I think investors are involved in the thought process for developing new regulation, and that is the right thing, because as investors, you represent what technology can bring to the sector, so you can add to that dialog in a very meaningful way. So I think that part is also quite fair and from a QED perspective across markets. Also, what we have seen is regulation may sort of upset the apple cart in the short term, but over long term, it actually helps you build better companies. I
29:57
see So transitioning to IPOs. Here, I know that you went through the experience with true caller, and you know you have a depth of knowledge in this space. Let’s, of course, let’s take India as an example, in an emerging ecosystem. So for an Indian company that’s building a global presence, let’s say they’re not just serving India specifically. What would you say, are the benefits to filing in India versus, you know, the NASDAQ?
30:24
Yeah. Look a couple of different aspects. One would think about when you’re filing for an IPO, right? I’m assuming there’s a bunch of work that you would have to do upfront in terms of thinking about whether you’re ready for an IPO. So are your earnings predictable? Are your operations stable? Is your go to market? Established? Unit economics, established. But even if, let’s assume, for your question, right, all of that work has been done, that the company is really ready, then it comes down to a few different dimensions to think about. When you big pitch market, you want to start right? You want to list in a market where, well, quite financial motivations first, so where the multiples are high and you’ll get valued as fairly as you want by the market, but more importantly than just the number, right, you have the right set of investors who would understand technology and will continue to support your growth in years to come. Right? You don’t want a big bang and then flop. You want to want a set of investors, both retail and institutional, who sustain your growth over years and perhaps decades to come. So that’s sort of one big aspect of it. Second is you want the hurdle for listing to be sensible, right? If the what I mean by hurdle is not just the size of company, but also the regulations, the requirements that you have to list in the market. So if the regulations are too loose, then that would make the market unstable, and therefore investors will eventually move away from it, to become more speculative in nature, versus if regulations are too tight, right? Then, then restrict the number of new companies that are listing on the board, and that will slow down the growth of board itself, and therefore also investors will move away from it. So when you come to NASDAQ, NASDAQ is fantastic for technology companies. Investors have a very deep understanding of technology companies, lot of history in terms of techniques being listed on NASDAQ and then graduating to bigger boards, all the good stuff, right? So this is obviously the dream market for technology companies globally to list Alistair. What we have not seen much is Indian tech companies listing on NASDAQ, right? We haven’t seen that big an appetite for for and when I say appetites both ways, not many Indian technology companies, product technology companies, have chosen to list on NASDAQ, but also the other way around, that the ones that have listed have not performed as astronomically well as the Indian exchange has done, right and you contrast that with what’s happening in Indian exchange, then the multiples are at an all time high for a number for at least last couple of years, the appetite for technology stocks is very high. There have been a series of IPOs over last year and half two years, some of whom have done really, really well. There is a lot of governmental push in terms of making India a Center for Technology Innovation, and that has sort of fed the customer, understanding that technology companies are a force for good, right? This is sort of people understand, people appreciate what they’re bringing to the board, and therefore have a increased appetite to invest in such companies. So because of all these, yeah, yeah, go ahead. So because of these reasons, I think the technology IPOs in India have really taken off in a big way over last year and a half, two years. And
33:45
are the lockups similar for investors? Sorry. Are the lockups similar for investors? Yeah,
33:51
the lockups are similar. So in India also, you have a lockup for private investors. So those policies are broadly aligned. There might be some difference in timeline, but those policies are broadly aligned. I think the desire to list in India is primarily driven by the fact that there are more investors with dollars who have an appetite for technology investments, especially as contrasted over last two to three year period. Right over long term, I think NASDAQ still holds a lot of promise, but the market has been shut for some time, whereas Indian public market has continued to be very open and very accessible to technology companies.
34:25
Oh, interesting. And then when it comes to holding public stock, right? We’ve heard a variety of perspectives on that. You know, some firms liquidate, you know, once the lock up is passed, they don’t want to hold public stock. There’s other notable names like Sequoia, that will hold, you know, equities for many decades, even after they’ve gone public. When it comes to QED, do you tend to hold public stock for long durations, or do you treat the IPO as the exit event?
