TITLE: Nilesh Patel (Co-founder & CEO, LeadSquared) interview with Shesh Paplikar (Co-founder & CEO, BHIVE)
Transcript from the discussion Nilesh Patel had with Shesh Paplikar during BHIVE Investech launch.
- Journey from Proteons to Leadsquared, Nilesh: “I think during the 2003-04 timeframe,IT services was the only occupation people used to think through. There were fewer companies who were focusing on India, selling in India. At that time there were very few product companies. So, I think what you understand is what you try to do. We figured that services are what we understood. When we started, honestly, I would empathize with all the founders. I think today there is a huge ecosystem to help people navigate, think through to give an idea of what market to go after, what problem to solve. I don’t think anything like that existed then so you just had to figure out what you can do and then we started the services business as you would know. So, it had its cycle, a couple of years of struggle, but if you go back, the cost of getting that started was not that high then. You would forego your salaries, but in service, you do work, you get paid and if you get paid on time, you’re probably ok, you can build the business slowly but steadily. If you flip it through to now, which is the product business, fundamental is that you have to understand the customer market before you go about creating the product and while we were building the business, there is a time it takes to unlearn what you have learned in the previous business and I think that was the learning curve that we went through.”
- Nilesh commented on things that he had to do differently now that he had shut down market expander services. “There’s a different mindset to build a product business versus what you do in services. You just have to unlearn a few things. There are a few learnings that you can apply but there are things which you cannot do, and I think that took us a few years to figure out in the beginning. So, any services entrepreneur becoming a product person will have to go through that cycle I guess.”
- Shesh said that he took a lot of inspiration from Leadsquared on how they were raising capital from Angels. When Shesh asked Nilesh about his experience of reaching out to Angels and managing so many of them and why he didn’t go for professional funding, Nilesh replied, “I think it’s easier to ask people for capital if you know them because if you don’t know the outcome of what you’re doing, probably people will trust you with their money if you know them in one or the other sense. That’s how I put it and I said well, just talk to people. Because in the Proteons timeframe, I still remember, one of the friends of my cofounder actually loaned money and I also got a loan from a couple of friends of mine. So, the same thing applied but, in this case, it was not a loan, it was an equity transaction. We took the money then and that was a good deal. We followed that principle over several years to part-fund the business whenever the cash was required and somebody or the other was willing to come forward and put it. I think the only piece of, I can’t say advice, but you know it doesn’t matter how many people are on the Cap Table, in some sense, I mean obviously, there’s a process to manage that. I think what we did was that we were very transparent with people who we took money from and we’ve got some good inputs from our investors as well that we used to send them quarterly updates on how the business is doing, like just regular hygiene, so that they knew what we were doing. I think people liked it and that’s whenever we were raising a little more around, people figured that there was some progress happening and were happy to put more money in if they had any. So, we had many Angel founders who came back and put more money. That helped us to sort of go along. On the management side, I’m sure there will be some Angel Investor who will have more questions than the other person. Most people don’t bother you, they just go and do their business. Unless you’re not cheating them, they don’t care. They just know that the money is safe. But on and off you have people who are probably doing it for the first time, or they probably know the Cap table better than most people, so they’ll have those additional questions and then you just answer them. But paperwork can be tiresome you know, when you do a deal then you have to get everybody to sign and all of that, but that’s just part of the deal. We just went through that process; everyone goes through it. Coming to your second question on why it took us so long, fundamentally when we started there was a hypothesis around what the product has to be doing and which market we’ll go after. That did not go as we originally planned and then we did a pivot. We made some changes in the way we were selling, the way we were selling, the way we were building the product. And what we ended up doing was creating a market for our product in India, which is very antithesis of classic venture investors thinking because India is a market with its challenges, not many companies who have been successfully done. So, we didn’t match the thesis of our venture investors. Then we were operating in a space that happened to be not-so-sexy. CRM is a space where already many large spaces and large funded companies already exist, so that was the second thing and we were not having many customers in the US. So, the thesis did not match with the investor’s view of the world and that was the reason we could never raise capital. We tried but then we had Jyothi Bansal come and put money in 2017, before that Pradeep Singh put in 2015-16, and so that kept the company moving and we kept selling. The focus was to keep selling and keep the business going. That probably was the reason we couldn’t fit into the thesis of the venture.
- Shesh commended the Angel investors in India and gave credit to Leadsquared’s success due to which now many start-ups are getting funded. “I can observe in people I know who founders and even non-founders are, like I come from a small town and people there who put money in the business because they were relatives or somebody I know of, now they’re asking me to tell them where else we can put money. So, it’s not only the tech and the founders but also the people who are on the fringe, you can call it, who don’t understand equity or the start-up investment as such but have seen the success, so they want to ride onto it. So, it’s already a big deal and it is very good for the founding community.
- When Shesh asked him whether he had to unlearn a few things that he had learned earlier and utilize the large capital and grow in a much larger way, Nilesh said, “I think things change when the capital, you have to deploy the capital because sitting in banks it doesn’t do much for you. That is a new challenge, but it is a good problem to solve. But you know there are a lot of things you think like an entrepreneur, you look at the opportunity available in the market, you could not do that because of lack of capital. So, I think those will now be picked up, so there’ll be areas of investment which you can now plan into. Scaling any business requires capital, so those aspirations can be fulfilled now. That should not be a problem and as far as the board and investors are concerned, I think to look, if you do good business people will like you, I mean if you don’t then it’s a problem. As long as you just follow the basics of business, you should be okay.
- About his relationship with his co-founders, Nilesh commented, “One way to look at it is that poor people stay together usually right. Probably that’s one way to look at it. Obviously, with a middle-class background, we just stick together basically. I don’t know if it happens to other people but as soon as you cross 40 and above, you will find the rigidity coming in. That happens but other than that there is no problem. Because we’re poor, it’s easy as I said. Sometimes you fight it out, it’s normal for any team. I think as long as the relationship continues, it doesn’t break basically. You start knowing people, what they like, what they don’t like. You just try to be more cautious about what topic not to touch. As long as it is not the interest of the business to discuss it or it is more sensitive, you try to avoid it. It’s very normal, nothing new I am saying. We all do that at home every day, right?
- Do you think India is going to be the B2B SaaS hub? Nilesh: “It’s a fantastic opportunity. The ingredients are getting prepared or have been getting prepared. In SaaS business two-three things are critical. Fundamentally there is a product and the market. People who know the scale, SaaS, have seen those problems, the talent to build the product is there. The second piece of talent is to market the product, over many years that talent is getting more available. So you have the talent which can build the product, you have the talent which can sell the product. Now the third ingredient is the capital which is also available. So all the ingredients are there and there is no reason why it is not successful because everything else is there. The market is growing. There are lots of legacy products to be taken out. So all these happening at the same time is a great sign that B2B SaaS will be a very very big thing. I have been thinking about this for the last 7 years, is that what IT services have been in 1999-2000 is B2B services today. If you go back and see what Infosys, Wipro have been at that time is very likely to what will happen to SaaS. How Big, how wide it can be is anybody’s guess but the entire picture to me looks like a reincarnation of IT services is what I would call it.”
Shesh: “The ecosystem has come together capital to talent to market, everything is coming to space, I think India is poised well.”