The Nation-builder CFO

Arvind Agarwal: So I’ve just completed 25 years. I realized that I completed 25 years after doing my CA and I just joined my first job around same time in 1998. So I’m CA of last century if you may call it that. Thank you so much. And yeah, of course, I also did MBA from IAM Amdaba then Company Secretary.

Rohit Agarwal: Congratulations.

Arvind Agarwal: If I talk about my journey and before that, why did I choose CA? Right? That’s a standard question I get. And I think it’s it goes back to my roots and my family background. And we are actually a family of Chartered Accountants. If I may say so, like my uncle was director in ONGC long back, he did CA 1970s. He was an inspiration and almost 15, 16 Chartered Accountants in my family. So you know it comes naturally to us and belong to Jaipur, Rajasthan it seems like it’s a factory of CA. But yes I chose it purposefully because one I was inspired by my uncle like I said and second because I thought you know I have finance in my DNA like a mawadi family normally finance is in the blood so it came naturally that’s why I chose it. Now I’ve This is my third decade in the career and I think if I have to describe it, let me divide it into three parts. The first 10 years were more of formative years and I did various things there also, but basically I didn’t know which path I am headed to. I had a vision but not a strategy and I jumped into things which not necessarily I thought well planned well. Then next 10 years, I think it was more of, you know, seeding in leadership into me and I got great mentors and they showed me the path. And I learned a lot about all building, about team building, about how to think about career, et cetera. And so that was my second decade. And the third decade is more of now applying what I’ve learned, right? It’s not just about learning. You’re… Conviction improves if you apply your learnings and that itself gives you new learnings. So I would say my third decade which is where I joined as a CFO for Nykaa and henceforth is more of applying my concepts and then of course it standards my conviction and confidence into what I have learnt.

Rohit Agarwal: That’s awesome. I can totally relate to being from a family of CAs. I think if I count, I come from a family of 10 CAs and I was the first one to not do a CA. You very well laid out the journey of your last 25 years. I would love to piece it. I’d love to unpack it a little bit more. You said a wonderful thing. You had a vision, but not a strategy. Was that prior to doing your chartered accountancy or that was post-chartered accountancy as well?

Arvind Agarwal: So actually as young CA, you know, I had a vision. In fact, so it was when I was studying CA and we used to talk like among the friends. So the vision that I had was very simple is to say that I want to become CFO and I want to do an IPO. I didn’t know much about IPO then actually, but I thought it’s a big thing. And yeah, being a CFO was definitely a homework because I had seen my uncle’s journey. So I thought. that’s the right way to build a finance professional career. So those were my vision, but I didn’t have a strategy. How to become a CFO, how to really think about IPO. In fact, early stage you don’t understand what is an IPO. So I would say had a vision, but not a strategy. It got formed over years later, much later, when I learned about capital raising and how private and public company differs in their orientation. how they talk to market. So, a lot later I found a plan around it.

Rohit Agarwal: At that kind of early age when you have just finished your charted accountancy, a common dilemma that comes in front of everyone who is at this stage is whether to go for corporate finance or a company route or work at a CA firm or the big fours and so on. You chose the corporate finance path from the get-go. What was that decision? Because again, typically it seems like, again, more of the CAs do tend to go and spend maybe few years, even a couple of years at a big four, and then maybe land onto the corporate finance side.

Arvind Agarwal: No, I think that part was very clear in my head. Like I said, my vision was to be CFO and I thought CFO of a large company, large listed company. And that’s possible only if you go in corporate finance rather than your own entrepreneurship or a professional practice. So it was a test to my vision and I attempted for a campus interview and I appeared for an interview for TCS. That didn’t happen. But you know, I kept trying. Those days, countries were just getting liberalized, opportunities were not too many in the corporate, but it was shaping up. But I kept trying and I landed well. Not first job, second job, but definitely I found my path, but never wanted to do professional practice because that doesn’t get aligned with the vision that I had.

Rohit Agarwal: Make sense. Tell us a little more about those first sort of formative 10 years. You’ve spent most of that time in telecom or related sort of broadband service areas. What was the environment like back then? And what did you take out from those years now that you still apply in your day-to-day role?

Arvind Agarwal: so let me first again describe, you know, how my career has shaped. So first 10 years in infrastructure, then 10 years in telecom, then 5 years in e-commerce and now in financial services. So they are very different sectors. But then there is one thing in common. All of those companies where I worked were very high growth, tech driven and consumer facing organizations. And that’s what excites me. That is why I chose what I chose. And the other thing is, it’s more a hindsight. It’s not necessarily that I had that kind of a purpose in my career. But when I think about it, all those sectors had a bigger societal purpose. They were contributing to nation building in a very, very meaningful way. And I joined them when they were at the inflection point. And able to create disproportionate economic value, whether it was telecom, whether e-commerce. I think financial services that I have just landed now is again an inflection point and is going to really play a big part in India getting doubled as an economy in next five seven years. So, yeah, so that’s a bigger purpose, but that is something that I related much later. But when you work in such companies where you are contributing to society. it really gives you satisfaction at the end of the day. That is not just your career, but it’s also about contributing something to society.

