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Surfing the startup investment wave comes with its pros and cons. First, the cons: almost 90 % of the startups fail. And many others will just refund the money you invested initially , leaving you exactly where you started — no gain, no loss.
Pros? A single large winner could compensate for all of your losses while still leaving you with a sizable profit. But discovering these cash cows comes with doing a whole lot of research & due diligence.
“There’s this notion that every great company is surfing a wave. You’ve got the surfboard, the wave underneath it & the surfer”
– Sumon Sadhu, Chairman, Uiflow (YC W’21)
According to Sumon, investors should focus on choosing the right surfer (team) with the right surfboard (product) and wait for the right wave (market dynamics) to choose the best investments.
In this episode of “The Private Market Show”, Sumon Sadhu dives into his thought process while creating an investment thesis, spotting a mega-trend, timing your investment and how angels like him ‘compete’ with new investment structures like Syndicates, Solo GPs, and Micro-funds.
Tune in to hear more – https://bit.ly/The_Private_Market_Show_EP_3
Read the conversation below!
The Private Market Show | Episode 3 | Sumon Sadhu
Shanti
So welcome to the LetsVenture Angel podcast Sumon.
Sumon
Thank you, Shanthi. It’s great to be here and appreciate the conversation.
Shanti
So before we get started I would love to have you know listeners get a quick background about you and how you got started into this journey of angel investing.
Sumon
Yeah, So, you know, my original journey as I started as a scientist as a biochemist as a student. That’s what I studied but during University I sort of discovered entrepreneurship as something that. And so, the first company that I started was in university. And that sort of bug led me into studying companies from England to San Francisco, was part of Y Combinator, sort of the first Non US companies to be in YC back in 2008. And since then, you know, basically it was started by two companies as a founder, in a sort of applied machine learning space where the first company didn’t succeed, and failed which kind of helped me learn a lot of lessons about how to, how to do things the correct way. And then the second company was acquired. And, and, and then also along the way have sort of been an executive in a number of companies on the ground so along the way as a founder, you know I’ve been, I’ve sort of received investment as a, as a product, they’ve raised money from some of the top investors in the world from Chris Sacca from Lowercase to Founders fund in Peter Thiel to, you know, some of some of the sort of top investors as well so raised over $100 million of venture capital myself as an entrepreneur. And then during the course of my journey. You know, Y Combinator preaches benevolence, and one of the things you do and start helping your fellow entrepreneurs So, back in the early days I connected the founders of Dropbox to their first investors and the founders of MixPanel, the first investors and once you’re part of that environment, and you see like the founders of Airbnb are your friends, you start realizing that, you know, there was something happening. And, you know, the first way to say to get involved is to help. And then when you start to have a little bit of money for the boys I started angel investing in 2013, saved up a little bit of money, decided that the best, the best sort of place to deploy. Since then, you have invested in over 50 companies globally. Backed companies like Benchling, from the very earliest rounds. In a recent woman’s valuation something north of $2 billion dollars was an early investor in ClearTax which is my first Indian investments and I have worked very closely with Archit from ClearTax. Since the very early days of ClearTax there are just three of them to 1000s of default products, you know to company executives and in Southeast Asia. But yeah, I am fascinated by global entrepreneurship and, and the impact that sort of angels can have on building an ecosystem so yeah I’ve been investing globally.
Shanti
So just listening to your background, you know, ex-YC and a successful exit and having having actually been able to participate in some of the very interesting companies, no just to, if we were to kind of put a label to your style of investing, Sumon, I would love to see what that label would read like.