34:55
So look, our primary thought process is that we are not good holders of. Public equity, right? That’s not what we get paid to do. That’s not where our specialism lies, right? Our specialism lies and taking FinTech companies and making them into good public companies, right? So typically, our approach is that at Big liquidity events such as an IPO, we would want to exit meaningfully, exit our position meaningfully. Now selectively, we have taken a stance to hold some of the public equities because those stocks have more headroom to run, if you will. But that has been a selective decision. The primary thought process is that we are a public we are a private investor, and those are the markets you best understand. So we should stick to our netting and
35:38
then Sandeep give us the bull in the bear case on Indian startups. You know, what are the major headwinds? And then what are the major tailwinds that could create, you know, a boom tech industry in India? Yeah,
35:49
look, I think so. On the bull case, I would say there are three layers of tailwinds. One on first is macroeconomic. So you hear all the call outs about GDP growth rate and India overtaking the UK and now trying to become the third largest economy in the world over next five to seven years, etc, etc. I think those are all good headlines for newspapers and Twitter to carry. I think what matters to investors is GDP per capita is really increasing, and that is now around 2500 $3,000 range. What we observe macroeconomically is when GDPR Capt hits that number, then disposable income grows much faster, and that creates more interesting cases for consumption, for obviously lending, insurance, everything in FinTech, but also technology adoption, discretionary spending, all of the good stuff. So there’s a lot of growth that’s coming on back of it. If you take a different lens and look at just the top 2200 to 300 million Indians, right? So that’s population almost the size of United States. Their GDP per capita would be even higher than 3000 so that would probably be like five to $7,000 range. And then that phenomena becomes a lot more evident. So building for the top 10% India’s, I think, is a no brainer, and that will be a growth market for at least couple of decades to come. So that’s one factor. Second factor, I would say, is it’s a country that is, well, it’s a chaotic democracy, but it has been a capitalist country for a for a while now, right? And so most industries are professionally run. They are public companies in most verticals, and that gives you a sense of organization, a sense of opportunity for new startups to come in, and can try to capture right. Be it like D to C, brand creation when it comes to retail, be it like FinTech companies to come in, Neo banks, mobile first, credit cards, pure player, technology companies, all of that there is. There’s a lot of room in each of those verticals to go after the third bull case. Part of the bull case that I would lay out is the talent aspect of it. Right after you go into go to Dubai and walk into any bank, you come to London and walk into any bank, you go to Singapore and walk into any bank, most middle management, or a large percentage of middle management, would be of Indian origin, right? So, there is a massive banking talent that India has created over last, last couple of decades, comes from the kind of professional banking industry back in India, we obviously know India as a destination for technology talent here, even here in Silicon Valley, a lot of technology talent comes from India. So building in India, or for India, is a confluence of that talent, right, which comes with great business experience, but there’s also talent from good technology background. So building tech companies in India, there is a bull case from a founder, founding team, about the competence of founding team and the competence of management team. Perspective, I think the bare case for India would anchor around couple of things. I think there’s an aspect of geopolitics India is really sort of trying to thread this needle between sort of being friends with everyone and therefore trying to be on the right side of China, plus one strategy, but also having cheap access to energy, to be able to sort of export its talent globally, be able to kind of be a meaningful contributor to export, be it services, software, defense, etc, etc. That is a difficult strategy to pursue. Historically has been, if you look at the world history over last 5060, years, it has been very hard to pursue for any country. So I think that is one aspect of it that one needs to be worth full of, especially how closely India alliance with the United States, how closely that trade relationship can be built out that will bear good fruit for India. So that’s one aspect that I would look out for. The second aspect of bear case, I would say, is really about demographic dividend. So India is now the largest population in the world, and that population is expected to grow at least for next 10 to 15 years. Large population is a boon in terms of the number of people it spits out, but it also is a bane in terms of being able to train those people put the. In the right jobs, utilize that labor force productively, right? Again, nothing at the scale, perhaps other than China, nothing at the scale has ever been done, and China had a very different political system than India does, right? So that’s another aspect that as an investor, would watch out for to invest in India.