Rohit Agarwal: Makes a ton of sense. So during those, again, the first maybe 10 odd years, were you focused on a particular area or was it broad in terms of the finance exposure that you were able to get? Because in large organizations, one would imagine that there are specialists for each of the spaces, whether you think about taxation, whether you think about accounting, whether you think about financial planning, analysis, and so on.

Arvind Agarwal: So in first 10 years I was very open. I was very hungry for growth and I was very hungry to learn to develop myself as overall skill set for a finance professional. So I did controllership for first five six years and then one of my mentor and a leader he actually pushed me outside my comfort zone and he asked me to start doing FP&A and corporate finance and then And since I did well in those challenges, then after that there was no looking back. And I picked up head of finance role in Tata Dukumo. So yeah, the first one was a bit of push by a mentor, but all of it later was natural journey. And then it was profounded later when I was in Vodafone, one of my mentor, he was the CEO of Vodafone, Mumbai Circle, and he said, that career is never a straight line, it is always a zigzag. and you need to do lot more lateral movements and it’s not necessarily a vertical growth that you will get. Right. So I did, I continued those experimentation at much bigger canvas and much bigger scale at the mid of my career and that also helped. But yes, informative here, I open, did a lot of stuff. In fact, I landed into a startup and much before when startup was a fancy word, this was 2008, 2006 to 2009 journey. the startup was called U broadband and we were basically trying to sell home broadband Wi-Fi. In that time it was not a very well known thing. Country was still 2G country and we were trying to sell fixed line broadband. So, novel concept we raised money from study ventures almost 500 crore term sheet. This was in 2006. And what happened in 2008? because of Lehman crisis and in fact Citibank also got into trouble. US government had to bail out. So Citibank just said that we can’t fund you anymore and we were left without any investments. We were still burning cash. So after 200 crore they said we don’t we can’t fund you anymore. So you have to find your ways. And I was still young in career but and the CFO left and my CEO said that you will be acting CFO. And I will just. what 8 to 10 years in the carrier. But you know, learned a lot in 12 to 18 months, we converted the cash burn situation into a cash positive situation. In fact, so in that startup from first customer to 500K customer from zero revenue to 100 crore revenue and from cash burn to a bit of positive in three years, so that was my journey. And I was tested really hard. during those time. Startups were not fancy, they are not too many capital raising options available. We went, I used to actually go to lots of banks to raise working capital and you know, in fact, we did some, you know, what vendor financing with Cisco, which was they were supplying us routers, but they were also giving us three year time frame to repay those routers. So a lot of interesting stuff that time. But it was very enriching. After that of course I had lot more clarity of what a finance professional supposed to

Amazon, then Nykaa#

Rohit Agarwal: very cool. What led you to move from infrastructure and telecom broadband related spaces to then Amazon, right? Which was certainly by that time have sort of established themselves in the US and many other markets and were kind of just starting to get their foothold in the India market.

Arvind Agarwal: this one I can claim that it was very thoughtful move, unlike the others one which I described earlier. So you know, I was in Vodafone doing very well, spent almost six years there, two roles, CFO of Mumbai, which was largest circle. And then I was promoted to India financial controller, preparing for an IPO, etc. And then Jio happened. So our IPO couldn’t happen because Jio launched and market changed. But around that time, there was few things happening. So I think Tendicom was on downhill. I could sense that it was commoditized hyper competitive. There was no pricing power. So it was on downhill. But the thing which was now coming to a positive inflection covers e-commerce because there were four things that happened around the same thing. The first thing was 4G which means affordable internet to every Indian. The second thing that happened was UPI. And as you know that in India, not too many people have credit cards. And only 5% people have credit cards. So UPI change the game. You can actually pay online through UPI. The third thing which happened around the same time, 2016, 2017 was GST. And before GST, it was State-Wise Texas. But because of GST, you could actually have one India pricing. So India became one market. And you don’t need to accept different pricing for the same product across India. So that is a big enabler for e-commerce, I must say that. And the fourth thing was infrastructure. So even physical infrastructure improved and we could deliver things in three days anywhere in the country. So I could see this positive tailwind kind of forming up for e-commerce. And I jumped on to join Amazon. Amazon was a big brand, but not in India, in the US. In India, it had launched in 2014 and 2017 is when I joined them. It was still launched in the launch mode. Right. We, when I joined, we were launching one category every month. That was the piece. If I talk about Amazon now, and by the time I left, it had almost 50 categories. And if you debundle Amazon into, let’s say 50 categories, a separate business, they’ll all be at least a unique. So it’s like 50 unicorn bundled into one mega business, which is called Amazon. I learned a lot. I was actually, it is a grind. I was tested for many things that I had learned, but still had to relearn a lot and three years were really enriching. Because of that exposure, I claim that I know unit economics of every business model that you want to do online. I was sitting in the cockpit working closely with the Raghava who is the CFO and I was the person who was actually reporting PNL how we are doing on performance parameters for each of those 50 categories and cross six channels. So publishing almost 300 PNLs. So really went into deep of unit economics of each of the business or category as they used to call it. But yeah, I explained you why I chose Amazon and how enriching it was. I can go on and on about Amazon, but I think I’ll pause now and wait for your next.

