INSIGHTS #25 — Kunal Shah — Cred shares anecdotes from his entrepreneurial journey

In this edition of the #InsightsPodcast series, we are joined by Kunal Shah, Founder and CEO of Cred, and Founder and former CEO of Freecharge.

Freecharge was part of the first wave of ecommerce startups in the country, along with the likes of Flipkart and Paytm. It was acquired for $450 million by Snapdeal in 2015, making it the biggest startup M&A in the Indian startup ecosystem at the time.

In the podcast, Kunal starts off with talking about his early days, and how he started working at the early age of 15 to help his family tide over a financial crisis. He juggled a full-time job while pursuing a bachelor’s degree in philosophy (which he chose based on class timings given his work commitments) and some freelance work in the evening, making him financially independent at a very young age.

He talks about his journey from a being a freelance designer and programmer to building a small SaaS company that pivoted many times to eventually become Freecharge. After the acquisition of Freecharge, Kunal had a couple of stints in investing, before deciding to start up again in 2018 with Cred.

In true entrepreneurial spirit, Kunal jokes about how he has done almost everything under the sun — from selling music CDs and mehendi, to running a SaaS business and even a BPO company. He also had a laptop import business for a while before finding his calling with ecommerce.

On how he achieved the product market fit for FreeCharge, Kunal says it started with the simple idea of offering a mobile top-up (which was the largest selling product at the time) free of charge to draw enough customers on the platform to potentially build a business. This was very much on the lines of the ‘loss leader strategy’ adopted by grocery stores to attract footfall. Kunal says he saw big opportunity in the mobile recharge space, which had a use case for 99 percent of the population who were on the verge of getting comfortable with online transactions, thanks to IRCTC.

That, along with reduced interest among merchants who were selling mobile recharges offline due to diminishing margins, made it a no brainer for these transactions to move online. As Kunal puts it rather nicely, “I saw recharge as the gateway to a transacting India.”

He calls himself a mediocre founder who found a great product market fit, and adds, “Terrible product market fits, even with the greatest founders, can never create value. Fighting headwinds never creates value, you only burn fuel.”

In the podcast, Kunal also talks about how it is challenging to get investors and team members on board when dealing with original ideas that do not have any global models to serve as comparables. Interestingly, it is these original ideas that have disproportionate wealth creation opportunities.

Kunal also gives the listeners a glimpse of the philosopher in him as he explains how platforms with a high frequency of transactions almost always win because the trust and habit built over many transactions enables such categories to expand faster in a mistrust democracy like India.

He also speaks of his famous Delta 4 theory, which encapsulates the need for new products to create significant delta in value creation for the customer through superior product/ service experience, making the switch from old behaviour to new behaviour irreversible, instead of giving massive discounts to infuse the delta in value creation for customers which is not sustainable without systematic change in consumer behaviour .

Answering a few questions from the audience, Kunal shares some words of wisdom for fellow entrepreneurs to succeed in a rapidly changing world. “Founders that try to fit in don’t raise the bar. So, if you want to be an outlier, don’t try to fit in.”

Accel shares such interesting entrepreneurial stories, with informative nuggets to run and scale your startup. Follow the links below and subscribe to our #Accel #INSIGHTSPodcast Series using the following links: iTunes, Google Podcast, Stitcher, Twitter@Accel_India, and the RSS feed.

Below, we’ve shared an edited transcript of the conversation with Kunal.

Anand: Hi, welcome to the Insights Podcast series from Accel. I’m your host Anand Daniel. We’re continuing our series on founder scaling. Today, as my guest I have Kunal Shah with me. He’s a successful serial entrepreneur and comes from a very non traditional background and has a very interesting story to share with us. He’s also a successful angel investor as well as he was a partner at Y Combinator based out of India for a short period of time. We also managed to squeeze in a few questions from the audience which I was able to crowd source through twitter. So hope you enjoy this podcast. Let’s dive right in.

Anand: Great. We’ll start with your journey. For the few in the audience who might not know your journey, start out from maybe from your college days, whatever you want. You’re a college dropout.

Kunal: Sure. I’m a very old founder, I’m 39 years old. I would say fairly old for a lot of the younger lot, but I actually started working probably at the age of 15 or so. The primary reason for doing that was not because I wanted to, my family went through some serious financial crisis and I had no choice but to work to take care of the family. I have been doing multiple things since then, I had to pursue my education in philosophy and not in science because that was the only class I could actually go and attend and I used to do a full-time job, and I used to do a lot of freelance activities in the evening to take care of money.

I think I have been financially independent from 15. If you ask me what my work experience is, probably 39 minus 15, that’s been a work experience of 24 years. I’m a fairly old person from work experience perspective. I think that helped to shape a lot of things, I did my philosophy major then I was involved with a bunch of young internet companies back in the day. I used to be a freelance designer and a programmer, then built a small SaaS company, pivoted that into a BPO company, then pivoted that to a marketing solutions company, moved on. Marketing solutions company became a cash back promotions company, which was called PaisaBack and then got that into Freecharge.

Freecharge was exited in 2015. In the middle of that I also attempted to do MBA which I dropped out in two semesters. I also spent a bunch of time like you said with Y Combinator, I was a part time partner with them for a year. I was also with Sequoia Capital for a year and then decided to start up again. 2018 is when I started Cred. A bunch of experiences I’ve done anywhere from selling music CDs to selling Mehendi, to doing SAS, to running a BPO company, to having a laptop import company, doing e-commerce too a bit, I think I’ve done almost all internet businesses in some form or the other. Not very successful in many cases but have had a taste of almost everything.

Anand: You had a big exit in Freecharge, well congrats. That’s a very varied set of experiences. The whole purpose of this series is to learn from people like you, on your journey and maybe we’ll start with the Freecharge one. What were some of the key learnings: you pivoted a number of times on the product market fit? If you reflect back, what were the key learnings from that journey? Maybe for the few in the audience who don’t know, who haven’t used Freecharge, you can talk about how you found that product market fit and some learnings from there.

Kunal: Sure. Freecharge was something I started in August 2010. At that point of time, I did not have any e-commerce background or payments background. For me, it was a simple idea that if you took the largest selling product of the country, that is mobile top-up, and made that free, then everybody will come and if you can get everybody, you can potentially do anything on top of that. It was like the loss leader strategy that a grocery store does, where they sell the milk for a lower cost and hope for the people to come and therefore, be able to buy groceries from there. For me, recharge was that: a single product that was used by 99% of India. At that point of time, only 1% of people were recharging online. I observed that people had already started doing railway tickets booking online, so maybe few lakh transactions were already happening on railway tickets online but recharge was maybe 10,000–20,000 transactions at that point of time.

