Heart to Heart

Pankaj Naik: I went, if I was to start, it’s a long, long way back because I’ve been working in this field for quite some time. So, look, I’m an engineer by profession. I come from a small town. When I was doing my engineering, that was a thing to do. If you come from a small town, because if you do engineering in a good college, at least your future is safe and secure. So that’s what I did. So I went to College of Engineering, Pune, and then while doing engineering, I just didn’t think that is something that I wanted to do. So what else do you do? Then somebody said, oh, people who don’t like engineering but are reasonably intelligent and go to MBA. But I worked for a couple of years before I did that, and then the two years of engineering work made my beliefs even stronger that is not something that I want to do. So, and the real reason is also that not that I could, I could pass the CAT exam in the first attempt. So obviously I did my two years of work experience, which is probably more of an outcome than a choice. And then when did I, I’m Calcutta. And while studying there, for some reason, I just loved the finance subject. So, When I went in, I thought that I like marketing and strategy, et cetera, more. But somehow, I fell in love with finance. And I took a lot of finance subjects, irrespective of the grades that you get into them. And then I graduated. I joined DSP Merrill Lynch and started campus. That’s a story there as well, because I think most of the finance jobs used to go to the people with very high CGPA. I just thought that it’s one of those things. I really like doing finance, so I just decided I’ll go for it. Thankfully, it all turned out well. Then I joined DSP Merrill Lynch. I worked there for four years, very formative years under great leaders, phenomenal learning. I worked there for four years, then I joined JPMorgan in 2004. amazing place. J2O was just expanding in India at that time. I was the fifth employee in investment banking. So, got to see everything that goes along with building the practice and you keep at it. So, I was there for 11 years. And then I received call from Aventus for this joining the DMT team. And I used to see all these transactions that Aventus used to do, because for somehow I was in their database. So I used to get these, the deal update emails, which I now, you know, I’m very disciplined about making sure that everybody who tracks us gets them. So now I know the secret sauce of that. But like every month, something like that, like a $30 million transaction, $50 million transaction, $100 million transaction, $20 million transaction. And those transactions were like… like completely in very diverse set of companies. All like furniture, payment and like FinTech and like, I said, what are these guys doing? Man, like, and obviously in a large bank where, you know, anything less than 300 million is not, doesn’t move the needle. I was not being able to get it or there was no foreign bankers were actually excited about coming in, you know. sharing your excitement about tech companies. So I just thought, let me just kind of see if this works out. And I jumped into it. And I’m glad, you know, I took the call and more importantly, I’m glad that my daughter, Deepak took the call. Has to work both ways. So, and so I joined here and yeah, it’s been eight years and it’s been phenomenal. Obviously the whole, you know, the tech. space as such grew so substantially and phenomenally in last seven eight years. So obviously you got benefited of that, but like we did a lot of hard work to kind of make sure that we build on top of whatever we had and could create our space here. So but it’s I think it’s a lot of hard work and serendipity which I truly believe that in business like ours. external environment determines a lot in terms of outcomes. But your sincerity, hard work, and innovation at least gets you the ticket to the lottery. So it’s all worked out well.

Rohit Agarwal: Very interesting. Did you ever feel that you should have continued to do engineering for one way or the other after landing and sort of advising technology companies after all?

Pankaj Naik: I’m sorry. No, no, I, for a brief period of time, I was in one of the leading IT services companies, because I did instrumentation engineering, and I worked as an instrumentation engineer for about like 15 months. And I got really bored and I was not sure whether I will actually get into one of the IAMs or not. So I just wanted to make sure that if not this, then what else. So I went for four months in one of the leading IT companies. And I realized that if that was bad, like this is even worse. The only thing that at some point of time, in my first four or five years of investment banking career, I realized that if I would have stayed there, I would have got like 100 ESOPS of this really those ESOPs probably could have been worth something, where in my early years of investment banking, both the salary and bonuses were not exciting. That was a different time, Rohit. So there was a thought that crossed my mind, but then I realized how many programs I crashed while trying to kind of write a simple code and then realize, oh, I don’t think so. They probably would have asked those 100 ESOPs to return.

Rohit Agarwal: Choo choo choo.

Pankaj Naik: at some point in time. So yeah, I never felt that you know that part would have been good for me, no, absolutely not.

JPMorgan, then Avendus#

Rohit Agarwal: Very cool. Tell us a little more about the thought process behind jumping from DSP Merrill Lynch to JPM. As I understand, DSP at that point in time had a very good name in the investment banking circles in India. And JPM, as you said, was just emerging. You were the fifth employee in the investment banking department. Again, yep.

