Sanjay Nayar & Angad Banga On What’s Common Between Them: VC Fund Sorin, Nykaa, Startups, KKR & More

Hello and welcome to Money Control Newsmakers. I'm Ashwin Mohan and today we have with us two very special guests. They share a lot in common, from work at KKR to investments in Max Healthcare, Reliance Retail, and the stellar debut of Nykaa, and now the new VC, Solid Investments. Introducing Sanjay Nair, founder of Solid Investments, and Angad Banga, COO of the Caravel Group, the first and largest investor in Nykaa. Sanjay is in Paris, Angad in Hong Kong, I'm in India. Thank you for speaking to Money Control. Let's start with the strong relationship between the Nair and Banga families. Was it Angad's father Hari Banga, the first investment in Nykaa, or your time at KKR? Sanjay, why don't you start?

Sure, thanks Ashwin for having us. Angad and I met at KKR in Hong Kong while I was setting up India, and that's how we got to know each other. I think that relationship continued, and relationships, chemistry, congruence of events make you close. We maintained the relationship even after he left KKR and moved to his father's family office. So yeah, that's how we met and we've maintained the relationship ever since.

Angad, this is your first detailed on-camera interview with an Indian media house. Would you like to chip in there on the relationship between the Banga family and the Nair family? At the beginning of this show I did refer to so many common connects across sectors, across portfolios, and across investment bets as well.

Right, so now that we have the background clear, Sanjay, shifting the focus back to you. It's clearly the beginning of the Sanjay Nair 2.0 era, so to say. Over the past several decades, you have helped head the Indian operations at a top MNC bank, Citi, you have been the head of Indian operations of a global private equity major, KKR. You witnessed and also contributed individually to a stellar market debut of Nykaa, and finally you are now keen to start off your innings as a VC investor looking at the tech space specifically. Help us understand what are some of the key lessons that you picked up as a deal maker over the years, Sanjay, especially when some investments can turn sour. What are some of the key lessons that you can share with us today?

Yeah so, firstly it's 3.1 or 2.0? I was a banker first for many years, over a quarter century, with Citi, which I thought was the only firm I'd work for. Then fell in love with private equity, started KKR operations in India, and that I think was the 2.0. I still continue as an advisor with KKR. I think we always had an urge to bring about the learnings in both those tents, as well as the manifestation of the relationships and deep network we have developed in India and globally. So it's also a question of cross-section of experience and age. I mean, we aren't getting younger. So as you get older, you sit back and think what you really want to do. So we are very clear: firstly, we're going to be in India. Secondly, we want to build businesses in India, build good teams in India, and we now want to be able to back entrepreneurs in India for India. In that context, this is the next logical step. In fact, I'm in Europe, I met some very smart folks at an event, and it's amazing to see how people from these kind of backgrounds have evolved into merchant bankers and private investors into running multi-family offices. I think that's the next logical thing. So it's not rocket science, but for me it's bringing together the learnings and experience of two of the best foreign companies in India: Citi, even today one of the largest and most diversified foreign banks in India; KKR, with many verticals now, very mature; Solid Investments backing great entrepreneurs and building good businesses. The biggest learning has been how to back the right people, choose the best entrepreneurs, and give them long-term patient capital. We should talk about that. The second thing is that everything doesn't happen as you expect. You can put a lot of money to work and hope everything blossoms, but that's not the case in real life. What really matters are real business models backed by long-term capital and fronted by the best entrepreneurs. But they need advice, guidance, and help. From my perspective, I can bring 39-40 years of experience to these young entrepreneurs. So my aim is to back these folks not just with money but with a lot of old age advice on how to build businesses. It may not be the ultimate in e-commerce or performance marketing, but definitely some building blocks these young entrepreneurs will need. That is what we think we can bring to the table.

Right, Sanjay, before we move on to Angad, I know it's difficult to distill several decades of deal-making experience, but say to the new emerging deal maker, to a young deal maker who's just started off, what would be your biggest advice?

