We had spoken to every bank in the country before the Big Billion Days sale telling them that we are going to try and get 40, 50, 60 million people to transact in one day. They laughed us out of the building. We asked all the banks, "Give us APIs, we'll build a new network for peer-to-peer and merchant payments." They laughed us out of the building.
You saw it coming. You were prepared. Demonetization of course helped you, but it's not like the ecosystem went along.
And I think sometimes in life you need luck or timing. We had both. Luckily there was very little competition pre-demonetization.
And after demonetization we just grew like a virus.
Welcome to Unstarted. What is unique about this show is this is about you. It is for founders by founders. I am very excited to have a celebrity founder whose product I'm told now 700 or 800 million people use. Probably half of you are definitely going to be users of his product given the market share. Sameer Nigam, founder of PhonePe, very, very good to have you here. Congratulations on all that you have achieved over the years. One of the reasons we do this podcast is that a lot of the celebrity stories like yours, from the outside, are very intimidating to many in the audience. But I know you now for maybe more than 10 years, you know Vikram even longer, and I know that's not the case. You're probably one of the nicest, most accessible founders I've met. I think you have a story that has its own ups and downs, and the goal of this podcast is to actually bring all of that out. But really privileged to be hosting you here, and thank you for doing this.
The privilege is all mine. Now you have me on the back foot. You know how much I like the celebrity tag.
I quite hate it. So, thank you.
So let's start just to set context. Let's go all the way back. I know you have one of those gilded rooms to start, but what was the family background? Did you think that you would always be an entrepreneur growing up? And then we'll get to the rest of the story, especially some of the early failures.
My dad was an IITian who joined the Indian Navy.
In a family of bureaucrats, his is IPS. He joined the Navy, was mostly with DRDO and Mazagon Dock, so he liked the big-bang capital projects. 20 years in, he left and joined Larsen & Toubro. Mr. Naik started this immediately at liberalization—aerospace, nuclear, defense. So he was involved for the entire decade of Arihant getting built, PSLV 2 and 3, and a lot of long-track projects, capital projects, and nation-building projects. So there's a flavor of that in what we try and do: really think scale, think pan-India, what's good for the country. My mom, on the other hand, was a biophysics PhD who somehow made it into TCS in the first 50 employees, with Mr. Kohli. She had a prolific career of her own, and she actually started a tech venture in the early '80s when, she used to tell me, to open a bank account she would need either a spouse or a father to co-sign because you couldn't own a bank account without a male along with you.
And from those days, I think the entrepreneur in me got activated by just watching the grind you go through, but just the sense of ownership and pride in what you build.
A pretty middle-class upbringing.
Very middle class. Life was good, no complaints. Naval housing and naval life is good, but this is again '70s, '80s, '90s in India. The difference between the haves and have-nots, the spectrum was much narrower anyway. So from there, I moved back to Bombay in the '90s. For years, I was more in Delhi, so you got a lot of that sort of political, bureaucratic vibe around, and then you suddenly move into the peak sort of business market environment. All my friends in high school suddenly, instead of being kids of some government officer or the other, everyone's running small businesses, mid businesses, large-size businesses. So I think the bug bit me by college. I was certain I actually want to venture out. With some sage advice, my dad pushed me to go and get my master's after my undergrad. He said, "Get your technical expertise in, and go as deep as you can. Apprentice, because you're starting with a handicap. You're not a business family."
Would that advice still apply today? I have many people—I'm sure you have—who come to us in college, sometimes ready to drop out. The world has changed. AI has happened today. When people come to you, if you are clear you want to be an entrepreneur, should you be going deeper in education or not?
I wouldn't use the word "education" because I think that's something that you can actually get by yourself if you're just talking about academic textbook learning, and in the AI world that's becoming easier. I think what I hold sacred: four years plus two on the engineering side, I think the love and passion for building came through. I wasn't the best engineer. My co-founder in fact was the university topper. But if you are, especially if you're trying to play in the digital consumer, deep tech, anything where you say tech, if you don't understand technology at its core, you'll be taken for a ride no matter what.
That you won't get in college then. So are you saying—
I'm saying that I think college gives you the foundation.
But you have to get work experience.
Oh, work experience. So after that, I jumped straight to the other end. I went into a startup where there was maybe a 50-person tech team for five or six years, so I got to work on everything of everything—infrastructure layer to the application layer. So I think experience trumps everything, absolutely no doubt. And I think today kids can aspire to learn on the job; I think that has changed. But even today—I mean, I'm almost 50—we hire lots of interns, we hire college grads, we hire laterals. Those who've had a really good, solid grind in a good college outlast and outshine those who are self-trained more often than not. That rule still holds.