Pankaj Naik: So looking back, I think when somebody in my team leaves for a private equity or one of the bulge brackets, I just ask the same question to myself that my bosses could have asked me at that point of time, like why? I mean, you’re probably getting everything. But I think one of the most important reasons I went to JPMorgan at that point of time was, I just thought that. They were building and ability to grow in a new franchise, which is committed to India would be far higher compared to the place where I was in. Also because there were quite a lot of bankers in DSP Metal Engine. Everybody had a good work and I had given my 120, 150, whatever, 200% in first warriors. So I learned quite a bit and obviously I’ll continue to learn more, but I just thought that the ability to getting more front-ending role or ability to build something along with my seniors, I’m not saying I was too junior for that, for me to build something, but with them was pretty good. And I think the last and definitely not the least, I think the money was very different at that point of time. Because… It was a domestic bank versus foreign bank, you know, difference of culture at that point of time was substantial in terms of what foreign banks were ready to offer. It’s a fixed salary and then bonuses. It’s a different thing that I went to J.B. Morgan and Merrill acquired DSP’s balance stick in just two years. So, at least the last part actually was well taken care of for people who stayed back. And obviously, Merrill continued to do really well. And the J.B. Morgan also did really well in terms of how they emerged as leaders in the industry space in India. So I just have tremendous amount of gratitude for both these places that I’ve been at, the kind of learning that I had in both these places and the bosses that I’ve worked with or the seniors that I’ve worked with were terrific. And there’s a lot that actually has gone in the way I have developed as an international banker in both these places.

Rohit Agarwal: How important is it to step into a startup kind of an environment even at these large companies whether you think about you made this move to JPM, very established name Global Investment Banking but then kind of just setting their paths in India and then you kind of did the same thing 11 years later with a Vindus Capital which had a pretty good name, but really needed that amplification, right? Kind of, it was more like startup to scale up kind of a journey. How important for an individual to put themselves in this kind of a situation where, you know, we need to kind of get out of that comfort zone and say, Hey, I need to do something more, something more entrepreneurial, perhaps to really get to the next level of growth.

Pankaj Naik: I think to each his own, in my view, Rick, because there are some people who do phenomenally well in large organizations and carve out their niches and build their careers. And then there are people who get restless even if things are going well. I haven’t seen that people will actually move very soon if they see the code. And I think the reason for me also to kind of make these calls where I just saw probably the probability of higher growth to be higher in the next opportunity. And again, none of those were again, I didn’t go out and actively sought out. So that’s another thing that I figured out. It’s not that I haven’t taken interviews in my first 15 years, but when I shown interest and actually have gone and talked to people. somehow they have never materialized. When you say I’m really happy here, and then somebody calls and you start really thinking, oh, let me think about it. And actually that has worked well. I joined, I wouldn’t say I went this was a startup, because I joined a pretty established practice. When I joined, BNT was already a leading practice. My partner. Today Karan was then director and along with in Dora, they were really doing amazing. So I actually didn’t think that I was coming. like taking this to like next level or something. I just thought that this space is exciting is continuing to grow. I want to be really part of something that is growing part. And then I think after I came here, we really got into the rhythm with boss, with my partner, and we started going after larger things. Also our clients grew, so we grew with the clients I think we have got a lot of confidence that we could go and pitch to the larger clients who are not our existing clients and could think big of doing larger transactions. At a point in time when I joined, I didn’t think that I would be actually getting into the zone of where bunch brackets, like when I just thought that, you know, there’s a nice niche or the bracket that has been created by our vendors and that… bracket will continue to grow and continue to do well. And then that itself is a great opportunity. I’m just being honest. It’s not that like when I came here, I thought that, no, let me go and, you know, I have some, you know, wings on my back, which will get us to do like a billion dollar transactions and a 500 million dollar transactions. No, that’s not the case. I’ll be lying if that’s what I had in mind. But like when we started doing things, The moment it started building up, we felt confident. We felt confident pitching to the companies of our larger transactions. The larger investors came to us because they knew that we know this space really well. And that gave us a lot of confidence to actually bang the table and say, no, give it to us. We’ll do it better than others. Because we know how the large investors think as well, and we’re not anymore. you know, just, you know, people will raise $20 million for you. But one of the things that I think we also consciously decided that we’ll not let go of our DNA of 30, 40, $50 million transactions also because there are a lot of innovation and the new ideas and the ability to go deep in companies relationship actually happens. when you start a little early with the company. How early is obviously the question, Rohit. We got a little diagonal. The question is, I’m not the kind of guy who has a risk appetite of a startup. So, the one thing when I came here, there was a thought also like, I’m going doing this tech banking, you’ll interact with a lot of companies. Maybe some of them are like probably could be exciting and maybe that could be one of the roots, right? Eventually that you’ll go and join one of them, right? I think one thing I just realized in like first two years after I came here, like, I don’t think I can do that. You’re an entrepreneur and I’ve dealt with and interacted with so many entrepreneurs. All I can say is I have such an immense… respect for entrepreneurs, not just for what they build, but like the what they just go through. It’s it’s a different type of life every day, right? There’s every day something is happening, which, you know, there are at least seven out of 10 things which make you think that, you know, probably this is the last day of the company or maybe last month of the company. And then they just They keep at it and like some days are good, some days are like really bad. I just realized that and… In terms of processes, discipline, it’s just one thing. Like I just realized that is one thing is not for me. I don’t think I can do this. I can manage the transition from a large budged bracket, process-driven, a platform-driven form to a entrepreneurial… Go-getter content-driven, probably. I don’t claim to say that the large firms are not content-driven, but I’m saying that we don’t have a choice. Maybe we don’t have a New York platform or something, so all we have is us. So we have to do double the effort in terms of to make sure that the content is relevant. So that’s why I’m saying content-driven. But that transition itself was not easy for me, and it took a while to get in, and now this is my second skin. or this is the only skip. But one thing I’m very sure, and I’ve seen a lot of people, like somebody’s a billion dollar company and an entrepreneur is 100 million worth or 500 million worth, somebody’s two billion dollar. Bro, I never felt that I want to be that guy. I just say like, that guy is there because he deserves it. I don’t think that I deserve that because I haven’t taken… that risk and neither do have ability to take that risk at this point of time at least. And so I will do what I do good, which I believe that working closely with founders to make sure that when we go and talk to investors, they realize their potential with respect to how good the company and the founders are and at least it is my job to actually help the founder to make sure that. investors appreciate how good it is, right? So, and, and this is one business where you do more and more and you get better at it. So, it is not that the gray hair or lack of hair does not mean that actually you are out of it, but actually it just gets better. I mean, there are some businesses where, where it is consulting, whether it is like law firms or investment banking, where the more experience is always better, like at every year you will probably have something more which somebody who is 20 years younger may or may not have five years younger. Maybe that is not true if you are coding or if you are product manager. So, maybe that is why this also has a longer runway and higher DCF output.

