So, we're looking at the format of this and said, 'Hey, instead of Mon talking for 20 minutes and saying the things that you all have already heard before, let's change the format and get it to be a panel discussion.' So, I'm looking forward to it, Gary. And I won't spend too much time, but I did want to say a few words before we got started just to get that energy going. One of the things was I'm very cognizant of the fact that the next session is going to be a storytelling session. Is Praep here in the room already? There you go, Praep. So please tell us how we did in your talk so we can learn from that. But let me start with a story. And the reason I want to tell this story is that you must have been bored out of your minds hearing about what AI is doing to the world. Like each and every other video on YouTube, every other reel on Instagram is talking about AI and I don't want to be the 3,331st person to talk about AI again. So let me start with a story.
A year and a half ago at Certis, we said let's do a small strategy session and let's figure out what people think the state of CLM, which is contract life cycle management, which is the business we are in, will be because of AI in the next 5 years. And so we said we'll do this for a day, everybody will come prepared. We were about 15 people in the room and we said everybody will come prepared. We have views and we'll go through the views. There'll be some slides but mostly brainstorming in terms of what people think. What was interesting about this was that half the room said CLM was going to completely change in the next 5 years. Like it wouldn't be what it is today. It would completely change because of AI ground up and what customers would buy would be very different than what we were selling today. That was half the room. Half the room said that, you know what, it's a lot of hype right now. It really doesn't work in the enterprise context. And again we have only enterprise customers. So I'm thinking not B2C, not ChatGPT, but Microsoft Copilot which if you know the story has been quite involved. It's been so involved that last week Satya said, 'Hey, I'm going to hand this off to Judson as chief commercial officer. I'm not going to be running the company from a sales perspective and I'm going to focus on the technology' because he saw Microsoft falling behind on the tech because the tech just doesn't work at the level that people expect it to, right? Because it's always slow. Enterprise, as many of the founders, many of you know, it's always slow to adapt, adopt, change, manage. It's a very different world. So going from there they said no, this is not going to change in the five years as much as we think. So we should be the best we are in what we do.
Okay. And what we heard from the first faction, I call them the Mavericks. What we heard from the first faction was stories about Kodak and you all know, right, digital cameras and film cameras and people saying, 'Hey, you know, film is film, it's art, and nobody's going to go to digital except for a fad.' And look where the world is now in digital cameras. But it was also the same thing that happened with Microsoft in the mobile edge. I remember seeing a video where it was just unbelievable that a phone without a keyboard would actually work, right? People said it was crazy. And now how many of you in the room have a phone with a physical keyboard? Nothing. So those were the Mavericks. The conservationists, the second group as I said, said that, 'Hey, that is true but look at what happened at blockchain. Everybody thought blockchain would change the world. Look at what happened, right? Look at what happened with the internet. How long it took for that change to happen.' And so we said, 'Hey, how do we mix these two groups together because they are part of the same leadership team.' Now think about it, at our size, is about 300 to 350 million of ARR, about 2,400 people worldwide, about 500 enterprise customers. It is very disrupting to see as a founder that our leadership team was completely on two different paths. And we said, 'Hey, we have to do something about this.' And that is how one of the first changes in our company happened. He said we'll give the first group a big budget, but comparatively much smaller than the conservationists, right? And we say, 'Hey, the Mavericks go and establish five use cases that you can showcase to us in one year and do the best you can.' And you know what you think, what is going to happen in 5 years, you have told us that, you've showed us some slides, go back and show us how you will achieve that utopia or that dream or that state of the business. And we'll give you one year and if one of your use cases works we'll take it as mainstream product. And we went to the conservationists and we said, 'Now that your budget is cut by about 10% overall because that budget is going to the Mavericks, you have to figure out how with a reduced budget you can actually serve the growth that we are going through for the next two years.' So with a budget cut of 10%. Now you have to go, so we're growing maybe, think about it, from 15 to 25%, somewhere around that, we're growing at that range. Because I won't share the exact number but I'll give you a range. So 15 to 25% growth every year which means costs also go in that proportion if not in services, if not in engineering, but definitely