Sumon
Yeah, absolutely. So, one thing that I’ve realized, you know, I like being a founder and I also like being sort of pivotal as a first believer in the companies that I back and so, over, over time, you know, over the course of my angel investments. I’ve just realized that the closer I am to the founder and the more concentrated my involvement is with the company at the formative stages, the happier I am as an angel, and so actually many angels they like to spray and pray they you know they invest small amounts in hundreds of companies but they had no say or any meaningful impact on like, you know, the company milestones or strategy. And so, so I’m actually most interested in sort of, what I call, being Chairman investor, which is, you know, sort of, if I, if I was a shadow co founder to the founders of the company, and me, you know, invested, not only just a meaningful amount of money but also a meaningful amount of time, and the ability to impact, you know, not just the first 1000 decisions of the company, which are sort of very formative and building a company a great company from scratch. And so that you know that’s what’s allowed me to sort of develop a taste for a number of things one is. Yeah, being this Chairman or shadow co-founder apparently the chairman of a new. There’s a new company which I’ll talk about but I was you know that first believer it was a product manager of mine 10 years ago company called UiFlow recently became chairman and board member, that first investor in the company. And, you know, I just really like you know even today with Archit from cleartax we have office hours every two weeks and back to back in 2014 so I like this very close involvement in the formative stages of the company. And that is my style of investing when I see
Shanti
I think that aspect of being able to go in as the first early big believer to the founder and working very closely with the founding team and helping them to probably impact your first 1000 decisions right. It’s also very difficult as an investor to find those founders, right, and really difficult because it takes time to then say this is the one company I want to work with for the next three to six months. Like, how does that process work for you just in terms of, you know, curating How do you think through and say, This is the company I want to be associated with
Sumon
Yeah, so, so I guess, you know, since you are making it. Since you’re making a decision to commit to a company, and, you know, you have scarce resources, you have scarce time, the first the first sort of area is like, well, I found an archetype of company that I’m really excited about, which I call the national Empire. You know my observation, basically. Some of the greatest companies in the world. You know, whether it’s Alibaba or even if you look at like Reliance you know it’s like these are nationally dominant companies which are built by Empire builders and so you know I was always fascinated with that pattern, and so something something that I’ve looked for, you know, over time is do I believe that the company exists in a market where not, it can not only create the first product but eventually, it can create, you know, sort of four or five products and actually be on the path to building a conglomerate. That is kind of nationally dominant and then ultimately globally dominant. And then the psychology of the founders that want to build conglomerates on empires, are very, very different. And so, I guess I’m naturally attracted to the Grand ambition and so that means there are very few opportunities for me to actually find that. And so I keep an eye out for both those moments in his history or technology opportunity where there is a sort of a large conglomerate sell opportunity and then also I keep my eye close to the characteristics of those founders and being a magnet for that it’s a fast filter for how I work.
Sumon
I mean, this is, this is where the idea of the first believer makes the most sense because when most investors talk to those types of founders, they sound crazy you know because yeah but nothing has been built, but they’re talking about such a grand idea or, you know, they personally there’s something about that background or that moment in time in their life, where it makes sense for them to build that company. And those are often the loneliest founders, you know, so therefore, actually, you know the attraction goes both ways it’s it’s it’s not just, you know, the founders come to me it’s also like you know, again, I’ll tell the story of ClearTax a little bit more, you know, I met him at Y Combinator Demo Day alumni demo day and I basically my opening line to him was like you realize how big how significant the thing that you’re building is for India’s economy. And he said no one’s ever told me that before, like let’s talk so that you know there’s a, there’s this sort of a way in which these thinkers think and it’s a lonely place to be.
Shanti
So tell us a little bit more about how you actually identified these large trends which are going to emerge. Because typically like you said some of these founders will sound crazy to the rest of the world before that gets validated in the market. Right. So how do you identify these trends? What is that, which actually helps you kind of just know what is coming next.
Sumon
So one one part of my investing journey which I sort of talk about. There’s like there’s two, there’s two things that intersect and one is, you know, one of my first internships, like between college and grad school was actually as an analyst, understanding venture capital. And, you know, so I left that in 2000-2005, and like that taught me how to look at things systematically at the time I didn’t have any entrepreneurial experience. So obviously, it took me 10 plus years to also gain an intuitive understanding of Silicon Valley of how big companies are created and what the pitfalls are. And when you put those two things together, you get a very interesting understanding of what it takes to identify a trend, or wave. So the first company I talked about failing, I got market timing wrong. So the first thing is like how you. Yeah, regardless of how good a team is if you get market timing wrong, the company will fail. And so there’s this notion that every great company is surfing a wave. This wave metaphor is very helpful. You’ve got a, you’ve got you’ve got the surfboard. You’ve got the wave underneath it, and you’ve actually got the surfer themselves and so I can kind of distill down what it takes to identify, like the right wave and the right surfer, As long as there is the right surfboard, which is the thing that binds these two things together. This is the best way to think about how to identify a trend. And so the thing that’s interesting about technology like whether it’s, you know, whether it’s technology that exists today or technology the function of technology is to sort of propel humanity forward like you know when when the wheel was first created, then you pick up the car when the combustion engine was created, then you got cars to sort of move over large distances. So, this idea is that, you know, underlying shifts in technology, enable the production of new technology that’s like the first thing to consider. And so, the first way to sort of identify some of these mega trends is any point in history. You know there’s a revolving window of technologies that change the