Rohit Agarwal: Very cool. We’ve talked about Avendus Capital. Maybe do you want to introduce the audience to who Avendus Capital really is and specifically about your division, the D&T team in investment banking? What all do you do?

Pankaj Naik: so, Awendus is now full service investor bank. It started almost 22 years ago. Started as CoolStartups.com, that was the first name. Started by three individuals, Gaurav Deepak, Kaushal Agarwal Ranu, Ranu Varah, Ranu was CEO of the company, till some time ago. Gaurav runs the company now. They started in the first internet. D’oh! boom or internet wave, whatever you want to call it, 1.0. And the idea was to work with tech entrepreneurs and continue to grow with them. Obviously that didn’t work on the internet side. So they realized that the other, the growth area was the IT services and BPO. So right from day one, I think the DNA of the firm has been like, we are not brokers, we are not a direct, tree service providers. So day one, they said the content has to be the key DNA of your service. So within IT services, they went so deep, they could obviously add a lot of value with respect to positioning of the companies, understand the business, explain the business. And that DNA of the firm is still there across all the firm, including management or NBFC and obviously Spark Institutional Equities came and joined us but like one other thing that clicked between the two firms is because they had the same DNA. So first of all we will never think ourselves as broker, we never think ourselves as, the connecting dot is important but the only connecting dot is not. So you have to have very solid base before you connect the dot because connect. the dot has to be purely based on, you know, the industrial logic and deep understanding of the businesses and that kind of runs. So these three gentlemen ran investment banking and we did some large deals in IT services, Satyam and Sarco where the two large ones, 2008. 2008 we also started other investment banking practices. healthcare infrastructure, consumer financial services. Our practice started in 2011. Governor, our CEO, he realized that there’s a lot that is happening on this internet, consumer internet, so a lot in terms of series A or SEEDs checks were happening and said there’s somethings happening here. And said, let’s start. And obviously there’s a lot of resistance within our vendors and not many people wanted to do it. My ex-boss Ashish decided to come back from UK to kind of lead the practice. And my partner, Karan, joined from outside. He was and he is crazy passionate about technology payments. And said, like, somebody’s ready to bet on this. He said, you know, I’m going to give my 100%. And the four-member team started that. There’s not much that happened in the first couple of years. They also have written reports like India Goes Digital, India Goes Mobile, where nobody was talking about. And I said, these guys know something. These guys are talking about something which has not been done. And people started taking notice. We did our first transaction with Perse, which is daily high. That was a $10 million transaction. Our second transaction was Book My Show, I think $20 million transaction. I am very proud to say that both these clients are still around the most important cherished clients and we have deep relationships with them. So, and maybe things have changed with respect to probably people who used to earlier cover them. in case of Bookmashow, Karan has always been involved in Bookmashow. That means two things. One is we also managed over a long period of time institutionalize the relationships. And that is a key to any investment bank. You do not want to make rainmakers. You want to make an institution that continues the business. stays. So that is important. Now 2015 KKR invested in us and GAIJA invested in us. Now we have full fledged brokerage business which is parts institutional equities. We have NBFC which provides structured financing solutions. We have wealth management which caters to to all the H&Is. And we have asset management. We have a private equity business, growth business, long short hedge, and long-only equity. So we are now a full service industry with the same DNA across all these business units. So considering where India is and how it’s going, I think a super exciting time for all of us to kind of take this to a different level. next level.

The evolution of investment banking#

Rohit Agarwal: Very cool. Certainly, investment banking has evolved over time. And you have now been in this industry for almost 20 odd years. Can you tell us kind of what people thought of investment banking when you started off versus how it has evolved now?

Pankaj Naik: You mean the talent or you mean the clients?

Rohit Agarwal: the investment banking as a profession per se.

Pankaj Naik: but the profession has two angles. One is the people who work in it and the second is the external world that kind of perceives who you are. So, which one and probably you want to cover both, but which one is more important from your perspective to start.

Rohit Agarwal: I think more the latter, the customer’s perspective.