in services, definitely in support, definitely in customers, sales and everything else. But now you have 10% less budget from last year and we said use to get that efficiency so that you don't feel the budget cut. So we started that journey and it's very interesting to see where it has gone because we actually succeeded in some of these milestones in the first 6 months itself. And it was because nobody, even the Mavericks, could anticipate the speed of development in AI. I think that is one thing that I think most of you will agree with in this room that the speed we have seen, the amount of investment we have seen, the change we have seen in my lifetime at least, I've not seen this change in such a short time. Obviously none of us ever saw a company go to an insane valuation like OpenAI, the first company ever in the history of business that actually grew at that scale. We've seen some of these. Nvidia came out of almost nowhere, right? I mean, obviously everybody knew Nvidia, especially I'm a gamer, so I obviously knew Nvidia and what they were doing. But $3 trillion of valuation. I mean, that is astounding. That's crazy by any standards. And look at what happened to Intel. So, there's a story right there in the space of about 24 months. This happened in 24 months, not 10 years and it's incredible. So it's been interesting and that's what I wanted to set this conversation with. I said, 'Hey, this is what we should think about, this is what we should discuss and let's see if it can apply to the Indian context with the founders that are here, then the investors are here.' Investors, for me, you know, was my seventh startup. Some of the startups failed, some of them succeeded, one of them went public on the NASDAQ before Certis. I've had as a founder or an early employee in a small startup that we cannot really live without the investors. They are the fertilizer. They help growth. They push you. They make you cognizant of the fact that you're responsible not just for yourself but for others. And the money that you've taken has to give returns. And that pushes founders, as the founders know very well, that pushes founders even harder. And the investors of course cannot live without the founders because where does the energy come from? Where do the ideas come from? Where do the ideas go from ideation to execution and actual revenue and happy customers. So, it's been an incredible mix and I'm glad to see both these groups represented and I thought this would be a great setup to start our conversation with the Pentathlon team to say, 'Hey, how do we actually look at this from here on for the next 3-4 years.' So, if I may, can I invite Gir and team on the stage.
Thank you sir. Thank you for your valuable insights. Now it's time to invite our panelists on stage. Please put your hands together for our managing partners. Mr. Madukaria. Let's welcome him with a round of applause. Mr. Sepin Cha, our managing partner Girra Kasmar, Ashik Maya along with our principal Navaj Kumar. Please let's give it up for all of them. Very warm welcome to all of you over.
All right. So I'm going to start with Madukar and there's a reason for that. Madukar, I wanted some feedback on how I did.
That was very, very, very nice. There's no doubt.
So you know, if the world is changing, we're seeing so much change happen all over the place. Do you see founders change as well? The type of founders, the type of companies, you know, generally, you say, 'Hey, I see a trend where I see very different mindsets or very different thinking.' Have you seen that trend already hit?
Yeah, I mean, you know, I am a newbie in some sense in this VC business. I mean, we started our fund only in 2020, just five years, but in these five years itself we have seen a lot of changes. Okay. And the changes are coming from different directions. So I'll come to the AI part also and how that is impacting, but there have been several things at play. At a high level I will say that founders that we are seeing have become more ambitious but at the same time much more grounded. Okay, the reason for that is very simple. I mean, you know, when he entered this business, those were the frothy times where valuations were sky-high and not just they were high, the most important thing was the number of investment rounds happening, how frequently they were happening was very high. So people could sort of count on next investment happening anyway in 18 months or something like that. And because of which the founders many times, and we have tried to make sure that we were investing in companies where the founders did not necessarily have this sort of mentality. But you know, seeing founders where the mentality was mainly chasing valuation, not just for my company is more valuable because that is a victory point, like they will say, 'Okay, my company got valued at XYZ,' whether it's created wealth for them also was not important. So we are seeing now that the number of rounds are less, valuations are more sane. So more and more founders are of the mindset that, 'Look, yeah, actually we are here to make business and not just create valuation.' So we are definitely seeing that but at the same time with AI turbocharging everything, they are much more ambitious also because they think they can actually build much bigger business much faster. So that is a change that we're definitely seeing.
