Investment & venture capital outlook in the changing world order

[Music] well welcome everyone to Abu Dhabi Finance week so we have the great privilege to have you with us today so can you introduce yourself what do you do where are you coming from where are you going well thank you for having me here uh my name is GV Rish Shankar I partner with Peak 15 Partners till about four months ago we used to be called seoa Capital India in Southeast Asia so we had a rebranding event in June um I'm coming in from Dubai which is where I'm based of but I'm very frequently in India including tonight I'm flying back to India so it's back and forth so when you're seeing the vibrant you know vibrant scene we are trying to we are currently building in Abu Dhabi you should think of moving and be with us well you know never say never right perfect so the theme of the panel is about you know like investment NVC Outlook in the changing world so we are hearing a lot of things you know about that is like people are calling it like the era of transition changing World Order people are saying like there is a real laurn and one telling that it's just a correction of the market what are your thoughts about that so the last year I would say we went through and what are your perspective on the on the coming months or coming year yeah it's a great question look uh we are definitely in a period of transition and there is definitely a correction so somewhat both are true um you know when you look at what happened in 2020 2021 the amount of Capital that got raised the you know zero interest rate environment you know people are just kind of spending as though there is infinite money and so a lot of bad habits crept in you know in how companies were being built and so on and you know bunch of the blame is on investors who allowed and gave so much Capital there was a lot of fear of missing out Etc that has really changed in the last two years because capital is now not as cheap anymore so it's what's not cheap will be spent more carefully right and that's what we're seeing and that is a healthy transition for sure right that's on one end which is markets have corrected fundraising is lower people have gone from in 2021 raising two times a year to now going back to what is normal which is once in two years for startups and so on right so I think that is a healthy transition and you know like I keep saying it's it's like you need a period of fasting for you to cleanse yourselves and we are going through that fasting period right so you come out of this stronger on the other hand there is also a changing kind of world order with the geopolitics that we seeing which means in a in a way there are opportunities that are outside of what traditionally were in the US and in China which used to be the two big hubs for technology now you're starting to see a lot more prevalence of Asian companies and lot more interest in Asia right and Asia Middle East southeast Asia you know broadly um and you know that is a great opportunity for people in the region and and I mentioned this before and quoting Warren bufet who said look you know if you're born in the US as a white male you have a lottery that you won and I think you know if you were to be born in this decade or or be in your Prime in this decade you want to be in this region because there is just so much more vibrancy in the region and you can see this right and if you travel to the US and you land in any airport you feel like this is on the other side of the growth curve you want to be in our region you know when you when you you know come into the infrastructure that we have in this region it seems like this is the future and so I think there's a there's a lot of hope uh about what this region can do and broadly what Asia can do and I think it's uh likely to be an exciting next 10 years I totally agree with you you know I've been now on the tech seen in the UA for six years and we saw you know how I would say that the look of people coming from a mature ecosystem is very different on us you know now looking at us like rookies six years ago and now being more like really trying to be part of our story so this is really exciting and especially as you were seeing you know if we can build these Bridges between using the Middle East and especially Abu Dhabi you know as the help to be able to get Bridges to two of the most growing emerging region in the world which is on one side Africa and Asia that's how we can kill it yeah I think lot of advantages of of the geography obviously very closely linked and also just the position as a very open ecosystem right you know one of the things and when I moved to U you know the thing that was very interesting was how welcoming the community is which I don't think people understand from the outside and unless you spend time here you also don't understand how vibrant it is you know for somebody that just comes in and goes you know people think of it as a source of capital but you know once you start spending time you realize there's actually tremendous amount of talent and I like to say this about UAE particularly which is because it's a Melting Pot of so many different cultures that are coming together and you look at what happened in the valley it's all a the immigrants that came in and the hustle of the immigrants created a lot of things I think you know that combination of locals and immigrants coming together and Innovation you know gets driven off those things and I think that opportunity is there for UAE and you're starting to see a lot more people move in and take advantage of that environment so I totally agree you know I think we are seeing since one generation in the UAE people having their own kids you know born and raised in the UAE so that's the case for my family and I can tell you that definitely my sons are from the UAE you know you will not challenge them to tell you that they are from France originally and I think that it's exactly what you're saying you know the point is that you will not be successful in the UAE if you are just traveling back and forth you need to really committed you know to what we are trying to build together and and to to see value for you also and and your company and what we are trying to achieve let's talk a little bit more about like this correction you were mentioning in the market how is it impacting your own portfolio your investment thesis how do you manage your investment now yeah so we looked at our portfolio and and looked at what's happened in the last 12 months right so you know um what we observe is companies have actually become stronger and what I mean by stronger is companies that were burning you know hundreds of millions of dollars or you know tens of millions of dollars have dramatically reduced um you know their burn profile and so we have seen a significant if you look at it from a FMV or the value of the portfolio perspective more than 80% of the portfolio has actually both reduce Burns significantly and grown right it's not like they just sto growing and then reduced and become profitable or something and then a large proportion has also become profitable so to me actually this is a blessing in disguise you want a period of you know not infinite resources but limited resources so people are able to take that take advantage of that and become healthier and also what happens in an environment