Pankaj Naik: customer’s perspective, right? So look, investor makers has a special space in everybody’s mind, maybe because of all the Wall Street movies that they see. And, you know, right from Shakespeare’s time or maybe, you know, a thousand years ago, I think the guy who deals with money is always considered to be something. is not the right guy. You want to sell your house, you want to do it directly, you don’t want a broker, but at the same time you get a guy and he helps you out and at the time he eventually says, what did you do? So things you get on the types, there are people who they say that you add a lot of value in our business and thankfully right from the beginning. I think we have worked with people who believe that if you work together as a team, Investor Bankers could add a lot of value to the process, to the investor conversations, to in M&A, and including actually some of the, especially in D&T, some business understanding and… the business advice as well purely because it’s everybody’s learning right so it’s like you know as a banker I couldn’t have gone and told a steel company that oh maybe you could change the ratio of you know the coke and iron ore by three percent and you will see different results why does it smell the same coke before you make that comment in the end you can say that and the reason is because you’re walking the corridors and say maybe your shipping costs are slightly on the higher side. You’ve seen probably like these days they are 48 rupees and not like 65 rupees and you’re telling me that you want all the best in the industry. No, you’re not. And people say, oh yeah, seriously? Then like do you mind helping me with that? And yeah, I’m like the four people, the people who actually do this. looking for business anyway. So, just one example and it is a real-life example. I am not, it just happened. We have helped somebody to bring down his logistics cost because for some reason, he thought actually he was in the top quartile but he was probably out of the bottom quartile as well. But these things happen or cack. everybody has different definitions of it and we probably know like you look at it and go no you’re not good you’re not good at it I can tell you so that you can’t do I mean so but I mean that’s at least the business side things are working there but I’m seeing that increasingly there was a period in between where people just thought that like let us do it ourselves and I’ve been through that period myself. And the only money will be paid only if you’re giving me money, right? So if you are a large bank and you have a balance sheet and you’re lending it or you’re providing acquisition financing, they only will pay you money. Otherwise, we are smarter than you, right? And we’ll probably pay you because in some cross-border transaction, you know somebody in Kansas City who I don’t know and… or you know somebody in Guangzhou that you’re making the deal happen, okay, we understand that. But if I know the founder, then what is the value that you’re adding? No, but that has changed a lot because people understand that the complexity of getting transactions done is not that straightforward. So there are some, but at the same time, there are some founders who just love this whole love this whole song and dance about, you know, creating tension, playing one investor versus another, increasing the price. And there are some founders say that, you know, look, I’ll run the business. And I know that I probably have to do some management meetings and need to take some tough calls and some negotiations, but largely I want you to do 80, 90% of the work because I think you’re good at it. And plus, you know, my time should be spent on my business where I can actually create a larger outcome rather than saving the fees that I will pay to the investor. So I am seeing more of that and people are willing to work with founders. Also the where you are in the cycle also kind of helps because people think that I can raise my hand and people are going to put money. then I don’t need the banker. And then now I’m coming to you and you help me and raise a hundred million dollars. We’re like, probably, yeah, I mean, it’s possible. But sometimes the damage is done. And there’s not much, not a magician to kind of get you capital out of nowhere when the business is not doing very well. But things have changed a lot. People respect the founders. I think it also depends on who’s in your cap table. There are certain investors tell their founders that you don’t need to work with advisors. you have to do everything yourself. And while others say that, you know, work with good advisor, save your time, spend that energy in your business. A lot of stuff, right? Because, and then, you know, every three months, six months, you’ll always see an article in Wall Street Journal and Economist and where some banker is maligned and how banking is the community that has brought the world down. while making bonuses, then obviously people do not like it. And then there is some reason they say no, I do not want intermediaries. Because the whole, the whole tech, especially on tech side, everybody is trying to disintermediate something, right? So, so if you are somebody who is trying to disintermediate something and then you work with an intermediary, which is not consistent with what you believe in. So sometimes that also works out. So there’s also some people who say like, you know, the guys who work with bank are the guys, their business is not so well run. And that’s some US SaaS myth that has been nicely created by people who want the best deals for themselves so that there’s not enough tension that happens in the processes. So it’s probably the most amazing view that has been created by people to get the deeds that they want. But I also realize that if I just look at the most, the deeds that have gone bad, there are more prob deeds that have gone bad, vis-a-vis the bank deeds that have gone bad. I mean, maybe it is a generic statement, but like if I really have to sit down and list all the names, I think I will get pretty close to that what I am. what I am talking about. There are a couple of names already in the newspaper who will, you will probably realize that. These are all the FOMO Prop Deals what they have resulted in. So, yeah, so you work with the bank who will do their diligence before they take on the mandate or while doing the diligence, they find something a mess, hopefully and usually. if somebody really had to do the fraud then they can easily defraud the investment banker as well. But if there are like some signs missing kind of discussion, then you better not go on going with a deal where the banker is involved because at least he has done one or two levels of his own divisions before he brings out something. So things have changed. And on I think from the talent perspective, I think Inter-Ranging always remains as one of the top jobs. both in campus or laterally. I think because also the A, it’s exciting, it has a lot of variety, it pays well, also a lot of exit options, whether it’s private equity or whether it’s joining the corporate, CEO office, CFO, all that. So I think that still continues to be one of the top jobs on the campus.