cost of production of a product. This is described by a famous sort of famous scientist who studied aerospace production called Theodore right and he created local rights law and rights law. Basically if the cost of production of the technology, sort of, decreases with every n unit, then you’ll get this like a cost curve becomes cheaper. And so one practical example is if you look at lithium ion batteries. The reason that Tesla existed in 2010 is because lithium ion batteries over a 20 year period, the cost of production are coming down to the point where suddenly, you know, an electric car can have the same electromechanical properties as a combustion engine, and then you get the ability to say, Okay, so, you know, timing is a combination of, you know, production technology so I keep an eye on, on, you know, the cost of production of technologies with lithium ion batteries, whether it’s like compute whether it’s, you know, cells being created from, you know, from scratch. So that’s the first thing. So that’s like that gives you a map of what might be possible and when it might be possible. The advances that we have in doing this video call across geographies because you know the sort of the price of sending packets over the internet at sort of high bandwidth that that production cost has come down, which makes the technology like zoom, some possible so the first thing is like just technology production costs come down, then the second thing is can you forecast consumption, because again, if a product is not desired by anybody. Then you won’t get upside. It doesn’t matter if it’s possible, it’s just like, if you could build a flying car right now, people need people to consume it, that’s the other question. And so I think being able to, like, stay ahead of all anticipated demand is like seeing changes in behavior so you know I like big cities for a reason is because I can just observe humans and suddenly like well something may change in my day to day. And so I think keeping on top of culture and societal trends, whether it’s you know, people’s diet changes or eating more plants than the meat that you know, that has happened over the years and suddenly we see lots of changes. Or it might be the way that young people use the internet is different from old people, or the way the people who are using the internet for the first time in their native languages like you have invested in a number of companies and that sort of vernacular content space in India. And, you know, that’s a really interesting, mega trend that is to do with the consumption of technology. And so there’s something around being cognizant about consumption, with ClearTax that was a government digitization or legal changes meant the more people will have to do taxes, someone has to create an easy experience to go do that so these are things to observe, on the consumption side and those could be cultural it could be regulatory. This could also be behavioral generations. And so these are ways in which, if you can anticipate production and technology consumption of technology you know that it’s the right timing. And then, if you invest in a company and a product, a surfboard. That’s like in between the surfer and the wave and obviously has to be the right surfer, you have something like you invest at one valuation, and it rides the acceleration of adoption. Ultimately, leading to increasing the value of their equity. So that’s kind of systematic. I think about a lot of things.
Shanti
Yes, he was actually though the empire building on identifying those large mega trends sounds like a very big word. I think you’ve kind of broken it down in a way that you can almost say that, not this is a good way for an investor to start looking at how he should start analyzing his investments. Right, so the only technology cost versus changing consumption behaviors, if you can find the product at the intersection of it. Right, I think then probably that could be a good, good company or the founder to kind of back.
Sumon
Yeah that’s there’s there’s also, there’s also a lot of principles around, you know, what are the nature of those products like you know what is the right surfboard you know what does it feel like, Is it is it 10 times better, or does it create some new property, you know, when people, and often does the things that are confusing to invest as in the very early days, they talked about the Henry Ford analogy, it’s like, do, do people want a faster horse or do they want to car, sometimes customers don’t know. But if you gave it to them, it would make a huge step change in my life and these are my judgment and kind of intuition come into play around some of these things.
Shanti
I completely agree that customers sometimes don’t know what they want, right? It is not like they always can tell you what they really want till they have the product with them.
Sumon
Yeah, it’s that leap of faith. And, you know, believe that is the arbitrage that an early investor is making compared to someone who comes much further along, that’s when there’s much more evidence. And I think that’s where you know that’s intuition and then there’s like, you know, judgment. And then there’s just something that you have to ask your questions about when you meet founders and so these are these things, but it’s hard because sometimes. Sometimes you can anticipate things, my investment in benchling because I studied biochemistry and was in the lab. I forecasted the world where software would improve the throughput of biology. That’s insane. That was very much like I had a prepared mind when I met the founder, to make that investment and obviously what surprised me is that in a nonlinear way the world’s changed very similar to when Archit, and then sometimes founders tell you something that then intuits your ability to say, Oh, this is a change in decrease in production or an increase in consumption, and a product which has its timing and so ClearTax is very much Archit told me what happened and then I said oh if you anticipate this going forward. This impacts. Demonetization. I invested before Demonetization and Demonetization happened it amplified the trend of GST happen it amplified trend, but the broad trend was digitization, it’s interesting that was black money that sits underneath underneath your bed like that, if the government enforces this there’s going to be a sea change and so that was an interesting. So timing.
Shanti
I think it is a very interesting point, Sumon which you bring up because you know there are some industries or products which I think when the regulation comes in. It just creates that momentum and scale because now you are working within a regulated boundary, and there is a lot higher adoption of the product, and I think some of the startups benefit from that. Regulatories kind of clear clearance which comes in, which creates more clarity in how the customers will start using the product.
Sumon
Yeah, like regulation is a, is a type of wave that exists, like nothing exists and then something changes and then everything. Everything happens. I think that you know how the lowest for EV adoption and India for example are examples like there’s going to be many startups in that value chain that get created, simply enabled by the fact that everyone has to, you know, move from gas to electric vehicles. So I think that looking for those tremors is like a big part of how I think about the world.