And do you see the change also, one is the thinking, right? One that changes that, 'Hey, because the markets are very different because you know money is not now as easy as it was 2-3 years ago.' Do you also see the change in the constitution, the age maybe, the backgrounds of the founders that you see nowadays?
Yeah. Yeah. So again we see a change there as well, little bit more maturity in fact, age-wise also. Actually we were seeing a trend and there is a bit of disruption in the trend. I'll just talk about that in a minute but just like anything else when it starts maturing, like this startup ecosystem is also maturing. So that itself also is bringing that maturity, that is one thing. Second thing is now we have many more in the companies that we have invested in as well as the companies that we're seeing. There are many more repeat founders than we were seeing earlier. Okay? Not necessarily people with successful exits but people who have tried to build a company many times. In fact more often than not it is a founder who tried to build a company earlier but did not succeed but that's a big positive that we see because they have gone through the grind, they have seen that. So we are seeing slight change in the age group, slight improvement in really having much more deeper domain knowledge but at the same time like you talk about that AI frenzy. This is again bringing back some of those old things. And I'm not saying they will not be successful, but we're again beginning to see some very young founders just out of college have a great idea about what I can do with AI and so on. So we're again beginning to see some of that, but by and large, more mature, more seasoned founders.
That is interesting because we're seeing this trend internally at Certis as well that the younger generation is actually bringing a lot of different thinking overall but it's the seasoned people, the people who have been around for a while and who've seen the domain, actually consolidating those ideas so that they can be executed. So it's a very interesting thing and I'm very hopeful where this is going. This trend is actually making the foundations more solid.
That is very interesting. Sep, where do you see the movement? Which areas do you see the most funding? For example, which areas are the most exciting for you folks? How's that evolving in general for you?
So, you know, first of all, let me add to what Madukar said. You know I would say that these are very good times to be an investor or a VC. You know that four years ago there was a time when there was a startup and we asked that person, 'Hey, you know, can you send us your financial data?' The person didn't even revert saying, 'Hey, you know, I have two other VCs lined up. Either you take it or you leave it, you know, why do you ask for financial data?' And we're like, 'You know, what business are we in?' Now, you know, the cycles of evaluations have gone deeper, you know, people are patient with us and you know, we are also able to take right judgment calls and so on. So it's very good now. You know, domains, areas, they keep moving, there is seasonality associated to it. What we are seeing is traditional businesses, you know, where these businesses have been around for like decades, those being disrupted by the use of technology, those being disrupted by the use of AI, those kind of ventures, you know, a lot many more of them are coming and which is where that seasoned professionals aspect also comes because these guys have been living and breathing that domain. They have all the knowledge and then they are kind of jumping out. They are seeing how technology can disrupt it and then they are into it. To be specific about, you know, what areas are seeing more investments and you know what is it, I mean AI is universal, everybody is saying, you know, I mean we had 30 portfolio companies, we have a portfolio of 30 companies across two funds, we had 18 of them come in the morning and they had one slide each. There was hardly any slide which did not start with 'AI-powered'. It's more like how it used to be in the cloud days, right? I mean, 'We are cloud-based so and so, we are cloud-based so and so, we are AI-powered so and so, we are AI-powered so and so.' So, AI is definitely a constituent of each one of them. But you know, logistics, transportation tech, that is a booming area in the sense that as you can imagine, you know, how things are happening in India, that's clearly one sign. That has grown, you know, in terms of data points it has grown about 100% year-over-year in terms of funding. That's, you know, retail tech has also grown. Finance is more or less flat. But you know, I mean, in particular, if there's one shining star, that is this logistics and transportation technology.