What separates quality tech companies#

Rohit Agarwal: Very cool. I’m sure you’re exposed to a lot of quality companies across the tech spectrum. From an advisory or consultants point of view, how do you think about the caliber of finance departments across these companies, maybe from a scale of 1 to 10, 10 being really, really good?

Pankaj Naik: It depends a lot on the scale of the company as well. So I would say that the early stage companies you will probably get to like 6, 7 or 5, 6 sometimes in terms of that. For the late stage companies it can get to 8 or 9. You also realize that the CFO talent in India versus CFO talent in the US is slightly different. The CFO talent in the US is largely, it’s a big picture, strategic, outward-going, investor-focused talent versus I think India is largely managing the house, cost, risk, and then investor discussion. At least 50% of the CFOs are not part of the, oh, where is this company going 10 years from here kind of discussion, why you’re kind of discussion maybe next year, yes, because projections are important. And it’s changing, but in 22 years, I thought it would change quite a lot, but it hasn’t changed, not just tech. I’m just talking generally. And I’m not saying that The guy who is a strategy oriented guy obviously needs a very strong cost control guy as well where you sometimes lose a lot in the US especially in the tech side because the CEO is talking 20 years, CFO is talking 10 years, nobody is talking next 6 months and you need those guys who are talking next 6 months, next 12 months and how to kind of make your margins go from. minus seven into plus three and make it work. And we are actually losing money and somebody’s actually sitting in making sure that you’re getting the best deals from your service providers, your software providers, or your vendors, et cetera, et cetera. Yeah.

Rohit Agarwal: So if someone were to really look from jumping from, let’s say five to eight, or a six to 10, do you think it’s that strategic angle that is most missing in India? Or there’s something else as well?

Pankaj Naik: No, I would think so that because I don’t think that people, I don’t think that people are less focused on understanding the cost elements. If they are not doing something, they are not doing because they do not want to, not that they do not have a handle on. And not doing something because they do not want to is a mix of board, founder, growth, amount of capital in the bank, all that kind of stuff. But I have seen the The CFOs in India will usually have a better handle of where the money is going. I don’t know whether they will know the second level, third level solution state or not, but at least they know where it is going. And that is consistent. I have met so many people, but generally people know. And sometimes, sometimes in private they have said, you know, look what is happening, so much money is being spent. making sense but that kind of stuff

The CFO playbook for raising capital#

Rohit Agarwal: All right, let’s go into a little bit of a hypothetical, but let’s try to make it as real to the current situation as possible. Let’s say I am a CFO of a $10 million ARR company. What would be your advice for me in the current environment? You can bucket it in terms of whatever is happening and that’s gonna direct impact from profitability perspective. or invest in appetite from funding perspective or other just market pressures perspective.

Pankaj Naik: So… People are incredibly focused on where the dollar earn is going. I am not saying that means that people want everything to be profitable. No, that is not the case. People are ready to give a lot of leeway for unprofitable companies if they are growing in the direction that they need to grow and for which they need to spend money. That means money being spent on sales, marketing. money being spent on maybe customer acquisition if LTV2CAT makes sense. But people are measuring productivity and even in the sales and marketing. But if you are not doing well on gross margins, if you are not doing well in contribution margins, if you are not doing well on variable far less patients for you as compared to patients for sales and marketing. People are also focused on the R&D cost, but more like is any of the variable cost is kind of shoved under R&D. I think people are focused on that as well. And then, and, and if tech is really the… is really the prime mover of the industry, then do you need to have like 10 people, 50 people, or 500 people to do things? Because I think people are increasingly asking the question of is throwing people at the problem is the only solution. So that’s where the tech costs are important. Earlier people were not focused on your fixed costs, which is admin cost. cost of CFOs office, cost of HR. I think people are spending time because people realize that there are a lot of companies who are at like a variable break even and telling that after that the economies of scale are gonna come in picture. And a couple of years have passed but the economies of scale don’t come in picture. Like your fixed costs are increasing at the same rate as your top line is increasing. So, and then you’ll always have a new reason to tell. either a new initiative or new geography or a new product, which is, you know, which is good. It’s like, you know, day zero as Bezos calls it. But I don’t think everybody has patience for day zero all the time. So that’s also, I think being asked by a lot of people like where is exactly are they going slow? Yeah, I think. I think people are incredibly focused on not, it’s not about the expense, whether you’re getting enough return on that expense or not and people are also benchmarking.

Rohit Agarwal: Very cool. Has there been a considerable increase in the amount of or rather the number of months that it takes to close a deal or is it still kind of that similar ballpark that it used to be maybe two three years ago before all the hype post-COVID?

Pankaj Naik: So, I would say to the, what happened in 2021 was aberration. We are not in the market where it is taking incredibly longer than what it used to before. So, I have done this analysis that from kickoff where we meet in with the company and company presents it, its business plan and everything to us till the money in the bank average period has been seven and a half to nine months and that had come down to like six and some cases like two or three but that is generally the time. for companies to get things done. Which is for other sectors sometimes could be shorter. So it’s a good asset, it can get done in six months. In tech, actually people spend more time because it’s the elevation of the business that needs more conviction than the existing set of the business. While in the other businesses, late stage companies, there’s not much that… that you need to take on where this business will be three years, five years down the line because I mean it’s a sad business and you make the calls.