You think even in the world of AI?
In fact, exponentially more.
So yesterday I think Sundar put out the statement saying 75% of the code in Google is being generated by AI. Six months ago that number was 50%. But he also added that the best of the engineers and architects are the ones who are actually always going to be there because they're actually vetting what the AI is putting out.
No, so this is a very important takeaway. You are saying, because there's this whole narrative about losing jobs, you're saying grounding yourself—the best architects will never be out of a job. The best designers will never be out of a job.
I think the ones who are working on the thin application layer using toolkits, what you could do with a toolkit, the toolkit can do without you perhaps today. But if you're talking about like at our scale, right, just prolific volumes of transaction activity, the concurrency levels are so high—25, 30, 40,000 transactions a second at peak—the systems we design, the data centers we build out, the SRE teams, if you don't understand tech at the core, you can't learn on the job.
What about other functions? So for tech, very clear: be in the top 25%, be the people who have a good education background and then clearly good hands-on experience. How does this translate to other functions?
For product marketing, I'd say today even just entrepreneurship, if I knew then what I know now, I would have jumped in 8 or 10 years ago. But there I think familial upbringing or environment really matters. A lot of my friends went into their businesses much earlier than I did because the environment actually encourages risk-taking. I'm happy to see multiple clusters of entrepreneurship coming into India now, but generally in the North belt it was about the four-, five-, six-year grind of UPSC; in the heartland it used to be doing your IAS exams. Bombay, Gujarati families, Marwari families used to be prolific at business, so no matter what you were trying you'd get encouragement. We used to get discouragement. Even when I joined the first startup I was working at—this is in California, peak startup activity—my dad was furious that I gave up a job at Microsoft. That's what I got on campus: quality and developer testing, employee number 124,000. I would have died creatively. But that was the market. Today my son's heading into college. I'd be thrilled if he actually started venturing out right now.
Dropping out? I thought you were saying—
I'm not saying drop out. I'm saying start rolling the dice, because today you can start your first venture while in school.
This is very, very good. So you are saying that go to college, get an education, go get real apprenticeship experience—that is the path, continue with that—but start side hustles, your own businesses right now and start making money. Somebody who's a great entrepreneur and investor, I don't recall who, said you must start making your first money in college.
And today that's much easier. That's a great takeaway. Coming back to your journey, let's fast forward. You've got a great background. Where did it lead to? It led to some startups. Let's talk through that and where did that take you?
Six or seven years working in a startup, I felt comfortable that I know I can build, I understand the consumer side, learned some marketing, and was ready to roll. I didn't know finance. I had a general fear of things like law and compliance because, coming from an environment where governance has to be strong, you just can't mess up. So I'm like, "Okay, what do I do with this?" I ended up at Wharton, a complete opposite environment from Los Angeles on all dimensions. I'm surrounded suddenly with kids who want to become aspiring hedge fund managers, private equity folks; they're speaking a different language. Learning from the professors and learning from my peers, the language of business is very different than the language of technology—completely different. It gave me more confidence to venture out. I started my first venture during B-school. I co-opted my co-founder. He actually had an idea for a real estate venture in India. He was also moving back after 10 years in the States, so he was trying to replicate Zillow. I thought replicating iTunes was better.
I knew him from undergrad. We've known each other 31 years now.
Let's pause on that because we had a question on exactly this topic.
My question is related to co-founders. How critical is it to have a co-founder when you're trying to raise money, and how much of it is a deal-breaker when you're talking to an investor? The second is, if you had to get in a co-founder if you haven't had one from the beginning, what is the chemistry and what should you keep in mind when getting that person in? And the third thing is, what is the right fit? If it's not your partner or a family member, who can fit that bill and what are the signs that you can look for?
Let me pick up the first part on investors: don't decide to have a co-founder because of investors. If we answer the next two questions, that answers the first question. If you're doing it for the right reasons, that's what investors look at. So your and Rahul Chari's story is just very inspiring: 31 years, probably longer than a marriage, and yet happily together, at least that's how you guys project it. How did it start, and to answer the questions, how do you think about this?