So I think first and foremost, we have to listen to the customer who's on the other side of the table, whether it's an entrepreneur or a corporate or whatever. People have to spend time listening to what the other person is saying and what are his real objectives. That is very critical. Second advice: put yourself in his or her shoes and remember the solution you're giving them is it long-term sustainable or not. This is very critical. You can do a short-term objective and get it done, but then find things don't work out in the long run. So putting yourself in the other person's shoes and making sure the advice, product, or investment you're offering with the right structure, is it truly sustainable and the right thing for that person. That is absolutely critical, not about velocity of deals.

You know, you worked at KKR, but you've also been associated with several top global banks earlier. Then you moved on to the Caravel Group, now the Chief Operating Officer. Help the Indian audience understand the investment thesis of the Caravel Group and also the kind of monies the group has put in in India, at least in the PE portfolio.

So Angad, like I said earlier when I introduced you, Caravel Group is an early and a very prominent investor of Nykaa. Can you share any anecdotes or experiences that led to you taking the plunge and betting on Nykaa? The Nykaa market debut was one of the most iconic moments in the history of Indian capital markets and set the ball rolling for several other tech-enabled companies. So what made the Caravel Group bet right at a very early stage of Nykaa?

Right, Sanjay, Soren is of course your latest project which you founded. But you're talking about the project at a very interesting time. There's been a sharp fall in tech valuations globally, not only in India. Entrepreneurs are talking about the start of winter, startups shutting down, job cuts, a sense of gloom and doom in the startup sector, so much so that heavyweights like SoftBank and Tiger have posted losses and are pulling back. Why now and why Solid Investments at this particular juncture? Don't you think it's a challenging time for a new fund like yours to hit the road running?

Yeah, I think look, firstly we didn't like time it. It's not like we timed it knowing that in this phase we want to build something unique, an investment management firm. What better sector than early stage tech? Those reasons don't go away whether we are in a tough phase or the macro economy is difficult. What you have to look for are the vectors driving change in India. First, the government at the center is driving digitization like no tomorrow. In the last five years, all metrics on digitization have gone through the roof. Second, the ecosystem on startups and innovation, with a big catalyst from the government and entrepreneurs grabbing the opportunity. If you look at where India is going in terms of consuming digitally, it's not even halfway compared to other markets. Combine that with long-term local capital that we are all putting in, it's a very interesting mix to help tech entrepreneurs build unique businesses. So I don't think we have even thought for a minute whether this is a great time or not. Yes, from a micro investment point of view, our team will be careful about risk reward, multiples, and choice of entrepreneurs. For me and Angad, we are going to focus more on giving advice to this team and to the entrepreneurs they invest in. It's not a question of timing or the temporary cycle. The big names you mentioned, I think they'll be back. The market in India today is one of the most attractive in the world. Maybe media plays it up, but we're not that big, we're just 135 million dollars when we get there. But we want to have a real impact, and the opportunity for impact in India has never been better than today. So I don't think the timing looks good, but it was never planned that way.

Right, I take your point. Very quickly in Sanjay, before I get to Angad, what's the typical size of investments that you look at per deal as far as Soren is concerned, and what are the sub-segments you're looking at in the tech space?

Yeah, so given what I just said about digitization of the economy and changing consumption behavior, you can imagine it will be all aspects of consumer tech: B2C whether it's fintech, agriculture, logistics, education, all tech-driven sectors, as well as B2B tech and SaaS. We want to be somewhere in early A to late B, early C series. With a 135 million dollar fund, we would like to have a portfolio of 12 to 15 deals over the long run, which means average deal size can be 10 million dollars. We start as small as 2, go up to 5 if the company is doing well, keep some dry powder for more. So ideally, we would love to have about 10-12-15 deals in the portfolio in three years time and deploy anywhere between 2 to 10 to start. We have a really active pipeline, unimaginable how busy our team keeps us. I review pipeline deals once a week, might move to twice a week given the number of deals. But our team is experienced and sifting through quickly, filtering fast, so we don't come across as indecisive. We want to be nimble, decisive, quick. With that thesis, we're seeing very attractive opportunities and compelling business models. It's quite interesting how creative entrepreneurs are today.