Rohit Agarwal: Got it. Any advice to the CFOs in terms of, from a banker standpoint, what are you seeing in terms of what the best in class companies are keeping as reserves? Is it 18 months, 24 months, longer than that?

Pankaj Naik: So 18 months is rule of thumb in my view. And considering where we are today, I mean, there’s a lot of noise, negativity, sometimes people take longer, but that’s why 24 months is your comfortable, 18 months, you should definitely start thinking about capital raise, 12 months, you need to be in the market tomorrow, six months, you need to call your internal investors and ask for the bridge. Less than that is a problem.

Rohit Agarwal: Very cool. From a CFO standpoint, what would a CFO need to do to be funding ready? As you said, many of these things, if you have 12 months of cash in the bank, you should start raising tomorrow. If anything shorter, you should already be having those conversations, right? And with experience, I know that having that readiness does a lot of good whenever either the investors are knocking on your door or you need to knock on the investors door. So what could a CFO do to be ready for a funding event?

Pankaj Naik: so look, I’m not talking about like what state the business needs to come in because that’s a different conversation like and that I think that’s horses for horses, right? A different company like if he was doing something in AI today, then people know, no problem, it’s like that. But more about readiness perspective is that your MIS needs to be clean. and MIS needs to talk to the audited financials because I think in the last couple of years of quest for growth, I think MIS was a little super clean, but then it had sometimes was missing correlation with audited financials. There’s other thing that I think people should do once in a while. some sanity of how MIS is being collected and all that. The vendor DD, the financial vendor DD, either for external purpose or for even internal purpose, for internal investors purpose. I think it may not be a bad idea to have a cadence to actually get that done once in a while. The reason is, it is not that expensive actually. There are people who burn operating burn is like a million dollar and then when it comes to this, this costs like 20 lakhs to 40 lakhs, it is not that big amount of money. But it saves incredible amount of time when you are actually in the process. And the idea should be not like, oh, I do not want this to be part of my VDD, but… If you are thinking like this, probably the incoming investors also would be focused on this. So let me see what is it that is going wrong in terms of perception. So let me kind of correct it. And if you do that well in advance, then you are ready for any type of diligence when it actually happens. So that is something that I think is important. We’ve seen the board decks has decent amount of MIS, but I think one thing that is increasingly we’ve been hearing is that, oh, we didn’t know this was happening because board was looking at MIS and was very happy. There was a gap between the financial statements, audit of financial statements and MIS. And I guess not that everything was like purposefully done, but it is like some sloppy business somewhere.

Rohit Agarwal: someone was trying to cut some corners and then it just ended up ballooning into something more. Oh. Hmm.

Pankaj Naik: Genuine mistakes as well, not just cut corners. I was working with someone in MIS, this one line missing. You got to know while doing the divisions. What to do? I mean, and I know it was not purposefully done with genuine. I mean, it is actually company founders said, oh shit, like, and they called, you know, the auditing, the DD guys and they called the investors saying, look, this has happened, like, this is, there is a line missing. Some 3-4% gone.

The CFO-banker relationship#

Rohit Agarwal: No. Sure. Okay. Let’s maybe talk about a CFO banker relationship or a founder banker relationship. I’m sure there’s a lot of trust that is bestowed upon the bankers. Beyond just the momentary, or I’m saying momentary, but it’s, as you said, anywhere between sort of six to 12 months, it could take. Beyond that kind of rather defined time frame, what would you expect from that kind of a relationship between either a CFO and a banker or a founder and a banker and how you would advise founders or CFOs to basically kind of help bankers help them better?

Pankaj Naik: it’s a very good question. So, if you talk to any banker, I think none of the bankers will want to be only transaction specific bankers. Everybody wants to be your trusted advisor on an ongoing basis. And people put an effort, I mean, some people don’t, but like I’m saying that most of, at least at Avendus, we put an effort to at least make sure that we are in touch with the company here, like even after the funding is done, to talk about like challenges. good things, bad things, things that could be done better, all that kind of stuff. And that’s why the trust becomes very important. If there is a trust between the banker and the CFO, the banker and the founder, then, I mean, there is one external guy that you trust who actually can look at it like a third person, third party, and tell you if something’s amiss, or something could be done better, or something from next funding, or… value creation towards IPO or strategic sale perspective, things probably are not falling in line. Now, not every founder or not every CFO will have that trust in an external advisor. And I think my sense is then either a board member or a coach. or somebody to actually tell you that this is okay, not okay, is important, especially in this hyper growth startup environment. I have seen the downside of it as well, either during the process or after the process, we have said that, oh, probably these are the things that you need to change. They say, oh, you are not convinced about my story. You do not appreciate my story. You do not, you know, you are not understanding my potential. That is just, that is unfortunately part and parcel of my job. I have to give right feedback. I need to be honest about it. The same time, I need to be sensible about how to give it and to make sure that the problem with sensitivities are managed. You there, Roy?