Chari and I got along pretty damn well in college as well, and we worked on a college fest together. We went to investors—then they were sponsors—we pitched our college fest, we raised a bunch of sponsorship, we organized it for 300 or 400 students. We liked working well together. His journey was way more on the deep tech side—he was Sun Microsystems, Cisco—and mine was on the consumer internet side. So we were loosely in touch for about a decade. Around the same time, both got married just around the same time, we were thinking about starting families and moving back to India. This is 2009. We met at a batchmate's wedding and got chatting, and we said, "Let's try something together. It's been 10 years, we have a bunch of learnings. India is looking really exciting. We always wanted to move back, both of us." So we said, "Let's get together and try something." To the question asked, I'd answer it in two parts: we didn't know when we became co-founders what exactly we'd do, but there was a very strong interest in technology, and that gives you a very wide range—consumer internet specifically. And the second was there was a very strong alignment of values. If you've grown up together since you were 17—I've known his wife now for 30 years, she was a junior in college; he's known mine for 20-some years—I think that outlasts everything, by the way: the ups, the downs, the grind, the successes, the failures. If you know what you learned out of the venture very early on as co-founders, that's the person to stick with. The roles will evolve. You know this better than most, right?
The value system—because the question also asked about a family member—actually doesn't matter, at least in my view, although it's the minority. You said value system and the alignment on what space you guys would want to work in. Was the complementarity of skill sets also key?
Yes and no. In the roles we enjoyed more, there's complementarity. Rahul loves product and owns technology all the way down to infrastructure where he meets Buren. I love product to consumer, marketing, brand building, and someone has to do the responsibility part of being the CEO—finance, legal, controllership, all of that stuff, which he would very happily divest, and still will. I've been trying to con him into switching roles; he wouldn't. So the roles kind of divided each other. But it's a pretty nice spectrum, because if I'm tied up with a fundraise, he will go way deeper into the business plans themselves or tracking the businesses. Rahul could actually be the CEO any day of the year. I think I could be a half-decent CTO most of the year, but I know he can go better.
I think he has more stretch. I think I have more willingness to go into the corporate functions and own those.
Very good. Okay, so you guys decided you would be co-founders, didn't have an idea, had some broad idea of what you would want to do, and then?
And then in that era, as you know, I like a good party, love music, like dancing. iTunes had come out, the iPhone had come out, Android followed shortly after. I was still in business school; everything felt like a party. So I said, "Why not build an iTunes for India?" I somehow convinced Rahul, who had a much better plan—he wanted to build India's Zillow. I convinced him, "Let's build India's iTunes." First lesson learned the hard way when we moved back to India: study your addressable market. I think we had 10 million phones then, and half of them were—
I came back to India and started an internet company in 1999.
You were building eBay; there was no logistics. We—
There were no users. There were no internet users.
So we realized a mobile-first play may not really work too well. Second thing was that the torrent era in India was at peak, and we started—
Piracy was—there were no—
It was insane. So we ended up paying minimum guarantees to every label, east and west.
What was the name of the company?
It was called MIME360. It started off as a B2C offering. We had this little niche of maybe 10,000 users, largely expats paying us a dollar a pop for really, really old Indian music that we digitized. And then we had 13 million tracks for which we were paying Universal and Sony and everyone that nobody downloaded because they were freely available. When the top of your charts in a media catalog makes zero money and you're praying that the long tail with a very small set of users will make money, you need to learn how to cut your losses. I think we got a little lucky.
I'm going to connect this back to your new business and new business model, because I'm not sure you learned your lessons then.
Well, I think we like asymmetric bets, right? So that is still playing out.
Interesting. What is an asymmetric bet?
An asymmetric bet would be that mobile-based internet consumption—I'm talking about 2011, '12—mobile-based internet penetration in India will leapfrog broadband just because you don't need physical infrastructure, you don't need cabling. Ironically for us, we sold that company in 2011 or '12 to Flipkart. The year I joined Flipkart, Flipkart started selling tens of millions of smartphones. Prices just crashed.
Why did—so the business didn't work, was clear?
We had a very good platform. That platform had become the backend for streaming content on platforms like Gaana and Dhingana and other players. Google Music when it launched had three partners; we were powering all three of them—In.com, Saregama. So we were called the black box or the platform for the industry. We just found B2B was easy. We were focusing on tech; they were working on what they were working on. Flipkart decided to enter digital content, and we built some phenomenal IP. Again, didn't make much money there. We were the only company with its own DRM tech for e-books east of Europe. Every book publisher worked with us. The tech was great, but I think we were early in our understanding of the Indian market, even as entrepreneurs, how to think about, "Okay, I can have a lot of operating metrics. What'll make money?" I think Flipkart taught us an incredible amount of that.
Awesome. And then you went on to start PhonePe. I didn't think of this framework of asymmetric bets; it sounds very instructional for people because PhonePe is another asymmetric bet. So let's come to that. It has been proven with PhonePe. Just so people know, pre-COVID, wasn't Google Pay having higher market share, or were you guys similar?