Yeah, I think the grassroots. Yeah, of course. All right, one thing that we had also been seeing and it was very nice to see in the morning session when you were having that discussion on the GTM part, even the founders talking about that specifically, is that we are seeing a big change. You know, when I was building my previous company there was this thinking that you can't really sell to Indian enterprises, you can probably sell to small companies which are more tech-savvy but otherwise you have to work. But we are beginning to see large enterprises within India, the readiness to invest in tech and that is also creating this, like you said, logistics and so on, so those are places that were lagging behind in digitization and companies because of their companies which are building for India. That's a change that we have seen and not they're just building but they are building successfully. They're scaling successfully. That's another big change that we see.
No. And I think that kind of indicates a trend to more brick and mortar, more fundamentals, making sure that you know the business that goes on now, how does it become more efficient? There's also a lot more focus on that.
Do you also see investments or companies coming in where they are like at the level of Anthropic or OpenAI, fundamental AI research? Is that trend in India? Because that's one of the things, you know, and I'm representing the founder ecosystem on this panel right to a certain extent. Is that trend something that you would find interesting as investors as well?
I mean, different investors have different choices. I mean, we have purposefully picked up our choices of not looking at, you know, companies which are building the brick and mortar for the AI business but which are applying AI to disrupt conventional businesses. So that's more of applied AI which as investors we are picking on. Either of these bets they will have their pros and cons. It's just the choice we make.
No, absolutely. And it's interesting for me because I think there's an opportunity here for India in general in terms of, you know, we have the skill set, we have the numbers, we have the people. Interestingly, we also have the data much more accessible than the Chinese for example, to a certain extent, of course a lot more governed than Chinese data but still lot more accessible. And that means, and it's also very unique because, you know, Indian commerce etc. flows very differently, right? In general the consumer is very different as well. So there could be some opportunities here which I see are very conducive to India as an environment. But I get it, I think it's also, you know, where you invest and how you invest, what's your thesis. And this is also interesting. On the other side of course, you know, pure research and AI needs a lot more money which is also...
Exactly. So you know the size of the fund, you know, all those things matter.
Absolutely. Coming, you know, you mentioned GTM, I think I'd love to ask Ash this. What trends are you seeing in GTM generally? Exits, you know, how are founders thinking about exits? How are you thinking about exits? What's the interesting change you're seeing with these situations?
Got it. So I think there are two questions there. One is about the GTM and the other about the exits, right? From a GTM standpoint, I think we went through an exercise recently where we asked all, I was visiting the Middle East for fund raise and there, you know, we were looking at talking to some partners. So, we had solicited interest from our portfolio companies who might be interested and even more broadly. So, there's the Middle East and then I'm based out of New Jersey. I live up there. Also for the US market, what I would say is, you know, it's definitely in terms of chasing the money, it's thought is in everyone's mind, 'Go west.' But that being said, is a few words of, you know, caution or rather drawing from my experience. One is, excuse my French, don't do it in a half-ass manner. If you're looking at it, you got to commit to it and then, you know, budget for a bunch, plan for a bunch of other things. The second thing I would say is before you try it, get your assets together. Assets meaning things like your collaterals, get the database, you know who your target audience is. Do you have to make some change in the product to do that? So get those things together. The third thing I would say is, you know, to borrow from Sunil Karband from Trezek, ask people. The way colorfully he worded it was, so you know, tap into your network, talk to people, you know, don't be shy, you know, if the first phone call doesn't work, make another phone call. And then finally, you know, I would say that while the US is definitely much more expensive than India, the Middle East, if you're looking at that market, falls somewhere in budget for it. So, you know, it is sure we can stay in the starboard, good hotels and all that but still there's the flight, there's the travel, there's other things that add up and, you know, I don't want to throw numbers out here but it'll be a reasonable chunk of money that one would have to plan for before you execute something like that.