Shanti
Yeah. So actually, if I were a new investor right and people always say you must have an investment thesis defined right the way I look at your thesis is is actually somewhere at the intersection of what you have experienced as a founder as an investor, your networks or your connection to founders, as well as you’re able to predict the future technology and that is that forms the core of your investment thesis, right.
Sumon
Yeah, those things are certainly true, I mean, Sometimes, I don’t have to know the founder and advance like yes I think that there are things to be fixed on and then there are things to be flexible. So, sometimes I’ll you know the things I can control my understanding of areas that I’m interested in and so the thing is this comes very naturally to me because I’m very curious, so I’m always observing like the world and updating my, my thinking for how it’s changing, and that’s just something that comes naturally to me as as a thinker. The second thing is, you know, you will encounter people, you know whether you know them beforehand, or somehow they come into your life, you know one example of an investment that way as I was an early investor in labelbox which is software to essentially if you want to teach machines to do things like to see objects or to hear sounds or watch videos, then you need to train those deep learning algorithms the humans is labelbox software that allows that that introduction came from, you know, it was the husband of a friend of mine. And, you know, she said my husband’s raising venture capital for the first time, but can you guys just talk. Can you can you advise him on how to go about the process, and that’s, that’s how I discovered the investment so you don’t know how you’re going to encounter these people but when you find that moment, that’s when you focus in and identify the investment opportunity. And so, it’s both top down and bottom up.
Shanti
I think you actually very well articulated that right top down bottom up, unknowns and knowns right when they come together to form your thesis.
Sumon
Yeah, that’s, that’s a feeling that I think has now come through intuition. I’m like oh this is a moment that it feels interesting. And this is, this is an idea that’s confusing. This is a founder that feels promising, no one else is interested in this. So I’ve just heard my intuition to focus on that situation. And that’s when a transaction can happen without, you know, anyone validation, and that’s kind of where I sit. And I would say the one advice that I would sort of give to investors is, there’s this idea that great investment opportunities are scarce. There’s like very few of them. And you have to put as many bets in place, because you don’t know you know you’ll catch on. I would argue the opposite, there’s actually more great investment opportunities than ever before. And so there’s an abundance of opportunity, so if you miss one it doesn’t matter. You know, maybe, maybe it was a few years when I was very actively the CEO of my own company, and I didn’t invest for those years so I missed out on a whole bunch of companies that were great people who wanted to meet me. And I miss them. I miss a billion dollar competition. I’m like, Okay, well, but there’s nothing you can do. So having. I think having a good filter for saying no. is also a big part of the thesis is like, Well, what do you not invest in, and then knowing that like there’s many good opportunities to invest, having a very strong oil filter, I think, you know, so one of one of the things that Naval Ravikant from AngelList. Talk to me about angel investing very early days he said to me your default should be. And then if something is so good that it breaks through the noise. And so there’s this notion of having a very strong filter which is the opposite of what people think. And that’s
Shanti
actually very counterintuitive right where everybody’s portfolio of 30 to 40 companies before you can see the returns come in, you’re saying, you know, keep the numbers low. Keep no as the default kind of look at the startups which are actually the really kind of impressing you in terms of what they’re doing. But I think one thing that I particularly liked about what you said Sumon is the lonely founder, right it’s the only founder, who sounds really crazy. So I think any founder who’s listening to this right who believes that he is out to change the world who believes that he is actually going to create a much larger market than what investors are able to understand should actually come to you, right, because I think the people who should come talk to you because that is, there is a very small set of investors today. Even with all the capital coming in, it can kind of almost walk that forbidden path right of not being able to fit the patterns, not able to fit trends and still believe that there’s something new out there waiting.
Sumon
Yeah, I’m looking for founders who feel like their idea is confusing to lots of investors, maybe even confusing to themselves but they’re like I believe that this is something that should exist. And I think that if those founders have very strong work products like that a lot of success backing incredibly strong engineers who can build anything. Archit is a great example. His company has evolved sort of four or five times in the course of its history. It’s because of his level of rigor and detail around the product that allows him to not just have ideas but also turn them into reality. And if he needs to go into the low level he can go into the low level, but he can also equally do the high level too and I think that it’s the ability to have a huge detail orientation. And then I also think that, you know, when you start a company, it’s very successful. It’s typically something that you’re committed to for 10 plus years. Yeah, to do anything for 10 plus years, you have to be just intrinsically fascinated, whether you would do it, even if you didn’t make money, and you do it for some reason beyond making money. And then the second thing is that I don’t want to be the investor that gives those founders the chance to be in business. That is the role that I think of as the first believer. And, you know, if it’s something that your, your whole life has trended towards this reference Archit again like you know he was a software engineer in Silicon Valley at data domain which went public, CEO of Data Domain is now the CEO of Snowflake which is like you know one of the best venture exit so he actually got to see. Frank slootman upfront, you know like, operate. And so, and then he said, I want to quit. Data Domain went public, he had a little bit of money and he’s like well I can build something myself and his father was a CPA, and you know that’s basically where he got the idea, like his father was trying to do the, the income tax filings like online and he said I can automate this for you. And so there’s this notion that the company that these founders build is the company of their life as it comes through a very authentic experience that happens to them, and a combination of ambition, which is top down, and life circumstances and just bottom line, and then that. And then if, if there’s something that you’re destined to do I want to be the first believer typically.