Right, so clearly busy times for both you and Angad. You backed Nykaa earlier, now you're backing Solid Investments. But this entire VC space is quite crowded, there are people who have been there, done that. What do you think would be the USP of Solid Investments? What exactly will you guys bring to the table that is not already being provided by other players in the same bracket?

Can I add something here?

Uh, something... I'll just come back to you. Just give me a minute, a quick question to Angad, then I'll come back to you, Sanjay, just in a minute. Like I mentioned before, this is the first time you're speaking to an Indian media in such a format, so there is a lot of curiosity about the Caravel Group as well. I was looking at your portfolio on your website. You guys have bet on the e-commerce space very clearly, you've bet on Meesho, you've bet on the hospitality space, Max Healthcare. Hospitals and healthcare is currently a very buzzing segment in India, a lot of promoters looking at exits, a lot of PE also looking at exits. Just give us a broad sense of what are some of the major sectors or themes that the Caravel Group will look at in India over the next one or two years?

Right, Sanjay, you were making a point earlier.

Yeah, I was making a point to your question about how Soren will be different. Besides what Angad just mentioned, I think I will be spending real time on the investee company. When I make the investment, I actually will be putting considerable time guiding these entrepreneurs, helping them build the business like I mentioned before. I think that's a differentiator. Other GPs may do it themselves, that's fantastic, but people are busy deploying money. We want to not be too prolific, not be everything to everyone, but when we get into a relationship, we want to provide more than just capital, but real time spent with these guys. Also, we will have an advisory council over time, putting together two or three really experienced people from a similar industry, someone who has done it, seen listed entities, someone who is a talent manager and strategic talent advisor. I think the big issue that will happen in India with all these opportunities is the shortage of good talent. Young entrepreneurs can't do everything; they need to hire fantastic people. So we are going to focus a lot on hiring and talent management as well.

Right, you know Sanjay, I want you to stick your neck out over here. Last year we saw tremendous number of unicorns born in India. This year, in the last few months, the frequency has considerably dipped, and many believe the startup party is over, the froth is over. Do you believe that the startup winter is here, that the froth is over, and going ahead valuations will be a little more realistic in the sector?

Look, firstly, I don't think startup culture is over at all. Startup and innovation, given the ecosystem today in India and the drive on digitization, is there to stay. We're not even halfway through. So I wouldn't worry about the aberration of multiples coming off. That's fine. Different business models maybe were overvalued, maybe they could get correctly valued, but that's no reason to call it a winter. So maybe it's a bit of winter in terms of deployment of capital and exits. So what? This will force entrepreneurs to build and think about path to profitability and sustainable business. It will force investors to think hard about who they are backing and why. Is it just one round after another to have better mark-to-markets, or is it about building a real business that can be monetized and exited not because the fund needs to exit but because you need to create a currency for these companies to keep growing? You do need public capital, and there is no better market today from a public markets point of view where you have retail investors in India waiting to get their hands on new entities, and institutions flooding towards this market. So supply and demand are both intact in India. Yes, it's a bit of a winter, but that's everywhere in the world, and I think India will have the shortest winter on that aspect. You'll see a lot of capital come back. Cheaper valuations, that's fine, nothing wrong with that. It's just a bit of sense of realism. So path to profitability, the right business model, just doing rounds after rounds makes no sense. Making sure when you stop burning cash and start making profits is critical.

That's a very interesting point. You may say that India will have the shortest winter when it comes to funding. Angad, would you like to chip in there? In this entire discussion about what's going on in the startup sector, these are facts coming out in the open every other day regarding job cuts, startups shutting down. What is your take? Sanjay is clearly very optimistic, but when do you think these tech valuations will bounce back? And you're a Singapore-based conglomerate? Actually Hong Kong-based, you would have a more Asia outlook. What are you picking up on the ground?