40:19
Sandeep, if we can feature anyone here on the show, who do you think we should interview and what topic would you like to hear them speak about?
40:26
Oh, there’s a lot of people. I would suggest you mentioned Nigel Morris. You should bring Nigel onto this show. I think that would be a great Yeah. I would also pick, like, some very radical founders to bring, if you can get someone like Elon Musk or Sam Altman to come in and talk about how they built exponential companies. I think those are great examples, great things that people can can learn from. Obviously, they’re very outspoken individuals, and a lot can be learned from their public profile. But I like the way you ask very in depth questions, and you could really have a very pointed conversation with some of the Mercurial founders, and that can be dramatic and helpful to people. Perfect.
41:03
Sandeep, what book, article or video would you recommend to listeners? Oh, I
41:14
wouldn’t recommend one book. I think there are lots of interesting books. The thing I would recommend about reading right is we tend to anchor on one book. We tend to anchor on number of books read per year, per month, per week, all of that stuff. What I found most useful to do is to skim through books and find out the two or three things that are most relevant. So I do two things when I read a book right? First thing I skim through and figure out what are two or three things that speak to me today and that are relevant to me today. And second, I have my own sort of scheme for saying these books are useful for this dimension, these books are useful for that dimension. And when I tackle things in those aspects, then it becomes useful to go back and revisit those books and give a kind of a deeper reading on the most relevant problems. So that’s what I would recommend. I wouldn’t say like anchor yourself to one book or two books of a few books, depending on where you are in life, where you are in your kind of startup journey. There would be different, different books that would be relevant, right? But they will all speak to you at different times for different things.
42:14
Perfect. Sandeep, do you have any habits, tactics or techniques that are a force multiplier?
42:21
Yeah, two things. I would say, I start my day early. I’m an early morning person, so I typically start like four or five in the morning. In fact, sometimes even 330 and so that early morning is very, very useful for doing a lot of deep thinking, just progress going deep on the thesis that you want to invest in, diligence, all of that stuff. So, so the two, two things I would highlight, right? One, have a structure to your day based on your habits. If you’re an early morning person, structure your day in that sense, to have a lot of thinking time upfront. If you’re a late night person, late evening person, structured accordingly. No prescription. But have a structure to your day. I think that’s the first thing, and follow that structure too. Second thing that I observe, it’s useful to break your day into many days, right? So in this role right now, it’s very I speak to startups first half of the day, then really I have a lull around lunch and afternoon, and then the evenings, I can pick up with colleagues within the firm, and then talk to founders more in emerging Asia, Japan, etc, right? But what it allows me to do is double my product, Colloquially speaking, double my productivity, and having too many days, every single day, right? So what I observe is the things I can output, the number of conversations I can have, the number of thesis I can look at, the number of articles I can put out, number of people I can talk to. That doubles up because you have these too many days. It still keeps the same number of working hours, but giving yourself rest in the middle has really helped me sort of be refreshed and ready for the afternoon session, which almost feels like a new session rather than a different day, same day. Sorry,
43:55
perfect. And then finally, here, what is the best way for listeners to connect with you and follow along with QED?
44:00
Oh, sure. So I’m on LinkedIn and x so please reach out there. You can find my email address on my LinkedIn profile, so I would not highlight it here, but I’m accessible by all channels, same with QED. We are quite open in business and social media. And then you can reach out to our email. Our favorite way of outreach, though, is through the existing founders. So if you can find a way to network with them and reach out, that is not just a warm lead for us, but that will also give you a sense of the form that QED is and what to expect from us when you do connect with
44:33
us. Perfect. He is Sandeep Patel, the firm is QED. Sandeep, thanks so much for your time and insight.
44:40
Thank you so much for having me. This was great. Thank you. Thank you, sir.
44:49
All right, that’ll wrap up today’s interview. If you enjoyed the episode or a previous one, let the guest know about it. Share your thoughts on social or shoot them an email. You. Let them know what particularly resonated with you. I can’t tell you how much I appreciate that some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same, a compliment goes a long way. Okay, that’s a wrap for today, until next time, remember to over prepare, choose carefully and invest confidently. Thanks so much for listening.