“There’s all of the different functional roles in which make a great company and there are there are things that lots of other people can bring. You’re basically trying to bring that bundle together for the founder act as an active catalyst. I try to put in the first money, and then I try to create this chemical reaction that then goes and starts to multiply.”
Shanti
Yes. So just just staying with this first believer conversation Sumon I think it’s very very, very interesting to just hear, hear how you how you’re thinking through this entire process right but i mean how large are your check sizes, do you run the syndicate, where does that amount of capital, start to become an innovator because if you’re the first believer. And if you’re just a solo kind of person going in. How do you compete with the new kind of syndicate modules, the solo GPs, the micro funds coming up.
Sumon
Well, I think, I think first of all any good Angel will eventually have institutional backing and so you know I’m fortunate to sort of be able to combine personal resources and institutional resources. I think that the. I think there’s two ways to think about competition. There’s very few people that will back up before they’ve left their job. That’s excellent. So I like to, you know, as with anything as a company as as a life that’s like I like to find places that other people find uncomfortable to be. And so, and so the first thing on competition is. Yeah. I’m happy to help shape an idea, with someone who’s thinking about it, and that’s often like the best places where I can add value because of my experience as a founder, and as someone who’s invested across many many industries across many geographies. I think that’s the first thing. And typically through the process of meeting someone and talking to them, and editing their ideas you kind of feel the chemistry. It’s like this feels like a person I can work with. And it goes both ways, as well as the ideas get better through the collision lines. So I think the first thing is like, you know, when other people see an imperfect object, how do you make it a perfect object? So I like to polish the diamond and create my own diamonds and steal diamonds from other people. That’s kind of that’s sort of the way I think about it and that’s very hard. You know it’s not intuitive because you need to have taste around what the product should be who you hire or go to market should be what the strategy is how do you validate it, and then I like to bring in other friends as co investors and I think this is kind of how to think about how to think about the collaboration aspect of it. Even though I believe on my own, I know. I don’t just keep this to myself, maybe I’ll take 60% of an opportunity, but then I will bring in other people to syndicate who can help the company, because I think that the thing that’s missing for entrepreneurs is that there’s this notion of the ratio of the amount of health a dollar, and you want to maximize the ratio of health a dollar as possible within that bundle you need to have governance, which is like people that will tell you, you shouldn’t be doing that, but you should be doing that, and have an opinion that is respected. That’s like a role. Secondly, there’s all of the different functional roles in which make a great company, whether it’s like technical excellence, whether it’s the ability to hire, whether it’s networks into future investors or customers, you know, there are there are things that lots of other people can bring, you’re basically trying to bring that bundle together for the founder and sometimes you know those people, or your credibility can attract those other people to a founder, so I tried to act as an active catalyst. I try to put in the first money, and then I try to create this chemical reaction that then goes and starts to multiply. That’s basically how I think about things.
Shanti
Can you talk to us about some of the, maybe the learnings you had or some of the biases you had, which made you make a wrong decision or a lost opportunity, What were the learnings which came out of it.