I realized that the reason for that is that a lot of people can get recharge very easily. They can walk up to a shop, maybe 100, 200 meters and get a lot of these things done. What had happened is that systematically, by that time, because the telco penetration had gone through that much of a level, we had reached a point where margins had disappeared from recharge. The offline guys were not too interested in selling that product anymore because they would probably barely make a ₹1 or less on that product and they would not be interested in servicing that customer. I realized that it was a great opportunity to create a transaction platform that would probably have more transactions.

I think it’s a very simple thing to think about. Will people recharge online first or buy shirts online first? If you can answer that recharge is the first thing, it looked like a perfect product to start with. That was the idea behind it. I did not think about e-commerce and payments at that point of time. I just realized that recharge was the gateway to transacting India. I went ahead and reached out to Master, Visa and a lot of people to tell them that this was the next big thing and obviously, nobody believes you because recharge as a category is not something that you copy from the west.

FreeCharge is an original idea where we give equal value coupons for the amount you recharge. FreeCharge at that point of time was probably the only original idea that came out of India. I think Redbus was another one. I would say that it made sense only for India. You had no global models to copy from. To me, that worked as a great platform. I learned a lot from that. When we exited the company, we were close to almost touching a million transactions a day, which was significantly higher than probably companies like Flipkart or any of the other companies at that point of time because the frequency of these transactions was a lot more than what people would do for other goods per say.

Long story short, after that, in the top 500 apps in India, around 200 were recharge apps and obviously, we saw someone like Paytm capitalize on the idea much better because they could get a lot more cash, get a lot more access to talent. I struggled, being a philosophy major and not having a strong tech company background. Before, I always struggled to hire people. I remember, almost begging people to come and consider FreeCharge. I would actually take them to my server, show them the live dashboard to make them believe that we actually do so many transactions a day. Nobody would believe that. I have taken so many senior candidates to our board meetings to make them believe that this is all real. It was the perfect Trojan Horse and obviously now, fast forward you see even today the top payment companies, 70% or 80% of transactions are still recharge, right? I think that to me was a good insight.

Obviously, we did not capitalize on it as much as we should have, but at least we were glad that we could build that company and I think even when the company was sold, at least the number of transactions and that whole GMV value had almost doubled or tripled by that time. It means we are at least happy for the company too. It still continues to do a large volume of transactions even today, even though it does not have the same level of capital intensity that other players have right now.

I think lots of learnings, one big learning I would say is that one should always expect nobody to believe that you have an original idea that will work, right? You cannot have hard feelings for somebody because people are used to seeing stuff in the West and China and saying, “Okay, this makes sense, and this is like that” but wealth creation opportunities are also disproportionate for original ideas because nobody’s doing that.

Anand: I want to double click on some of these points I noted down. The reason I want to go into some of these is, we’re seeing more and more of these characteristics. One is, it’s very unique to India, second is, you talked about a lot of transactions but very low either margins or very low EBITDA potential down the road. High frequency but lower margin. The third one was you being a Philosophy Major. I’m a firm believer you can come from any background or from a Major even if it’s not STEM. Even if you’re from STEM but from an unknown college, it is the same. We as Accel try to be agnostic, let me put it that way. I’d love to hear from the entrepreneur’s point of view, any advice.

Kunal: I think in the world we’re living right now, education background probably is not a good enough signal unless you are trying to clone an idea. I’ll tell you why I’m saying that. It’s like cracking a curriculum. These founders do extraordinarily well when the goal has been defined. They are probably the perfect missiles that exist because they have cracked their entrance exam by passing against millions of people who have applied in that year because they know how to crack a finite problem really, really well.

Therefore, it also becomes their curse to find original ideas because they are designed to hit a target. They are wired to hit a target. If you say that it will also make the target to hit, then it’s a very different problem, right? This is like, there are guys who can make the masterpieces and there are guys who can make unlimited copies of the masterpieces and scale it like nobody’s business. I think there is value in some of these things. I think therefore, we’ve not seen as many original ideas. The reason we don’t see original ideas is because they come from original insights. Original insights come from being interested in humans and human behavior almost at a deep core level. I have seen better insights come from stand-up comedians than founders. In fact, I believe that most founders should go to stand-up comedians to understand original insights and then kind of make sense of that and how do you make a business model out of it? I remember going to a stand-up comedy once.

There’s a stand-up comedian who told me that there was a time when I used to request to rickshawallas by pushing my hand up and he would just ignore and drive away. Now I press a button, a car comes and not only the car comes, there’s an AC in that car. By the time from Borivali I reach Bandra I’ve got an accent. There’s such an important insight that you’re making such a delta shift in the consumer behavior.

You’re not thinking from a consumer’s perspective because you just copied. Let’s say, if you just think from Uber’s perspective it’s not a delta change. For Indians it is a delta changr where we were haggling with rickshaw guys, trying to get the best price and convincing the guy to go to the destination we want them to. We’ve come so far that we just use it like a utility that never mattered just eight years ago.

Anand: I want to stick to that for a second. Let’s take Uber’s example. I invested in TaxiForSure. When I invested in TaxiForSure, Uber was in a no-name company. My model was FastTrack in Chennai, which is doing through the phone call booking. Some of these later become something where X or Y is the Uber. When we originally invested that wasn’t there, like Uber wasn’t big.

For many founders, there is no equivalent you can point to originally, when you start out but as you continue on, do you need that to be able to be successful or do you know of enough examples where it’s purely Indian and it’s taking off and global investors are able to come and invest a lot more?

Kunal: If you think about how Freecharge/Paytm did, they was no precedence of recharge as a way to spread the customer payments behavior and then do other things. We forget that Paytm did not just become a payments company. It was a mobile recharge company just like Freecharge for at least probably three-four years before it turned into anything else.

I think you have to understand and be patient about it. For example, if you guys or others had held onto RedBus hypothetically, could it have become a bigger travel company? 100%. The bus was the Trojan to kind of do more things. A lot of times we do not think of life that way. We think of things point in time and it’s hard to predict future but there are some patterns that continue to win.