You know, the current challenging market environment has affected all sectors, especially in the tech space. Valuations have taken a hit. Nykaa is no exception. You are one of the earliest backers of Nykaa; it had a fabulous debut, but in the last few months we've seen a steep fall in the stock price, and profits have also declined quarter after quarter. Does that concern you as an investor? And also some flavor from you on the competitive intensity in the fashion and beauty products platform? There are other players like Mamaearth emerging, they might do an IPO. What's your take?

Sanjay, would you like to quickly chip in on the competitive intensity in the beauty and fashion products space? Nykaa is a leader, but others are slowly taking steps and may look at making debuts on their own.

Now I'm a non-executive director, I don't have much idea. I read the same press you do. All right.

It's well left by Sanjay on that question. Sanjay, let's also turn focus on some of the sovereign wealth funds and pension funds. What has happened is, if the VCs have taken a back seat, you also have some sovereign wealth funds and pension funds looking at this space which they traditionally did not. How do you look at competing with them in this environment?

So I think sovereign wealth funds have a lot of capital. They will be looking at this sector as some VCs withdraw, but I don't think VCs will withdraw; they will come back. These big names have a lot of stamina. If you are making a case that these entities are coming into the market, I think they were bound to. What they need is the right people on the ground. You cannot sit overseas and try to build a business in India or make investments. They will come through funds, and I think VC funds are going to come back on a fundraising spree because India is going to offer even more attractive opportunities. Sovereign wealth and pension looking directly seems a bit far-fetched because you need a team on the ground. So they will come through the funds, and the funds will be out there raising money once again.

Right, Sanjay, we've spoken about your transition, your new project Solid Investments, also alluded to Nykaa and the relationship with the Banga family. What about your NBFC arm, Flexi Loan, if I'm not wrong? Any listing plans for that company? There is a peer or rival in that space backed by Upsurge, Spandana Sphoorty Finance, which focuses on the MSME space and has kickstarted the IPO process. Any value unlocking plans there, anything we can expect going ahead, or is it still too early for that entity?

Yeah, I think it's too early. We started that as a bunch of friends and ex-Citi bankers about four years ago. Then COVID hit, so we bootstrapped. We have three excellent founders who built a fantastic business. Looking back, we were extremely careful and that paid off dividends. Flexi Loan is becoming a seamless platform for originating MSME and SME supply chain financing all the way to putting it on the NBFC balance sheet, co-lending, and laying off risk with other banks. It's becoming a nice platform play. They are raising equity and debt, which you will hear about soon. With that fundraise being completed, they should be good for another 12 to 18 months. I don't think we have any plan to do an IPO in a hurry. Again, to the point we keep making, this is backed not just by me but a lot of other ex-bankers and now foreign firms. We want to give them time. There's no rush. In our dictionary, the word exit and monetization comes much later. It's not permanent capital, but it's rather permanent for all of us. As a family, we don't owe an exit to an investor. We don't exit; we back businesses. What you're going to start thinking about us is that we're not going to scatter investments all over; we want to build a few businesses for the long run and hold them. So Flexi Loan is one of them, Soren is another. So think of Solid as an investment management platform that can have more use in the future. Think of Flexi Loan as a platform driving financial inclusion at the MSME level and generating fintech as a real business. So think of them as platforms and businesses rather than making 40-50 investments.

Right, you know, exciting days ahead as far as Solid Investments is concerned. Another very quick question: if possible, stick your neck out to get a broad sectoral flavor. Like I mentioned earlier, the Caravel Group has bet on e-commerce, Meesho, healthcare, Max, retail, telecom. Now you're looking at the VC space. Any other new sectors in India that you're bullish on going ahead? If you could throw some light on that.

You know, with that, it's time to wrap up this very special interview and this latest edition of Money Control Newsmakers. Sanjay Nair and Angad Banga, it's been an absolute pleasure chatting with both you gentlemen. Thank you so much for taking all our questions here at Money Control. All the best with the new kid on the block, that's Solid. With that, it's a wrap and a goodbye from me. Ashwin Mohan, stay tuned to Money Control for more news, views, and updates.