Rohit Agarwal: Very cool. Yeah. Let’s talk a little about how do you think about team formation? I certainly have been a beneficiary of the great culture that Avendus broadly and certainly D&T specifically has created. Over the last eight years, not many folks out of that kind of college director, MED level has really moved out, right? the top layer has remained quite static, right? And certainly I would think one of the reasons why the platform has been able to deliver certain amazing results, because clients also see longevity or continuity with the bankers that they are talking day in and day out. How do you think about team building and making sure that different people in their roles feel comfortable about what they are doing today, as well as what they may aspire to do tomorrow. Hey, Pankaj, can you hear me? , Pankaj, can you hear me? Huh, that is strange all of a sudden.

Pankaj Naik: Can you hear me?

Building the D&T team#

Rohit Agarwal: I can hear you. Huh, super weird. Something going on with the network. Alright. So… Okay. So we’ll get going again. So, Pankaj, let’s move to a little bit on team building. I know certainly I have been a beneficiary of the D&T team culture. And if I think about it, in the director ED levels, not many people have really left to go anywhere. out of the D&T team at Aventus over the last eight years. Maybe talk about how do you think about team formation so that every individual feels good about not only what they are doing today, but also what they may aspire to do tomorrow.

Pankaj Naik: I think that’s the most important thing, Roy, because there are two aspects. A, either my life that’s ongoing is good or horrible, and do I get along with my boss, and that’s why do I need to take an action, something today, because I don’t like it. Or, yeah, it’s all good. things are working fine, you know, there is a lot of camaraderie, people have fun, it’s all work, but fun as well. Nobody’s doing anything behind my back. But having said that, where will I be in five years time of life? So these are the two decision trees when people take a call. From our perspective, we’ve invested a lot definitely on the first side of the business, first side of the question that we talked about, like in terms of making sure that the team is invested in each other’s well-being, there is genuine trust and empathy. And generally in our vendors right from the beginning, no tolerance for one-up a showbiz where you are the one who’s done everything and all that kind of stuff. That’s why the incentives are also structured that way. If the team wins, everybody wins. If the team doesn’t win, nobody wins. We’re not here to create stars, but we’re here to create a team. So that part is good. The second part is about the growth, and you need to make sure that people will get growth opportunities. You’ve been part of this team, so you’ve seen that at least we’ve chosen different verticals and made sure that the VP onwards, people start taking responsibilities to kind of go and run the P&Ls and the sub-verticals. And then they enjoy, and that doesn’t mean that the seniors are not involved, that doesn’t mean the MDs are not involved, but you make sure that the responsibility the individual is a VP or a D, so that it’s her or his responsibility to make sure that MD is focused to make sure that they get that business. And so you feel that you are not only, you are not assisting, you are actually, you are running with the ball and you are one of those two who are passing each other and to make sure that one of you scores the ball. It doesn’t matter. where there is that MDs meeting which finally gets the deal or whether it’s you go and win the deal finally yourself. Same thing while closing. And nobody has ever said that, why did you get MD involved in closing the transaction? Because ultimately it’s an institution, it has to win. The client has to get the best experience. But it is, it’s the VPD’s responsibility of closing the transaction. So VPD is responsible of winning a transaction. Obviously at my level, I’m responsible for the whole team’s performance. So I’m not sure, it’s not that I’m going to sit down and say, oh, you guys do whatever you want. And then I’ll just count the beans. I’m as much invested, but you make sure that everybody is equally accountable and responsible and also gets a share of the booty if you win all together, right? So at least that’s what we’re trying to do. And that has worked out. I’m also, it’s also true that the pie has been growing. So that’s why everybody is getting more to do. Everybody’s happier. So we are a business cyclical business. So the pie may not grow in one or two years or pie may decline in one or two years. The people need to have maturity to understand the cyclicity of the business. To say that we are going after our clients very hard in the time when they actually need the most help. We’re there for them, but that doesn’t mean that we’ll probably make as much fees as we made last year, this year. But when the tide turns, our clients will remember who was by their side, and they will work with us again, and there will be good years. at that point of time that VPD level who has been investing in it will be at the forefront to take advantage of that. Apart from that, what else you can do to make sure that people grow, people do more and more as they grow. So you expand, either you expand the product or you expand the geography or you expand the industry. So within D&T, expanding the industry is obviously the industry has to come, right? For example, I mean, we were probably we were investing in Web3 and crypto, but I don’t think that anything probably will happen so soon there in the next year. years and maybe chart GPT and artificial intelligence. maybe, I do not know, I mean this part of time. So, we will continue to like three years ago, we invested in D2C in 2020, we said, this is something that is happening. So, we wrote a report, we went after companies, we created an entirely new practice within that. Similarly, when like seven years ago, when it started, we came, we are lending, let us start. then we did most of the lending transactions. Similarly, we currently did that in payments earlier. So, we have done something in AgriTech right now, we have done something in B2B. Some of these, so each, you find out a new sector where things are happening and you invest in it and somebody will benefit out of it. And the whole firm benefits out of it, that is one way of doing it. Second is the geography expansion now. So, we have started going to Southeast Asia. One of the reasons we went to Southeast Asia is also because we see a lot of those things that are happening in India will and are happening, are happening and will happen in Southeast Asia. And actually, whatever we have learned from the mistakes that have taken place in this country, actually, they don’t have to repeat those mistakes. And who is better equipped to share? the learnings in last five years from India, other than us, who has been at the forefront of this. So, we are feeling pretty good about expanding into Southeast Asia. So, one of the four MDs will probably move there. So that also creates the room for people to grow. Somebody will go there with one of the MDs and hopefully that business will grow, somebody will. Some one of the VPSDs will probably go there or they’ll get to do more because somebody’s moving there. Then now we have new product, which is IPO and capital markets. Because we didn’t have that like three years ago. With Sparks Institutional Equity is being part of our vendors and we have now brokerage business. We have number one ranked research in India on the domestic side. And having done what? Seven block trades in just like. one and a half years, even before fully integrating. I think we’re feeling pretty good about going after cable market transactions as well. And so some people will grow to be champions of that product. There’s a lot of domestic M&A will happen and somebody will take responsibility of that and somebody will probably run after that. So product geography and industry expansion will help team to grow. Now some people will have that patience of waiting for the next cycle and some people may not have the patience but I don’t think that I can determine whether somebody should have or shouldn’t have because I think we’ve been patient so we’ve been rewarded well and that’s what it’s pretty evident and people, whoever wants to take more responsibility and you know. go on a front foot to bat and swing the ball out of the park. I think we’ve done everything to make sure that the system is there to support them. As my boss calls it, we provide you the, we provide anybody to actually the full accountability and responsibility, but we provide a safety net. If you are providing a safety net, then you are not worried that like, what if I fail, what are these guys going to do to me? No, I mean, unless, that is why safety net, because also the institution’s name is also involved, right? I mean, we do not want the clients to suffer. So, will get responsibility, but at the same time the institution is there to make sure that the best in class output is delivered all the time, whether it is the same product, new geographies, new product, new geography or new industry. So that is one way of doing this. Look, eventually the pie does not grow in spite of all this, then I think people will take their calls or I think we move out. and somebody will grow up and that is the test amount of having created an institution at some point of time. But that, I mean we are all zooming because we love, I love what I do, I want to do it as much time as I want. So I just want, I want to make sure that the pie grows.