The patterns that continue to win is that I haven’t seen a platform that has high frequency of transactions not do well. High-frequency results in trust and habit. High-frequency creates trust because it’s a human wiring. When you see something multiple times you try and create more trust on top of it and because of that, for them to do cross-sell or upsell is much easier.

It comes from the core understanding of the market. India is a mistrust society. We forget one thing that India is 25 countries put together to become one country and therefore we find neutral platforms to create trust. For example, this podcast is in English. We found neutral platforms to come together. Therefore, in a country that has mistrust, you will see concentration of trust on neutral platforms. I’ll give you a small example. You will not see conglomerates emerge in trusting emerging nations, like you will not see a Tata in the US because trust is fairly decentralized to the government. Over here that trust is centralized in brands.

Therefore, you will see a Tata launching from a salt, to car, to potentially air conditioning company and they will be successful because there is a concentration of trust. You will see conglomerates emerge in most trust nations. You will see nepotism do really well. For example, you will trust the celebrities’ kids for a new movie versus a new guy. You will probably also have super apps in mistrust nations because mistrust nations also results in concentration of trust.

If tomorrow Swiggy is going to launch stores, you should not be surprised if 25% of GMV suddenly starts coming from that because this has happened for every other super app. I have been investor in Gojek. I have seen that for some time that categories expand faster when you have trust. To me, all the founders and investors who have a US bias have a massive disadvantage, because they’re trying to force fit and Indianize. It’s like trying I want burger but let me make an Aloo Tikki burger out of it instead of saying that I don’t need the burger maybe.

I always thought I’m a mediocre founder who became successful. I was looking at people who were really smart who are not successful and I’m like, “Why does that happen?” Then I realized that great product market fits even with mediocre founders, create a lot of value but terrible product market fits, even with the greatest founders can never create value. Like fighting headwinds has never created value, it only burns fuel. How do you constantly find tailwinds is the other quest that I was into and I came up with a framework.

To be able to predict success of a startup. I think it was more to help the founders understand how things work. I mean the insights actually came from biology. Like when do species wipe out other species? (when they’re in a limited land) What is the dynamics of that. There’s a lot of research on that. Galápagos Island where this was studied: it was observed that the monitor lizards of a certain type when they came to islands. This A type, which was built with less resources. When the islands merged, they just wiped out the other lizards from resources because they could multiply faster. You should think companies are also like species and you’re constantly fighting for the resources that are existing. Even though wealth is not here, somebody can suck out a lot more wealth. I realized that there is a framework and that to me was most interesting is that humans are the only species which can claim that there was nothing more efficient 10 years ago.

If you ask a lion what was more efficient for you 10 years ago, they’ll say life is almost the same. They are waiting for evolution to make them more efficient, but humans are the ones which are constantly finding tools and technologies to become more efficient. If I asked you, “What is more efficient 10 years ago?”, the answer is you would probably not answer a single thing. All the efficient stuff is in the future. All the inefficient stuff is in the past. If this is true, how do you use that framework to predict startup success? I came up with a framework which says that you measure ideas based on old and new behavior, and measure it against a score of efficiency. If I asked you a score: This is perfect time to ask this question. If I asked you a score of let’s say Meru or Fast Track out of 10, give me a score for old behavior, and give me a score for new behavior.

Anand: Old is two. New one is probably nine.

Kunal: Two and nine, when the Delta is greater than or equal to four, three things happen. It’s an irreversible behavior. Every time humans discover a delta 4, they never go back to the old behavior. Number two is that there’s very high tolerance for the delta 4 behavior. Even if Uber messes up with their maps or whatever, you’ll not say, “Oh shit. I’m going to go back to Meru.” You’ll never do that. Third thing is UBP: Unique Bragworthy Proposition. Humans love to brag when they discover delta 4 products. These companies don’t require advertising. For example, I give an example of Truecaller, 100 million DAU, does not spend any money on advertising. It is a true delta 4 product for people. Based on original insight, this did not come from India. A lot of times, delta 4 companies therefore don’t require this. Let me give you another example. If I asked you what is your score for buying shirts online, or buying shirts off-line. Give me a score out of 10 Anand.

Anand: I would say six for buying offline.

Kunal: And online is?

Anand: Roughly the same.

Kunal: Roughly the same?

Anand: Yes.

Kunal: What you observe is Delta is close to zero. If it’s close to zero, it is an irreversible behaviour. One bad experience online, you’ll never try it again. It is low tolerance for the same reason, and there’s no brag-worthiness in that. Therefore what these companies do: let’s say the shirt online companies is to start giving massive discounts to infuse the Delta, which are not sustainable. You’ve systematically not changed the behavior.

Uber can give you one-time discount, and still you’ll never go back to the old behavior. If discount creates irreversible behavior, they’re sustainable. If discounts create a reversible behavior, then we destroy wealth. When I proposed this framework many years ago, Google Allo had launched. I had done a live audience delta 4 test of that, and the Delta came out to be -1 for most people and their product died in a year’s time. That’s the maximum I’ve got to testing some of these things. I have not found an example that does not follow this principle.

Anand: It’s very specific to people. My wife will kill me for this. For her, online shopping is good.

Kunal: Perfect. This is great. For her, it is very important to not appear in the same clothes like other people. Let’s say Anand, if I had worn the same shirt as you, you would be extremely happy that we’re wearing the same shirt. Women function differently. That’s the core insight. Therefore, they would find more and more obscure places to buy stuff, so that they can appear to be different from other people. Therefore, for them it is delta 4. Food delivery for some of us is delta 4 . Moment we take it to our distant cousin or our dads, it’s not delta 4 because they order from the same two restaurants, same four dishes. Sometimes there’s a lot of false signals of the market that you get by the early traction and you will see, “Wow, there’s insane amount of retention. Cohorts are just firing away.” According to me, e-commerce is not delta 4 for more than 40 million people in this country.

Anand: It is very specific to the target audience, right? It’s more inside that delta 4 for the set or subset of the audience. It’s the key from entrepreneurs listening. The reply in this framework especially, it doesn’t matter whether it’s consumer or who your customer is, right? As a human being, it’s a very interesting insight. You need to take that, and then probably apply it to that particular subsegment, and then see how much value creation opportunities still exist.