is overall competition reduces because you don't have infinite capital rate so it leads to more consolidation the stronger companies will actually emerge you know much more victorious in this because the weak competition dies out because Capital also converges to fewer players I think that is the thing that we're seeing across the board so think companies have become stronger stronger better profile you know many have become profitable and coming out of this the ones that have some more Capital left will double down on Innovation and they come out much much stronger uh from things so we are seeing that as a pattern and we're very very happy that uh you know we had this break in this Capital availability for companies to really fix their fundamentals and so that's that's one big thing uh overall better quality companies stronger in terms of investment strategy what changes is look when we look at companies we want to see that companies have actually learned from these experiences right so how are you now building your company right how do you make sure you you have the fundamental straight your unit economics right and a path to profitability you know while everybody is saying profitability you can't turn a switch and become profitable right but you should have a plan you should have a path and that should be clear to you and you know you should be able to communicate that to investors so that's coming to my next question you know of course we are talking a lot about like accessing fundraising especially in the in the current time but what do do you think are the biggest challenges you know for funders to be able to grow and scale their companies a part of fundraising yeah a few things um and it depends on the region if I speak about this region for example I think the biggest challenge here uh is first depth of talent because you know at least if you're a tech company getting technology Talent has not been easy right so most of my companies here look at Talent from other parts you know they either go to Europe or uh sometimes you know there are companies that set up in Ukraine or Russia or sometimes in India so you're you're having to go outside to look for engineers and I know Abu Dhabi has some programs to bring Engineers to this place and that's a that's almost imperative for us to do because if you want to see more tech companies out of the region we have to find concentration of developers in the region and I think that's an important initiative uh to drive and so Talent continues to remain the number one CH challenge for startups across the world but more so for this region right and hopefully more people come back because a lot of people go out and become educated uh in the US or in Europe and as more people come back that Talent density improves for us and then you know we as we have these programs like golden Visa Etc to attract talent to the country we will start seeing density of talent go up so I think those are really important initiatives um the second thing is growth Capital again for this region in particular growth Capital has been hard right and uh you know as I speak to funds Etc there's a lot of people that come here to fund raise from you know whether it's UAE or or Saudi Arabia and so on the question is really where is the capital pool Beyond series B and series c's for this region and I think that's a problem to solve eventually um you know that's the opportunity and the Gap we saw for us to invest in the region but it is also a gap that needs to be solved for companies from this region to Survive and Thrive and become World beaing Companies and on top of uh gross capital is also the exist strategy you know that's why also we are working a lot with the IPO fund you know and adx in in building that potential type of exit but uh I agree a lot of good initiatives there you know again some simultaneous listings or common listings so on I think these are really good things to to drive and stability of Regulation allowing Clarity of regulations Etc will also drive more liquidity but I think the fundamental thing that will really Drive exits is building companies of scale right unless you have companies of scale and this is a question that was asked of India for many many years where are the exits you know people raise capital for India where is the you know money coming back but the question to ask is you know where are the companies of scale if companies of scale exists like kareim right which got an exit nobody would have thought in this region somebody would come and pay $3 billion but it happened it happened because company of scale was built so we have to ask the question not about exits but about scale of companies once you can have companies of a few hundred million doar of revenues you will find that both the IPO markets will be open for such companies and m&a markets may open up for those companies so my focus will be really to ask the question how do you build a company which has two three $500 million of revenues and that's why I think you have this virtual Circle you know where these companies went for that p i are more open to give back you know and to create this networking mindset that we need to be able to grow uh a tech ecosystem so I I read your um your bio on your on your website so you started with mckin and you're telling that you were a little bit tired you know of making slides roaring slides and doing too many air air miles and that brought you 20 years ago to the VC and the capital risk scene that's right so what are your learnings you know uh for that journey of two decades in the sector um the the main learning is it's a very humbling thing to do right we all think we are smart we know how to identify the next big company and so on but the truth is our business is 5149 like the you know you can only be marginally better than other people but as long as you can do that over a very long period of time you know that becomes an extraordinary track record so the the thing is about just staying with the first principles understanding that there's a lot of luck involved in both company building and picking right and having the humility to know that you cannot you know assume you are a great investor and assume that everything is going to go well I think that that is a fundamental fact of what we do you're I mean when we were seoa we used to say we only as good as our next investment right which is your every you know you what got you here won't get you far you have to year consistently be able to see and pick winners and that is just you know having a point of view which is 5149 knowing marginally more and learning from your experiences introspecting and kind of understanding what worked what doesn't work and investing at least my learning is it's uh much more understanding yourselves and your emotions because a lot of biases that we have creep into the decision- making process and just being aware of that and having structure to manage that helps you avoid making mistakes and it's always still going to be a lot of luck perfect so I I would like you to give please to the audience two advices one is for anyone who is planning to launch his Venture you know next year what should they do what should they not miss and also on the other side you know of the journey for the investors if anyone is trying to be um a firsttime fund manager what would be your advice