And the exact bandwidth as well, right? Let's not forget that. I think that probably also is very expensive because you get defocused for figuring out another market. So you have to plan for it as well probably.
Exactly. And if you know obviously these kind of initiatives would come from the highest levels in the company. Typically there's a founder, co-founder. You're going to be splitting your time. So there's that energy that goes in that direction. So you know, are you dropping any other balls so to speak. You don't want to be doing that. So from a GTM that would be my advice. I have been working with some of the companies, but you know, I'm one guy, I got limited bandwidth, I do the best I can for the portfolio companies but I would suggest that before you embark on it, this, you know, whatever short checklist, tick the boxes.
That's absolutely right. And I combined the exit question with the GTM question for a reason. I think what is interesting is, you know, if you're thinking about exit already then GTM becomes a very big weapon in your arsenal, right? Where you go, which geographies do you hit? You know, what kind of customers do you look for? Are you seeing any linkage between the two? And is AI driving any of these decisions?
I think I would say from an exit standpoint. First of all, it would be on a case-by-case basis, it would depend upon the readiness of the company. And again, you know, exit in all honesty, there is two sides. There's the exit for the company, there's the exit for the fund. So the ideal situation, the two go hand in hand in the sense that it's a M&A, company gets the exit, we get the exit. So that would be the ideal situation.
As the cleanest as well. Right.
Exactly. But other than that, you know, I think our goal is to work with the companies for our investors to, you know, within the duration of the fund life, find an exit. That's something we've been paying a lot more attention to lately given the state of fund one. The other avenues without diving into too much of a detail could be at the next round of financing, there are increasingly the secondary market is becoming more liquid. I mean there's definitely not a public markets but there is, you know, some players in it so to speak. So that would be some online platforms are emerging and then of course our good old investment bankers are around to, you know, cut a deal. So those are all things that we would look at but those would all be in tandem, in conjunction with the company. So, and fund one is definitely getting to that point. Fund two, while even while we invest, you know, we are pretty upfront, it's an 8+1+1 year fund, so we talked to them up front that, you know, our holding period would be like roughly in the five to six year ballpark and we would work towards that. So yeah.
Is AI playing, I think AI would be more in the growth area and as one of my colleagues mentioned what we are seeing is that, you know, we typically invest in solutions that are either for an industry or for a functional area. So in that scenarios AI is typically additive in the sense that, you know, some aspects of the solution or the value people would enable using AI. Yeah. So it's not like a pure AI play, you know, but it would be kind of applied AI. So yeah, we're seeing that and that definitely should, you know, help the growth of the company overall.
Thanks. And I think that trend is going to, at least in my mind, is going to increase as people say, 'Hey, how do I actually get value out of AI?' That's the biggest multi-trillion dollar question I guess in everybody's minds. You know, how do I get that value especially in the enterprise market. Running these funds over the years, very interesting from a compliance perspective as well, right? And there's lots of changes that have happened. I think the Indian kind of situation, the environment for doing business is also changing. I'd love your insight on what you think about some of that compliance and of course feel free to pitch in all of you but I think this is an interesting time for India as well.
So I think as a part of the ecosystem, you know, we have seen a lot more coming in last few years. We have been part of the ecosystem for last 5 years and not just the new AIFs but, you know, the existing AIFs getting into launching the second and the third fund. So, you know, a lot of funds have come in and the number of AIFs in the market have multiplied a lot. So I think SEBI has taken, you know, really some of the key initiatives for last few years. If I have to put it together, you know, we have been in a boat where, you know, we have seen at least one new regulation or notification coming per quarter, right? And if I have to take certain examples and there is a variety to it and interesting ones. So the first one almost a year and a half ago, you know, there was a circular around that, you know, there at least has to be one key person within the AIF that have to clear a certain exam from NISM. So two-three of us within the team, we have to go back and...
We went through what it takes to prepare for that.
Rattafy, magi, and then clear a SEBI certification exam.