Kunal: For example, I’ve always felt that people who have double income and who are migrants love grocery startups because it’s delta 4 for them because they can’t speak the local language or can’t communicate, so they struggle to do groceries over here. For people who have double income, they are struggling with time. For them, online groceries is a great delta 4 for that. For the rest of us, I don’t know if you know, but 90% of our Indian women don’t work. For them, the only time to go out is for groceries. If you take that away from them, is this delta 4 for them? The answer is no. For me, a lot of times they make the mistake of estimating the market size by looking at the first million customers behaviors.

Anand: The first million by itself could be okay as long as the market is large enough.

Kunal: Correct. You will see that companies go horizontal much quicker in this country because the depth of the market is just not there.

Anand: The philosopher in you is coming out in these. [Laughs] So, you sit and think about these, or how do you- especially for people who are saying, “I want to start.” How did you go about this?

Kunal: Philosophy comes from the word “philo” and “sophos”. Philos means love, and sophos is knowledge. The core premise of philosophy is seeking truth. A lot of people are not very comfortable seeking truth because sometimes things take them to very uncomfortable zones. Sometimes your own business model looks stupid to you if you start seeking truth. Therefore, a lot of people just avoid it. I’ve also seen people who are not truth seeking are really easy to offend because they have no knowledge about themselves, therefore they get shaken very quickly. I think truth seeking is almost compulsory. I’ve not seen a single super successful founder who is not a philosopher.

They are all truth seekers, right? They are very comfortable with uncomfortable truth. Philosophy is not some Gyaani Baba stuff over here, it’s about seeking truth.

Anand: Can you talk about how you apply that as you build a company whether it be practical things like team building, product etc. I can almost think of it, but I just would love to hear your thoughts.

Kunal: When you get to good insights, you realize that you can build elegant solutions. Without getting good insights, you’ll always have inefficient solutions. Study a predator in nature, they’re not crazy. They’re actually very smart. They don’t burn energy. Therefore, you would see, they don’t need running around fighting, they already have a watering hole. They have the deadliest bite. According to me, philosophy allows you to find the watering holes, and have deadliest bites, but do not expect elegance. There’d be lot of times — We celebrate Sachin, but let’s say measurement of success in cricket was number of calories burnt per run, maybe Dravid will win. We don’t expect that. We love the machoism of founders and doing all these crazy stuffs. Elegant solutions are not appreciated. I think that allows one to find good places. I don’t believe in fail fast. I believe in plan better, get close to good insights and then go after it. Once you go after it, have the deadliest bite.

Anand: Deadliest bite, and you also talk about being open to the truth, as a philosopher. If you look back on FreeCharge, how have you applied that? What are some of the truths that is not obvious to you, but took some time to learn.

Kunal: I think first of all when you’re a first time entrepreneur, you think that people know more than you. It’s just completely not true. A lot of times, because we meet investors who have done multiple investments, you assume that they know better than you. Second learning I’ve had is that it’s important to understand what is culture. A lot of times we think of culture as something that do not evolve. It’s not that. It’s about what you do almost on a daily basis, and how do you handle that in the early team and that becomes the religion of the company. I’m not saying this is the right format, I’m saying that it’s very important to have one. Third thing I would say is that just defining the endgame clearly. If people can see that endgame with you, it doesn’t matter how scary it is. The greatest guys always get attracted to the scariest goals. A lot of times, we interview good candidates and we say, “Hey, sorry. We don’t give any titles to anybody in the company for a year.” You see their reactions. The guys who are designed for early stage, they don’t even flinch. They’re like, “Whatever. I’ll come.” They’re excited about that journey. They’re not excited about what my title will be, or where’s my cabin, where is my desk, what is the work timing for this place. It’s a great filter. For me, if I can find a motivated set of people, I can direct them. I can’t solve for their daily motivation. I can’t say, “Guys, cheer up, good stuff.” I don’t believe in this celebrations all the time. I don’t believe in celebrations of families, I don’t believe in celebration of, “You’re one-year-older.” I think it’s complete nonsense, like as a startup why do you want to celebrate when you’re 10 years old. Talk about milestones and the customers achieve, talk about milestones in terms of — for example, imagine if Sachin raised his bat for lasting for 20 hours, sorry it doesn’t matter, what matters is lift your bat as you reach a century.

Anand: On the team part, I wanted to pull in one of the questions from the audience that had tweeted earlier. Manav Das asks, what are your metrics to hire team members, you talked about a couple of them.

Kunal: I think we like people who are generally misfits. I like getting people who probably did not have it served to them on a platter and still managed to get where they are.

Anand: Is it possible to check that in the interview?

Kunal: It’s hard but you can — we usually take 6–7 interviews before we get somebody in, and once they’re in, it is like we’re responsible for their success, because then we don’t want to second guess the guy to, “I’m not sure but I’ve got him.” Once they’re in, they’re in. One hack I’ve used which generally works for me is there are a lot of people I like and respect. I tell them you’ve to give me one reference only.

Anand: Switching gears, we have a few minutes, so Sunita Vishwanathan asked what has changed for you from a perspective while building Cred?

Kunal: Cred is diametrically opposite to FreeCharge. The reason it was done differently is that all the stuff that we think of Indian market is completely false. For example, in India the top 2%, the per capita income is around $15,000. The bottom has probably less than $800 maybe 98%. So, will they value stuff that provides convenience. Wealth it is concentrated in a certain way. Now that’s the market front. If you want to be in business and you want to make money, you have to be where the money is. I believe that consumers that have money will value convenience, and therefore you should go after that. So that was the whole background about why I do what I’m doing.

Anand: Well, make it on what is Cred?

Kunal: Well, Cred what we’re trying to do is trying to build a community of people with high credit score, so if we can systematically accumulate people with high credit score, we will be able to make a parallel community which can get more benefits, right, and if we can do that systematically we will be able to drive people to do good behaviors so our whole idea is to create a community of trustworthy people, reward them for being trustworthy so that more people desire to be trustworthy.

Anand: On that note maybe close out Sunita’s question. What has changed from your perspective more from individual journey — if Cred what they do different?

Kunal: I think I have become a lot more confident about what I think in life versus earlier. I also had this doubt because nobody seems to be talking your language, but now, I have gotten very comfortable realizing that people don’t think like me, so I should not expect them to understand what I am trying to say. That has been a huge saving grace.

Anand: To be yourself?