Sumon
Yeah, yeah. So, one of the problems of being someone who’s a founder, is that sometimes your own ideas are the ones that you are back in. And there have been instances where what the founder wanted to do. And what I wanted to find out was to do two different things. And so I was backing my own version of the idea, not the founder’s idea. So the first thing is that the energy, the motive force must come from the founder, you must agree with it, but you can’t fund your own idea, that’s like that’s a classic mistake a lot of money has been lost for funding an idea because ultimately you know it’s like. You can imagine a really amazing train or plane or flying car, but if the founder cannot execute or agree with that vision, then you’ll fund your own vision. That’s like hallucination in a fantastical way, because then reality, I guess it’s all the lessons where reality isn’t true. You have to stay very objective, what is the nature of reality, and one of one part is like is the founders vision as big or does it support your view of the market, or maybe they help you build high resolution understanding of it, but the point is that you must not back your own ideas you must be backing the founders ideas that’s a very sort of important thing because you’re not building the company. The second is the second place where there’s a sort of big mistake. I think that, you know, I don’t believe that companies pivot to success. You know, because if you have a big enough wave, there’s some configuration that you will discover within that wave. So I think in very absolute terms every time that I’ve backed the wave. I’ve succeeded. Every time that I’ve backed something that is speculative I failed. You know, so there’s this notion of, I think this idea of like taking a bet it’s the wrong language to be using, because you’re not taking a bet, because unless you have so much money that you don’t care. But if you want to succeed as an investor you want to multiply capital, you want to make impact in the world, you have to you have to sort of calibrate about, you know, what is the nature of reality and the nature of reality is like, ultimately founders how good founders are building mountains, and, you know, it means founders that can be good managers, as well as team players, it means founders that can build big organizations, it means founders that couldn’t fast enough at learning to transform themselves. It means founders that have really good taste in terms of who they work with. It means founders that don’t have any sort of obvious negative characteristics like they might be disagreeable, and then no one wants to work with them, because that’s kind of what build a 10,000 person organization, or you may give them some advice or feel that something is wrong, and they react negatively to you, that’s not going to be a good founder to work with. And so, you know, it’s all about avoiding the downside, and maintaining the touch with reality, because if you can see reality, more clearly I think this is a benchmark capital phrase, it’s like, our job is not to predict the future. Our job is to see the present more clearly. And you know that that is that is the thing of like, you just have to have real clarity of like what’s real, like you know, is they may not have a lot of customers but if they have two customers and those customers are very enthusiastic, are there lots more of those customers that’s like a question about reality. It’s not about speculation. Like, we wish that there’s, you know, there’s gonna be 10,000 customers. I’m really bullish like that in reality or you imagine. So I think that being able to tell the difference between reality and hallucination is a sort of key skill, something I focus on.
Shanti
So, actually when you, when you kind of talk about yourself you know it almost feels like you know there is a lot of clarity and how you’re able to see that big picture right but what is intriguing me still is that I’m sure you’re getting a lot of deal flow. Right, and a lot of startups are coming to you. So, so just tell us how do you kind of quickly sift through all of that and say these are the 10 founders I want to talk to. What’s that curation process for Sumon look like,
Sumon
you know. So typically, I’ll come across something so it might be, you know, it might be that occasionally I’ll email people, or interact with them online. So I’ll discover something. I think the first thing is I’m trying to see evidence the motivation for them to do it is kind of world class, in terms of, you know, sometimes someone will pitch you barely want to raise $50,000, something like that. And then you’re like, are you really interested in building a big company, or are you interested in just keeping the lights on so that you can continue like your lifestyle, because that’s like the first filter is you want to filter out, you know this sort of very high quality potential, even if it’s cold, or you’ve made the connection or someone’s made the connection. The first thing is just filtering out the magnitude. And so, sometimes the quality of communication and clarity of communication. You know, maybe I will go and look at the website, or you know, their GitHub and try to understand if this is an intense person with a high threshold. That is not making a choice that is speculative, that is very deliberate, those are things that I try and ascertain like before, I meet someone and quite often that will filter out a lot of people. And then if I start communicating with them. I just start asking questions, even if it’s over email, so there’s like some response right so I’ll ask someone if someone offered you 5 million for this idea would you sell, just to understand like what’s their mindset around it. And that way, then the people that you spend time on, you’re actually like again I have an archetype that I’m very specific. So I’m looking for the Empire Builder and builders are willing to happy to contact me anytime, but you know I I’m really really focused on that and those Empire builders could be in any country in any geography in any sector, doesn’t matter if you believe you can build an empire, and it’s rooted in reality, then I’m interested.
Shanti
So that kind of brings me to my next question because you said you’ve invested in seven different geographies, that it’s a lot of expands just for just for an individual to kind of be able to cover right because there are a lot of nuances sometimes in each geography, like India has so much of nuances into it, that sometimes being in India we are not able to understand consumer behavior as well. Right. how do you cope with that kind of macro view on the world, which kind of spans across seven geographies,
Sumon
so I guess that’s why I’m attracted to global investing in the first place. It is difficult. And, you know, one of one of the reasons why, but also it’s difficult but fulfilling another way, which is that every different country is a petri dish of innovation something that may happen because mobile penetration is greater in India, or Southeast Asia, may then to the rest of the world, so like there’s like many examples. If you knew the thing happening in China, when you saw the thing in the US, you would invest. And one example is like the investment that Sequoia made in doordash. They knew that from China companies like Matewan were really massive in terms of how and they knew that you could have companies that sort of tip to cities and suburbs versus companies that will focus on the tier 1. And so by understanding that pattern from another geography, you then see very clearly the reality of something in another geography. So by. So, I think the first thing is to benefit from the ability to look at different geographies. I think there’s a reason why I’m also interested in multiple geographies, one of which is that my life has been very international, you know, like, I was born in the UK. My parents from India, Kolkata, you know like, I sort of worked in the US. You know I’ve encountered many different nationalities through the founders coming through Y Combinator. I’ve through them invested in those geographies and it learns about the geographies, which means that I have visibility in Canada. In the US, in the UK. In India, in Europe, and Southeast Asia simultaneously. And so this. Yeah, I think that, I think that sort of whatever your investing style is it has to come natively and so my cross border cross cultural view of life is basically you know my view on investing. I find that, you know, understanding the history and trajectory of technology by looking at every geography as a petri dish, and then being able to make inferences across that is how I invest and what is my motivation to be able to do that. And obviously the internet helps as well, you know, whether it’s Twitter, whether it’s LinkedIn, whether it’s zoom WhatsApp, you know, the ability to sort of stay in touch with be in contact, and invest in people that you haven’t met in person, maybe you’ve met them in person. You know, once a year for the last five years there, the world is just much more accessible through the internet, so I practice internet investing first.