We launched the day UPI launched.
You've made about 15, 20% market share in the last five years, right?
No. NPCI published the data formally in December 2020. When they published it, we were over 45%, almost, and we've always been the largest. What ended up happening is in the early years, before NPCI published the data, in the cities where the media's watering holes are, GPay's brand equity was higher and therefore everyone assumed, "Because I use GPay, India uses GPay." And I think we are the counterculture bet.
Yeah, no, that's another important takeaway: don't listen to echo chambers. Because I don't think Sameer would have started his business if he were to listen to echo chambers. Talk more about what made you take this second asymmetric bet having failed at the first one. But also, I think one important takeaway is even when you were taking a bet which may have failed because of market reasons, you guys were building real technology, real platforms, and that's what took the margin of safety on that bet significantly higher and you got acquired. How did you think about starting the next one again at the bleeding edge?
We had term sheets from past people. Somebody's willing to pay you a few million, and honestly in your first venture the first million dollars is game-changing.
You mean for the new venture?
For the first venture we got acquired for a few million and some chunky equity at Flipkart, which was awesome. I put 95% of my money in a house that I still live in; I've not moved since.
At that time it seemed like an outrageous investment. My wife said, "Why are you putting all the money here?" I told her, "If I'm successful beyond this, you'll want to move to a bigger house, so here's the bigger house." Now I'm in alpha; I can roam carefree, as they say, so I can take big bets. Second was on the PhonePe bet, and I think specifically within that, a lot of people ask us about UPI.
We'd seen the absolute collapse of the Indian digital payments infrastructure at the first Big Billion Day at Flipkart. I was heading the consumer side, Rahul was heading supply chain; we met at checkout and payments. We had spoken to every bank in the country before the Big Billion Day sale, telling them that we are going to try and get 40, 50, 60 million people to transact in one day. They laughed us out of the building. And what ended up happening is, in a span of maybe seven or eight hours, Flipkart had to issue a front-page apology.
It was a lot of egg on our face, and it was very unfortunate because what people didn't know is behind the scenes we took down the banking infra, not the payments infra—the banking infra. State Bank of India and Standard Chartered at that time were our cash back partners; their CBS was down, their ATMs were down for seven or eight hours. I got chewed out by every CIO in the market. Then our payment gateway banks—HDFC, Axis, I mean you name it, public, private—they all went down. Part of the issue was that nobody had seen that kind of peak activity digitally. Wallets had just kind of started, but with wallets, where you're pre-loading money, people ain't going to buy an iPhone using a wallet that's pre-loaded.
Wallets were an anomaly. Everyone said the success rate is high, and it was—
Because you've discounted the failure during loading of the wallet. The wallet-to-wallet works well, but the failure rate is still super high—75, 80% success—whether you're paying directly on Flipkart or you're loading a wallet. So we didn't like the wallet either. We knew payments was a population-scale opportunity/problem to solve.
Clear e-commerce foodtech—nobody could grow if digital payments didn't grow. Cash on delivery...
We knew wallet is not the way to solve this at scale. We started talking to the banks and saying, "We'll build a brokering layer." There was another venture—I think you guys might know them—Chillr. They were also trying the same. There was this platform or network called IMPS by NPCI. We asked all the banks, "Give us APIs, we'll build a new network for peer-to-peer and merchant payments." They laughed us out of the building.
This was as Flipkart employees or as you left Flipkart? You had left Flipkart. So we'll come to that. That's where you cost us a billion dollars. So we'll come to that.
We decided to venture out.
We were trying to figure out where we want to play.
I think from a financial inclusion standpoint, Rahul was very, very excited about that side of it. I wanted to build India's version of population-scale platforms, the big techs. Payments is where we met in the middle. Now we have bets, some asymmetrical, some linear.
So I want to go there. I think one instructive lesson—often people say, "What kind of business should I start?" and we say lived experience. You guys lived the experience with the Big Billion Sale, and therefore had a very clear, deep understanding of what was broken, and then you had a thesis on the solution, which we'll come to. Connecting back to the previous music situation, why would this not be another repeat of that, where you are calling the market wrong?
Oh, okay. So, one, I mean, at scale, we'd seen the size of the market. We were four years further along, having seen and interacted with some prolific investors and advisers during the Flipkart years as well. I think we'd learned how to size the Indian market—the today and the tomorrow—way better. I mean, you're four years into the market...
...and you experienced the Big Billion Day failure was not because the users weren't there, but because the infra broke.
I sized the wrong market. I didn't understand the dynamics of that sector either.