Kunal: Be yourself, or if you think you are more right than wrong, then trust yourself. From FreeCharge to now, I think I’m better equipped to understand human behavior and human motivations. I understand ecosystem, I understand fundraising, I understand how product works, what are the important aspects, what are not the important aspects, what are the vanity-metrics, what are the non-vanity-metrics. I think just wiser, which makes it harder also, because if you know a hundred things that can go wrong, then you are also not taking some irrational leaps, so there are tradeoffs for this one.

Anand: Got it. Avinash from our team, Avinash Raghava had a question, what are you not doing this time around?

Kunal: I think it’s a tough question. I think what I’m not doing this time is believing in common wisdom believing this is done like that, this is what it is. Going with more original connection and backing it with data. What I am not doing this time is trying to understand what the market is wanting you to do.

For example, the current season, everybody is doing mass startups. I’m going in the exact opposite direction, going even more premium that premium. The other thing I would say is, that I am not doing is that I’m not in rush of hiring. I’m being very, very selective about hiring and making sure that people love coming to work next year?

Anand: Any other advice for the founders listening on scaling themselves?

Kunal: I think the only thing I can think about is that the world is changing quite rapidly around you. Unless you are in the mode of constantly understanding and appreciating the change at a nuance that you need to do, most likely, you will always suffer and not catch on to a trend, especially for B2C entrepreneurs.

B2C entrepreneurs are somewhat like artists. They are not trying to get everybody’s consensus and make things work. B2B is slightly different. It’s about partnerships and long-term relationships and making the client feel good and all of that. Or sometimes you don’t make the client feeling good, but you just do a great job. I think founders that try to fit in don’t raise the bar.

Anand: If you want to be an outlier, don’t fit in?

Kunal: Absolutely.

Anand: On that note, thank you very much. This has been extremely helpful.

Kunal: Thank you.

Anand: Hope you enjoyed the podcast. Pick out a lot of topics there starting with Kunal’s very non traditional background. The recharge problem is very unique to India, he started with that, Freecharge is a large company and exited that. He also talked about importance of high repeat and how that builds trust and by building trust how you’re able to expand even more broadly as a startup. Then he went into his delta 4 model for how to evaluate interesting consumer ideas. Thing is a very unique model and he talks about how delta 4 kind of solutions are irreversible, how consumers have a high tolerance for putting up with irreversible solutions. Then we switched gears and talked about entrepreneurship and philosophy, Kunal being a philosophy major impacted his thinking on startups. That was a very unique thing. He also made the point that most startup founders have some aspect of philosopher in them. And finally we took a couple of questions from twitter, this is the first time we’ve tried it. I hope you liked that section and if you like that please do tweet us with more questions that you have or suggestions on future guests, who you want as future guests as well as any questions you have for them as founders. That’s it for today.

Hope you join us and also if any suggestions that you have Do visit us on and tweet us @Accel_India with your questions or feedback. Thank you.

INSIGHTS Podcast Series — #8:Finding the Perfect Product-Market Fit

Subrata Mitra, one of the founding partners of Accel, has been a part of (and has even helped design and engineer) the startup ecosystem in India as it stands today. This week, we take a look at his exciting, ten-year-long journey as a hands-on investor. From the gaming industry to the fashion e-commerce market, Mitra has a world of knowledge to share.

Discussing how to find the perfect product-market fit, Mitra says, “If there is one customer who has a need that you can satisfy, that’s where you begin the product-market fit. Identify that one customer or company.” The problems, then, only arise when an entrepreneur attempts to scale. And trust us, Mitra has a lot to say about scaling; Behind every successful, groundbreaking project that seems like common sense now, exists a fair share of research, trial-and-error, and even failed attempts.

Whether it was Myntra’s initial stages: personalised mugs with your photo on them, or the very beginnings of Common Floor as a community-creation platform, finding the perfect product-market fit and its appropriate scalability model has always been a fruit of research and development. Like Myntra and Common Floor, you’ll be surprised to find out where and how some of India’s most prosperous startups, such as MuSigma and Virident, actually began. All this, right from someone who was on the ground, learning about the market, and influencing each company’s decisions.

Subrata also shares some valuable insight into the qualities of an entrepreneur who can turn a synergetic product-market fit into a scalable and monetizable venture. “There are outward facing and inward facing entrepreneurs,” Mitra says.

“There are a certain set of people who solve hard problems better and are also good entrepreneurs.” Could you be one of those “certain people” in the industry today? Well, if you’ve got the characteristics that Mitra identifies, that may be a possibility.

We also hear from one of Subrata’s early portfolio founders Mukesh Bansal, who spent ten years in Silicon Valley working for startups there. After quitting his job and moving from Chicago to the Bay Area in California, Bansal “bounced around, sleeping on friends’ couches” just so that he could learn more about startups. Well, today, as the founder of two successful startups Myntra and now Curefit, we think his plan definitely played out well. Not that you should be bumming off your friends as a startup founder, but listening to Bansal’s advice will certainly help. All this and more on this weeks #InsightsPodcast.

Accel shares such interesting entrepreneurial stories, with informative nuggets to run and scale your startup. Follow the links below and subscribe to our #AccelInsights Podcast Series using the following links: iTunes, Twitter @Accel_India, Google Music: (US & Canada Only)and the RSS feed

INSIGHTS Podcast Series — #6: Market Opportunities — The TaxiForSure Case Study

Every entrepreneur has gone through the dilemma of quitting a well paying, full-time job and starting up. It is not as easy as it sounds and requires much thought before taking the plunge. In this episode we chat with Raghu, co-founder of TaxiForSure on his journey with TaxiForSure and particularly the early days and how they went about evaluating the market opportunity

Is The Opportunity Real?

Raghunandan G (Raghu), founder and former CEO of TaxiForSure (TFS) was struck with the idea of starting a local car rental service. It was all about solving the issue of booking cabs for the masses in India.

Recalling these early days, Raghu says, “When me and Aprameya (his co-founder) came together, we were both working in our respective companies. We were getting paid well, and I used to be a consultant and Aprameya used to handle business development. We got the idea in 2010, but we didn’t quit our jobs and were still having second thoughts about why no one else had implemented this idea.”

The problem was quite evident in front of the founders: the difficulty of booking a cab. However, they wanted to be entirely sure about addressing the right issue.

“Before we moved ahead with the plan, we decided to do a survey. We went around asking people on how they were finding cabs, was it easy for them, were they happy with it. We asked people who were frequent flyers, people near shopping malls, and other people who were regularly commuting. We garnered around 2000+ responses and from the feedback, we got to know that 92% of the people were not happy with the existing cab solutions and that is when we realised that it was a good problem to solve,” adds Raghu.