Rohit Agarwal: Very cool. You’ve been around for a while in the banking circles. What keeps you going? It’s not an easy job. Takes a toll on your body. Takes a toll on you mentally. Keeps you away from family. What keeps you motivated after all this while?

Pankaj Naik: Um… Two things, one is… Obviously working with super exciting founders and the companies gets you a different excitement. You always you love it. And you work with companies, they grow, value gets created. I think you feel good to be part of somewhere in that. And I’m not like I’m not a crazy guy to say that, you know, it’s happening. because I raised the capital in Salam. Somewhere we are part of that ecosystem which is making it happen. And I feel very good, especially if it keeps happening well. I feel very sad if we’ve raised capital and then eventually the capital is blown up and something tragic happened to the company. We feel as sad as the founders. I mean, obviously founders grief is far more, but. We feel sad as well because both for our founders as well as for the investors that we got in the company, right? Ultimately, if the investors do not get rich or their value is not created, eventually people will not invest in the company. We track that matrix very closely in terms of how many companies we work with and how many companies actually have created value for the investors. So that is something that we go track very closely. So that is the, the utmost joy is in that actually that the companies that you work with continue to grow and become bigger and bigger. value gets created. That is one. Secondary is which again in the last three, four years I’ve loved is this working with the team, making sure that the new leaders get created and the new practices get created and just that the whole, as my boss says, the institutional building. I mean, he trusted Karan and me in doing something and that’s why we could manage to do things on our own. And we hope that we will do the same with our juniors and they will, they’re doing it. People who are growing up, the new MDs, the new partners and the new directors and people who go and win on their own or people who just take some help from us, they win. So that gives an immense amount of joy. Yeah, so those are the two things that give me joy. When I moved to the new office, the thing that I did was I removed all the lucides or tombstones from my room. I said, now that is not the major that I am going to go by from now onwards. It is about the franchise, institution, team, people and the brand.

Rohit Agarwal: Well now you have many more best advisors of the year trophies to keep on your shelf, so why do you need those small mementos from back in the day?

Pankaj Naik: The best advisor trophies, I am more interested in the, still more interested in the revenue than the best advisor trophies.

Rohit Agarwal: Very cool. So Pankaj, there are a lot of shithead fan moment in banking. It’s a very, of course, it’s a customer service focused business. So I’m sure there are on a regular basis, if not daily, certainly a weekly basis, there are situations where, which are high pressure. How do you keep your calm in those situations? And how do you make sure the team is also not freaking out? when something not what everyone was intending to happen happens.

Pankaj Naik: I do not know actually I mean, A, I do not know whether I am calm or not, but I guess yeah reasonably okay, reasonably calm. Sometimes you’re shit scared, but you can’t just throw it to the team because if they see that you’re shit scared, then this shit is really going to hit the fan. So sometimes it’s the bravado that you say, oh yeah, nothing, don’t worry, come out of this. Sometimes I call my boss. But that has come down substantially. So. I think there are two questions that I always ask myself is what’s the worst outcome? Second is it life threatening? And then everything is fine.