yeah for Founders I would say look uh we all talk about Market size being important and you know there's Tam and Sam and all of that but I'd I'd love for people to start looking at profit pools right so can you look at your industry and the problem you're solving and look at what are the profit pools in that industry or that problem that you're solving because eventually everything trades on a profit multiple in the public markets so the question is really what profit pool are you going behind that and is it large enough for you to build a big outcome and especially if you want to be Venture backed or growth investor backed you know those people are looking for companies that can get to the one 551 billion do outcomes because that's when it moves the needle for them so the question you have to ask is to be a billion dollar company or $5 billion doll company you probably need to have hundreds of millions of dollars of Revenue and you know few tens of millions dollars of profits right so how do you get there is there enough profit pool in the industry you're going behind I think that's the number one question like while you have to be authentic to the problem you're solving you also have to ask the question saying are there profit pools if I solve it well is there enough profit to be made um and you know profits that you can keep right and I think that that's one question or or one thing for Founders to reflect on and first time fund managers look at least the way I see it is the the difference is really just knowing something incrementally more than the existing fund manager in what today appears like a Nish sector which could be tomorrow's sector right can you can you pick a few things where you can know a little bit more and build a deep enough Network that you will have the opportunity to be ahead of other people on those sectors and and that helps you build a track record over a period of time you know if the if the thesis is the same Global macro about the region I'm going to invest there that's not good enough I think you need to have the incremental Insight on a few sectors that allow you to build you know that incremental knowledge to play that 5149 game 5149 well thank you for your feedback on that and your commitment you know to grow that scene uh in our part of the world I don't know if we are allowed to take question from the audience are we yes we are so I don't know if you have any question mic is coming uh you talked about the learnings that the founders are going through with this turning towards profitability and cost economics uh do you think that will sustain after 3 four years once the HRI comes back I mean hopefully coming back yeah look our memory is short usually uh so I do think people will go back to saying growth first first and it's not because of the founders it's also because investors will say okay look you guys should grow faster because that's what's being valued but I do think there are some um I think some scars will remain right the wound will be gone as they say but some scars will remain and as long as those are reminders for us to not lose the plot again and and know that you don't go all the way always plan assuming that this is not going to be an infinitely you know running bull market right as long as the founders understand that then you can play the C markets smartly which is when there's a lot of capital available cheap take it but don't spend it and so the problem is in making the distinction saying yes I'm smart enough to see that this won't last so I need to take it and smart enough to know that it will not last and hence not spend it right and that's the distinction if people are able to do that hopefully people that have gone through some of this you know will spend differently this is exactly how like if you were born before the '90s in China or before the 80s in China when it was not as wealthy right those set of people don't spend as much and save a lot but if you're born after the 90s in a much more Rich Nation then maybe you won't save anything right that's the mindset difference any other question hi Ravi uh can you uh elap elaborate on the few must checklists that you have in mind you look at while uh selecting the companies yeah it's always a few things and few very simple things again size of profit pools or size of addressable Market being one so if everything goes well do you have a market large enough that can help you build a large company that's one thing we are asking second is the founder so the founder and the management team the quality of that how is there a founder market fit if you will like why are they doing what they're doing uh and and are they authentic to the problem they solving because there will always be tough times and you don't want the founder to be starting to think about okay my opportunity cost because I used to be at Mak Z now I'm doing this like if I were in that job I'd make so much and you know you you want to know that they're really there to solve the problem that they're talking about I think those are important finally of course the business model is do you have any any sustainable advantage that you can hold because it's either IP or technology or you know patents or whatever else that may help you or just Superior execution so what is it that's going to help you win in a markets broadly these are the three things that we look at but you know it's of course a function of that particular company and that particular Market thank you yeah we had another question here first R thank you very much uh you elaborated a lot about the value chain of the companies coming growing uh my question is the following um do you see uh maybe now maybe in the forceable future these compan comp are coming to pick up the seed rounds and maybe even IPO in out uh here meaning regionally like considering Middle Eastern money International money vs usual Americas London thank you yeah it's a great question look I I I do think um to the point earlier made saying look we need to see companies from the region list in the region be accepted because that's the long-term thing that you can and really Bank on right you need a very vibrant public markets uh you know ecosystem for companies to go public the issue when you are dependent on a foreign market is you then dependent on the understanding of those investors of your Market which is not normally that deep right you want your local ecosystem where investors from the region who understand the region are able to appreciate why you're building what you're building right and if you're a SAS company yeah there are a set of metrics you can do but if you're a consumer company in this region and if you're going to listen to the US and us last consumer boom must have happened in the 50s or 60s they're not going to appreciate why in this region now is a great time to build a consumer business so I would say in general it's better if you can build and assume that exits are possible in the same ecosystem of course if you're a global company out of the region you have access to any any you know and list anywhere else in the world uh and that that becomes easier to understand but for domestic companies you would want to see them succeed in the domestic markets but if thank you so much re for being with us today and for giving your guidance to the audience thank you enjoy the chat thank you so much