However, it was still a long road before they could implement the solution. They got in touch with people who had given them feedback and presented them the solution – only as a PowerPoint presentation – and they loved it. They did this to build their conviction, and once they had that, they quit their jobs and started giving life to the plan.

When Opportunity Knocks…

Being an entrepreneur means being open to opportunities, but one also has to be sure that the opportunity exists in the market. For Raghu, it was about being convinced enough to jump into the market because the opportunity cost was significantly high. “This is why we did that survey and later presented people with the solution. Then we looked at Justdial for the number of cab aggregators and made calls to figure out how many people would respond. In a city like Bangalore, there were 1,200 taxi operators, on an average each one of them had 10 cabs, and they used to do maximum 2 or 3 rides a day. The cab guys were unhappy because they were not getting enough pay, the customers were unhappy because they were not getting cabs. The market structure was in such a shape that none of the parties were happy.”

However, that was not the only problem. The cabs were never present where the customers needed them, and no customers when the cabs were free. The customers’ dependency on the operators to get in touch with the cabs was posing a problem. As a result, the operators would mostly be busy, and the customers would have to wait for a long time till they would be able to get through to talk to the operators. Raghu observed this scenario in the market and realised the opportunity.

When they started in 2010, many other services like Uber, Hailo, MyTaxi etc., were also starting up around the same time, across the world. However, the concept was relatively new in India. Raghu saw this as an opportunity, and he thought that being a cab aggregator would be a unique edge for their business model.

Is it a Large Opportunity?

Raghu and team looked at both supply and demand side and understood the size of the opportunity. They were able to size the number of cabs available (supply) by looking at data such as number of taxi operators and commercially licensed cabs in Bangalore and then across the country.

On the Demand side, based on their surveys and also looking at data such as number of travellers to/from airports (since cabs to airports is a key market segment), they were able to estimate the size of the demand.

“We picked up the taxi operator services in Justdial and figured out what is the average number of cabs that they have, how many were shared, how many were registered with RTO? Then we looked at the supply and the money they were making and estimated how much they could make. We also looked at the flight frequency and the demand of cabs towards the airport. After all that was done, we decided to measure and figure out if we could solve this mismatch and realised that we could.” adds Raghu.

Based on their estimates, it was a large enough market opportunity across the country and all they had to do was to build the technology enabled marketplace to connect the demand and supply purely through aggregation without having to own any cabs.

Relevance of the Business Model

Picking the right business model that can scale is very key. TFS once they concluded they wanted to be an aggregator of cabs could have gone with either working directly with the cab drivers or with taxi fleet operators. They picked working with operators as their model for a few reasons:

  • Taxi fleet operators had majority of market share not only in Tier I but also Tier II cities compared to individual taxi driver/owners.
  • These Taxi operators had anywhere from a few cars to tens of cars and there were about 1200+ operators in Bangalore alone
  • And as operators make more money (with better matching of supply and demand by TaxiForSure) they were able to buy more cabs to deploy into the system
  • And TFS did not have to worry about security and maintenance of the cab or professionalism of the drivers since the operators were able to handle this

The operator led business model led TFS to focus on its core technology and building the marketplace and more on the demand side since the operator model was able to bring enough supply of cabs into their system.

Market is the Best Teacher

Raghu is also a firm believer that the market is the best teacher for startups. The sooner you learn, the sooner you will scale. “The market teaches everybody, if you are a great team then you will learn a bit sooner, if you are a good team you will learn it and if you are a bad team then you will be the one who learned last.”

He believes that their openness towards the teachings of the market helped TaxiForSure in disrupting it. Once you have an insight, it is essential to experiment with the solutions. The rest can be learned from the market.

“Entrepreneurs, if you are agile, you are smart, and you really don’t have to figure out the solution. You have to figure out the problem, start with a solution and the market will teach you the rest,” adds Raghu about how to take a lesson or two from the market.

Competition: There is no fun in flying solo

While it is the best thing for any entrepreneur to have a competitive advantage in the market, it’s no fun being the one and only company in a space. Entrepreneurs should realise that competition is always healthy and it helps you grow, learn and innovate.

Raghu describes competition as the “best thing to ever happen.” He credited competition for the growth of TaxiForSure and felt that the competition in the market led to the increased usage in taxis. “Competition is the biggest thing that has really happened, if not for that we would not have grown the way we did. We were extremely agile because of the competition,” he adds.

Some Advice For Entrepreneurs

As a entrepreneur, who exited his business successfully and now an active angel investor, Raghu has a few tips for first time founders:

  • Be Close to the Market: Talk to as many people as possible in the market (actual supply, demand, etc.) to really understand the market
  • Don’t hire from the industry: Especially if you are trying to disrupt an industry using technology, avoid hiring from the industry (since they might be stuck to the ideas of the incumbent)
  • Focus is key: Focus on one core problem at the seed stage. During Series A stage, focus on scaling to multiple markets. Only post Series B, when you have established yourself as a brand in the core space, do you look for adjacencies.
  • Let it Go: As entrepreneurs, one of the most important things is the hard and tough call of letting go of certain people. However, these are the calls they have to take, primarily if it is affecting the business. Another aspect of letting go, is letting go of certain responsibilities to more capable people who you can hire in — the specialists. He added, “You have to become the jockey, not the horse.”
  • Ability to say no: Learning to say no as an entrepreneur is very key — to employees, to investors, to the Board — are all critical and figuring out what things to say “No” to is essential for the success of a startup

In conclusion, Raghu had one last advice for entrepreneurs and founders, especially first-timers — focusing on the core. “Focus on your core and hit it out of the park, be very nimble, be very agile.”

Accel shares such interesting entrepreneurial stories, with informative nuggets to run and scale your startup. Follow the links below and subscribe to our #AccelInsights Podcast Series using the following links: iTunes, Twitter @Accel_India, Google Music: (US & Canada Only)and the RSS feed

Is it a good idea to ping an investor via LinkedIn?