Shanti
Absolutely. The world is flat, like this, it is much smaller, we have global citizens who kind of feel like they can fit into any part of the world. No one country binds them. Right.
Sumon
Yeah. Yeah.
Shanti
And just to kind of now continue this now what is your, we would love to your, what is your outlook on the Indian startup ecosystem you know where do you see this because you know when you look at when you look at, typically the people are the way they are bucketing geographies, you know, what are your predictions of what what this decade would, would bring to us.
Sumon
Yes, I think, I think first of all, the Indian opportunity is bigger than ever before on a global stage, and that’s because India is not just you know everyone in India but also everyone of Indian origin, that is, you know, it’s the diaspora, and it’s the you know it’s it’s it’s everybody of Indian origin and so from a population standpoint, that’s a huge percentage of the world. Already, and it’s already very influential you know like the CEOs of companies like Google or Adobe, or you know, other sort of very large corporations they’re a hit. So like the point the point the point is, and I know set up in generations of Indians, whether it’s second generation, or first generation who are in some of the top roles in Silicon Valley or in Europe, setting first of all India’s relationship to the rest of the world is actually flatter than a lot of a lot of other countries, and Indians have done incredibly well in meshing themselves instead of all of these different geographies and entrepreneurial ecosystems, whether it’s for investors my interest in investing in India, is because for the first part of my life. I went to India every single year. At a certain part of the year. And so like I’ve been to India, many, many times, it’s it’s something I think that like the opportunity is for India Indian startup ecosystem to bridge with the rest of the world and that’s kind of a role that I want to play in this capitalization, but I think that there’s several really large opportunities one is like companies that are building for the benefit of India itself. And then there are companies that build from India will take advantage of the things that, you know, so the thing that India is talented at, to build global facing companies so those will be giant companies that get built. So I’m very excited about those two archetypes of companies that come from India. And then within that, you know, happy to sort of articulate more trends that are interesting. So that’s kind of how I look at things.
Shanti
Yeah, we would love to hear the trends, Sumon.
Sumon
Yeah, so just taking the lens of empires, which is one of the kinds of Indian empires that can be built over the next 10 years. You know we’ll start to see. I think that’s the one with which a lot of the Indian venture capital community, and angel investment community focuses on which is companies that have built, you know Bharat, like, oriented companies that are building for the next 500 million internet users that are coming online for the first time. You know, I look at like empires or defaults, you know, once they once they set, you don’t question them they’re just there are so many products and services we’ve built as defaults, whether it’s supporting local communities or supporting agriculture, whether it’s supporting you know how people access the internet and what those fundamental services are. But just like the net amount of new attention on the internet and the populations that have been ignored. Like tier two or tier three geographies, you’ll see a lot of Bharat based products that are built for Bharat and there’ll be many different segments that are unique to the situation, whether it’s, you know, in the West, you know, local shops are not important. Big retailers are important. In India, it’s the opposite, local shops are the lifeblood. If you look at Reliance’s strategy. It’s like, how do you build infrastructure for local hyperlocal commerce and so many many companies will build infrastructure for hyper local tier two tier three commerce. And so just fundamental things like what happens when that door opens to those people, what they will learn, what they will eat, how they work. You know how they will grow that food. You know how they sort of perform the seasonal migration more efficiently from their hometown to the tier one cities, and what services exist around that. I think there’s like this: The Indian by, by, by, by technology companies. The second big thing and I think this is the best talked about, but what are the companies that will be the Indian exports and so the first generation of Indian exports. If you take the services industry they already like it’s labor arbitrage, that was the Indian export, but now it’s the opposite, instead of exporting IP, it’s like you create the IP in India and then you export the product of the IP to the rest of the world. This is the movement from services to these products, and those products, you know, India has one of the biggest developer populations in the world, some of the next great developer focus companies software will be built by serving in by hoping home with Indian trust, and then there will be great global companies and so the host mountains of the world, the browser stacks of the world, there’s going to be hundreds and hundreds of those companies that are going to be a $10 billion plus companies, being built, because that’s a unique concentration of talent that has taste in India. I think the second thing is, because of the Indian education system and it’s sort of heritage and sciences, you’re going to see a lot of very interesting deep technology companies, I’m an investor in a company called init, which is basically the square of healthcare, you attach it to your device you put a test strip for it, and then you get a readout on some biological signal, they just got FDA approval in the US but this is an example of a hardware company that was