I personally think it is worth a shot for an entrepreneur to try reaching a potential venture capital (VC) or angel investor via LinkedIn. Particularly if you can find a mutual contact to provide an introduction. The main benefits of this approach, over just cold calling or dropping a note on the investing firms website, are the following:

  • The investor can quickly browse through your profile to get a good sense of your professional background and relevance to the startup you are working on
  • Check for mutual connections to do a quick reference check

But, here are a few suggestions while trying this approach:

  • Do some research on the VC firm you are trying to reach and figure out the most appropriate person to reach out to, based on their profile. Most investor profiles list areas of investment interest (e.g. internet, mobile, education, etc.) and so this should not be tough to do
  • Reach out only to one or at most two people at that firm who are appropriate for your particular startup. It does not help if your ping everyone in the VC firm. Yes, this does happen often and if anything it’s counterproductive. What happens is one of the investing team members who receives this, will forward it to the other team member who is more suitable to look at your company (based on interest areas) and if they realize you pinged all the members indiscriminately, it shows that you have not done any research on which of the investors would be better suited for your startup
  • If you have a mutual connection with the investor, see if you can get an introduction by the mutual connection (especially if this person knows the investor well and is willing to refer you)
  • Avoid requesting to “add as connections” directly. Try sending a message via InMail or through mutual connections. Many investors are particular who they add as connections and so, if you directly try adding them, they might “ignore” your request
  • See if the VC is part of any group that indicates a mutual interest area and use that group to reach out to him/her
  • Keep the LinkedIn message short giving a 3-4 sentence summary on your teams background and what you are trying to do. Ask the VC if you could get 15 mins over the phone to give more background and see if mutual interest. Avoid very long messages.

While on the topic of reaching out via a social network, I would highly recommend reading the following article by Ried Hoofman on “The real way to build a social network“, if you haven’t already read it.

Note: published this blog here.



Intellectual Property in India

I had the pleasure of attending a very informative round table discussion today on Intellectual Property (IP) in India organized by Zinov Consulting and NASSCOM Emerge. There was representation from academia, large multinational corporations, IT companies, startups, IP specialists and startup investors. As you can imagine, being a VC investor, this is a topic that is close to my heart and I thoroughly enjoyed the discussions. Wanted to share some of the data I collected as I was preparing for this event and some questions/observations from the discussion today.

Patents and Startups ???


If you look at the US and two very active VC investment markets there, California and Massachusetts, it is no surprise that the level of IP creation is quite high in both these states. Obviously, IP alone is not the only ingredient to successful startups, but in the hands of a good entrepreneur, IP can act as a key ingredient to cook up some outstanding companies.

How does India fare?


As can be seen from the above graph and the statistics, India has some ways to go to catch up with other leading IP generating countries such as the United States and China.

My Key Observations

Still early days in India

  • India is 10 years behind China in terms of patent numbers
  • Patents are around Indian market constraints and application of technology to solve these constraints (e.g. Financial Tech, Mobile) – what some might call Frugal Innovation or Reverse Innovation
  • Unusually high concentration in Biotech/Life Sciences
  • Fundamental scientific innovation still rare

Startup perspective

  • Not too many IP-based exits (M&A, IPO) hence startups not too eager to file – especially in IT. This will change with more IP-based exits happening.
  • IP incubation centers such as academic institutions need more active participation. It’s tough for VCs to fill the shoes that an academic center plays (in countries such as the US) over extended periods

Questions/Observations of other participants

  • India files about one-tenth the patents filed in China. Also 60% of Chinese patents are filed by Chinese companies. In India, only 20% are by Indian companies, rest is by MNCs.
  • Public companies, particularly the bigger IT companies cannot compromise on margins even by a few basis points. This makes it tough for them to focus on long-term and spend money on IP 
  • Time bound (project based) innovation happens in India but that’s not the same as unconstrained innovation that happens in startups in the US (based on one technologist’s experience working in startups in the US as well as India)
  • There is a need for multi-disciplinary faculty to enable IP creation (and guide doctoral students) for solving real issues faced by industry
  • On a similar note, Indian industries do not value PhD and due to this the brightest and the best opt for an MBA post their undergraduate degrees or go abroad to do PhDs and never return
  • Frugal innovation – someone had questions around whether this can really produce IP. Particularly in areas such as “Open Source” software development (which Indian companies adopt for cost reasons).

I have outlined above some of the questions/observations from the session. Just want to throw these out and see what people have to say about this.

Would love to hear reactions on this very important topic from a startup ecosystem perspective.

Note: published this Blog here

Articles/resources  (do feel free to send in other links):

Hosting On The Cloud: Inputs For Early Stage Startups

I recently came across this post on Quora that talks about various hosting options for Indian startups and found it very informational. Many early stage startups are faced with the question of where to host especially as they get off the ground. Key questions they have are: what are my hosting options, costs involved, what other aspects should I consider and what are other Indian startups doing? I have tried to collect data to answer some of these questions. This is particularly aimed at startups that are just getting off the ground (very early stage) and not for ones trying to optimize performance/cost.

Note: The intention of the article is to help early stage Internet startups get quickly off the ground using hosting services. Inputs regarding various services mentioned in the article should not be considered as an endorsement by the author or the organization he is associated with.

Comparison of various hosting options

Here’s a quick summary of comparison between various hosting options (both in India and the US) for an early stage startup. Please note that these are just off the shelf monthly prizes (based on assumptions of usage as outlined in the table) that we could get either from the web or by calling the company. Obviously rates would change based on your particular requirements as well as your ability to get discounts such as yearly subscription, etc.

Key takeaways:

  • Amazon’s AWS offers the most cost-competitive option (at least for the configuration mentioned).
  • If you are focused on hosting in India (particularly for latency reasons) E2E seems to have a reasonably priced offering. I haven’t been able to talk to someone hosted on E2E and hence don’t have too much information on them.
  • If you go with AWS and want to improve your performance, you can refer to the Quora post referred above that talks about using Cloudfront (CDN) for optimizing latency as well as hosting non-latency sensitive workloads in the US and latency sensitive workloads in AWS Asia (APAC).


Getting off the ground

If you are just getting off the ground as a startup, your easiest bet might be to go with a cloud based provider. The costs for setting up are not high and it is also scalable (elastic) depending on the demand (which is usually tough to predict in advance). In addition, some of these services (e.g. Amazon, Rackspace, E2E) are quite granular and so you can pick and choose configurations that work best for you (computing, storage, bandwidth, etc.). One caveat I gathered from talking to startups is that you need to have someone on your team who understands configuring these options. For example, if you are going with Amazon’s AWS, you need someone who understands and preferably has worked on it before. In particular, you need someone who understands the components of your application, various pieces of the AWS system (EC2, EBS, S3, CloudFront, etc.) and failure points so as to mitigate and avoid data loss. Don’t get me wrong, this is not very hard to configure and get going. But, it still is not trivial to take for granted and that is why the startups I spoke to recommended having a person familiar with the setup onboard. Alternately, you could start with an option that provides a simpler holistic solution (e.g. SliceHost) albeit at a slightly higher cost. You could then graduate to one of the other cloud providers at a later point on a need to basis.

Where are startups hosted?

And finally, you might wonder what other startups in your similar shoes (or ones that are further along) doing? I polled close to a dozen startups (small but good group of tech savvy startups) and 80% of them are hosting in the US. Of those, one third are hosted on Amazon’s AWS. If you are in a startup that has gone through a similar exercise of picking a hosting provider, would love to hear from you on what your experiences have been and any tips for others who might follow your footsteps?

The above is a post that I did for

Homeward Bound

January 2011 marks a year since my return to India as an early-stage venture capitalist after spending 13 years in the US. Despite my earlier apprehensions, things have been quite amazing. I would like to share some of my observations in the hope of inspiring others to move back and ride the crest of the amazing Indian economy and contribute to its continued surge.


Answer is simple: I believe this is the perfect time to be part of the Indian entrepreneurial ecosystem. The economy is booming, but there are many basic problems in areas like the Internet, mobile communications, enterprise IT, healthcare, energy, education and financial services that require solutions – this is a dream scenario for any entrepreneur. In cities like Bangalore, there are already many development centers addressing these needs. The work here entails not only low-skilled jobs. I have friends in companies like Yahoo, GE (Healthcare and Energy), Google, Intel, Biocon and Amazon, who are involved in cutting-edge product development. This I see as a treasure trove of entrepreneurs in the making. Our firm has funded entrepreneurs from many of the companies mentioned.


What could be better? I ask this of the many entrepreneurs, including returnees, whom I have the pleasure of meeting on a daily basis and try to corroborate their responses with my observations. The top three challenges returning entrepreneurs seem to face are: getting the early team right, navigating bureaucratic red tape (like incorporation, bank accounts) and finding seed/early stage funding


I am also often asked what is it that a venture capitalist looks for in a company? What does a VC in India want? An early-stage VC always looks for an outstanding team, aiming to solve a problem in an exciting market, with sustainable differentiation and a solid business model. In addition, there are two criteria particularly relevant to India — strong customer interest in a product or a service that can be verified and measured, and the ability to scale or grow a business. It is also important to understand that a business model that works in one city might not necessary scale across India with all its diversity.

PERFECT TIME This an awesome time for any entrepreneur who is considering a move back to India with a goal to be actively involved in a startup. My tips to those planning such a move is to pick an exciting industry or business segment that matches your expertise. Next, make sure that you choose a founding team to launch the business with great care; make sure you have some people with recent India experience. Do not fall into the trap of worrying about things beyond your immediate control such as traffic, bureaucracy and poor infrastructure. Finally do not look back, burn the bridges to wherever you came from, so that you are not tempted to return prematurely. After all, it usually takes five years or more to succeed as an entrepreneur and India is currently one of the best places in the world to live that dream and to impact the world.

I wrote this for the Economic Times. Would love to hear your perspectives on this topic. Here is a link to the ET e-paper column.

It’s not all about USP

Over the past few months I have heard at least a 100+ pitches by entrepreneurs looking for VC funding. Almost all of them had one thing in common. Most spend too much time/effort explaining their USP (Unique Selling Proposition) – whether they truly have a USP or not – and miss out on all the other aspects of the business that a VC is interested in learning about. I personally think this USP funda is overrated. I wanted to share my perspective on a good seed/early stage VC pitch. I know these are the basics but I spent some time browsing the web seeing if I could point to another blog and add to it but couldn’t easily find one that covers all the aspects I want to cover (particularly as it relates to Indian startups) and so here I go. At a high level, I look for the following:

  1. Team: Experience, relevance to the space, complementary skills, relevant advisors
  2. Product: Customer pain point, your unique solution, sustainable differentiation, USP
  3. Market/Business Model Dynamics: TAM, growth rate, competition, your business model, go-to-market strategy
  4. Customer Feedback/Traction: Qualitative and/or quantitative
  5. Financials:  Pro forma financials, how much you are raising, use of funds

In this post, I will address the first one in detail in this post.

Team: This is by far the most important thing. As a seed/early stage VC, I’m entering into a long-term relationship with the entrepreneur and so it is very important that I get confidence around the following:

  • Experience/relevance: Does the entrepreneur have relevant experience in the space in which he is starting the company? It could be relevant education or work experience or a combination of both.
  • Complementary skills: A good founding team has about 2-3 people with complementary skills. Be it technical, marketing, sales, business development or financial – a good team has a mix of these skill sets. You don’t need all these, but at least having one technical and one business person to begin would be ideal. Even if you don’t have the right co-founders, if you can identify these gaps in the team and make a skeleton profile in the pitch and say this is the kind of person we are looking to add to the team that will work (and you can ask the VC to help identify this person as well).
  • Quality: Don’t compromise on quality while finding your co-founders. The founders are the ones that make or break the company and so you need to be extremely selective here both in terms of relevance to your company as well as fit with the rest of the team. It’s better in my perspective if you only have two outstanding folks in a team who work well together (and maybe both technical) and missing a third founder (say business person) than to have a mediocre third founder. You can always find/hire this third person.
  • Relevant Advisors: “Relevant” is the key word here. If you are a medical technology or clean technology company that has a Scientific Advisory Board of technical experts in the space that is quite relevant. But, if you are an Internet startup and have five advisors of varying background, I would really question the relevance. I would rather back a strong team with no advisors than an ok team with a whole bunch of outstanding advisors. At the end of the day, it is the team we are backing and not the advisors.
  • Young entrepreneurs: One other question I often get is “Do you back young/first-time entrepreneurs?” The answer is an emphatic yes. Many of our portfolio companies are first time entrepreneurs who are a few years out of undergrad.  They normally tend to be deeply technical. The key for these teams is to find complementary skills as discussed above – might not need them right away but a good founding entrepreneur realizes the gaps in the team and actively seeks to fill these gaps.

Let me stop now. Would love to hear your thoughts/perspectives on the above.

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