built for less than $3 million. In India, that is now exported to the rest of the world. It’s very hard to build a hardware company with hardware and software together. So these very interdisciplinary technology companies and deep technology companies are going to be built in India. For the rest of the world. And that’s because you can get more sort of really hyper intense talent in one place. So in order to build like the next deep mind or the next, you know, sort of sudden space technology companies that are being built, because of the Israel like relationship and they are going to be these really amazing deep technology companies that reimagined fundamental technology being built from India for the rest of the world, because the concentration and skill of Indian engineering is very very strong, and so those are kind of two archetypes I’m very, very excited by. And yeah, we’re gonna see we’re also going to see companies that take Indian cultural exports and bringing them to the world, whether it’s yoga, whether it’s tea there’s going to be consumer brands like that are being built, that the rest of the world will feel, and they won’t understand that it’s Indian but it’s going to be highly desirable. So I say spectrum for the global nature ended innovation
“One Empire company can inspire a whole ecosystem to build hundreds of new companies”
Shanti
that’s that’s actually pretty pretty elaborate in terms of just what the trends could could emerge from India, just as a last closing question, Sumon What is your view on you know when you talk about empire building right I think the first thought which comes to my mind is businesses creating monopolies right and we always say monopolies are not good in the long run because it starts to create a lot more divided than bringing people together like what is your view on companies then becoming monopolies globally.
Sumon
No, I think, I think that the question is, what impact does it have at scale. And so, you know, one, one Empire company can inspire a whole ecosystem to build hundreds of new companies, because you know there’ll be people that join those companies that learn how to build great such a big company we will go and start their own companies so like, you don’t need a lot of empire companies to create a sort of groundswell in innovation, it takes like a few of them to completely inspire a generation to go build. So I think the first, you know, rather than phrasing it from a sort of negative perspective like let’s look at the positives of what, why am I so focused on. I think that the core of building an ecosystem is to build empiric companies and everyone should either build an empiric company or join the empiric company to learn how to build it because that will create more groundswell, and that is that then ultimately like, you know, innovate, even faster. And so the other thing that those types of companies do is that they will create a lot of wealth, individual wealth for employees for angels which will then get recycled back into the ecosystem. And so that’s the second reason for focusing on empires as a key ingredient that ecosystem building is the recycling of wealth that will happen whether it’s through use of pool distributions every year, or whether it’s through actual IPOs like meaningful liquidity events that happen. You know, these things will have a huge knock on impact. The third thing is, I feel like, in order to build an impact company. You have to have a lot of customers. And so I think the idea that you can build a product that impacts a million lives 10 million lives 100 million lives 500 million lives a billion lives, you know, the scale of impact of those types of companies is also really big and those could be, it could be some innovation in healthcare that comes from India that changes people’s life expectancy around the world. And so I think the other thing is like the scale of impact could be so big. So it’s sort of if you want to and then also from an investment perspective. If you concentrate capital into these. One thing that I’ve seen and one thing that I’ve learned to just collect my numbers with my portfolio. Is that a small number, like you had seven years in. It is true that there is a super linear-like outlier nature to these things, and it’s better to invest in a small number of those than a large number of failures because losing money isn’t fun. But winning big and maximizing the opportunity to win big. So I just think it’s, you know, we have a short life to live and we should find the lever that gives us the biggest motivation and so that’s my view on these types of companies.
Shanti
I actually love this closing note, Sumon, just an optimist in terms of just looking at how you can impact the world. And I think it kind of resonated with the first statement you’ve made when you started the podcast, which was you know I want to make. I want to make investments that I can create impact, and where I can actually contribute back to creating a better world right and really, really great to hear that as a closing note. I think this is a very good take on monopolies and businesses creating monopolies,
Sumon
but having grown up monopolies is controversial, even governments don’t like them. But if you read, Peter Thiel books zero to one like he says a lot of monopolies are hiding. What do you think, what you don’t think of as a monopoly. And so I think that that’s kind of part of that. Absolutely, thank
Shanti
Thank you for taking the time to Sumon, it was really a pleasure hosting you here.
Sumon
Excellent, thank you. Feels like it was a good conversation
Shanti
I hope you enjoyed the conversation. When I was listening to Sumon, I felt investors are artists and the thesis is their canvas. That’s it on this episode of “The Private Market Show”.If you have a suggestion or feedback for us, please do write to mcpodcast at nw18.com. We’ll be back next week with yet another insightful conversation.
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