Rohit Agarwal: Amazing, amazing. Tell us what kind of switches maybe in your mind or what kind of new learnings or relearnings that you had to go through when you moved from Vodafone to Amazon. Both are global organizations. I’m sure there is a lot of roll-up happening to global orgs and so on. I got to imagine the working style of both of these companies is quite different, right? Although you have had a startup experience, but Amazon would be a completely different beast altogether. Can you share some insights in terms of maybe the differences between Vodafone and Amazon and just in general? How is it to work in something like an Amazon?

Arvind Agarwal: actually, let me first start with how I felt for six months. Actually, I felt lost there. It’s a big world. In the sense, it’s global companies and mega-corporation. But the way it is structured is very different than how a typical organization like Vodafone would have structured, where you can actually relate to one CEO, CFO, and the whole org. is sitting in India. That was not the case with Amazon. Different teams working out of different geographies. Some of them were working out of US, some of them were working out of Middle East, some of them were working out of Southeast Asia, some of them in Bangalore, but different offices. But you know, what and I was trying to figure out how this bloody thing works, right? People, I didn’t know many of my colleagues, you know, in controllership, for example, despite being a finance professional myself. I was on the business finance side. Then I figured out which team works on it and how it is structured. But I think the learning here was how it works. It works because it has one common vision which is called customer centricity. So everyone is tied to this one big umbrella vision which is that everyone is working for customer. I have not seen any other company really behaving true to the core. how to delight customers. They all claim it, but I don’t think anybody does it better than Amazon. So if I do a little bit of contrast and learning between Vodafone and Amazon, both great companies. Vodafone was, so I learned people leadership and process excellence in Vodafone, because that was also a $20 billion balance sheet and sizable business. But I learned process excellence. and people leadership is very human company and you know my initial seed in leadership was it’s I owe it to Vodafone. So people leadership process excellence are the those two attributes but what I learned in Amazon was customer centricity and operational excellence right. So there are a lot of mechanisms they have which make sure that you are answering in case of dilemma you choose a path which is right for customer it will it is assumed that it will be good for. shareholder also and operational excellence which means that you keep improving every day so that you know you are better and better. So those two are absolutely fantastic learnings in Amazon.

Rohit Agarwal: makes a ton of sense. Now let’s talk about the Nykaa journey. As I think about any company becoming IPO-able, especially kind of a storied company like Nykaa, the investors would want to play very safe in terms of appointment of the CFO who would take the company public. And as one of my friends say, It’s a gold standard for a CFO to take a company public and run it as a public organizations, which you have certainly achieved, right? Tell us what led the investors and the management team founders to say, Arvind is the right person, although he has not been the CFO of a India listed public company already, we want to entrust him with this responsibility and we wanna back him. on this role.

Arvind Agarwal: I’ll first tell you what was my side of it, right? Why I came to Naikha and how my past helped me in settling there and taking the big mission. So, you know, I was in Amazon doing very well 2017, 2020 and then COVID came in. And, you know, my role was based in Bangalore. My family was always based in Mumbai. They didn’t move to Bangalore because of… children study, etc. And when COVID came in and vaccination was still not in sight, that’s when we were all scared as human beings, right. So, so as my family and my wife said, you’re not going back to Bangalore, although Amazon had already allowed work from home, but it’s a little bit more psychological, right. And therefore, I started searching online and I got Nykaa. So in fact, the whole transition was digitally done. I handed over digitally, I joined virtually. Almost for first five, six months, I didn’t meet anyone in my team at Nykaa. We were all joined up through calls. So very different motive, but also an opportunity which I felt like I described in the beginning. It’s beginning of third decade, I was thinking that in word of phone I have been left-hand. person to CFO and in Amazon I have been right hand person to the CFO and I think time has come that I should ideally jump into a CFO role if I get one and I did get one in Nykaa. Now if I describe my Nykaa journey of two and a half years when I joined it was one business when I left it was four businesses four different business particles when I joined it was still a loss making company. when I left it was a profit making, when I joined it was a unicorn, we listed at Decacon, so private to public, unlisted to listed, loss making to profit making one business to four business. So, I think in two and half years we could together achieve what a typical you know company will achieve in five years because there was a mission and you know. I used to hear this from our leader in Amazon. He used to say that we should learn from three companies. And this was Amazon. Amazon was the hallmark. But the leader used to say that we should learn from three companies. We should learn from Big Basket in grocery. We should learn from Mintra in fashion. And we should learn from Nike in beauty. And this was also playing in my head, that there must be something unique at Nike which is working well. And then, of course, I met Falhouni and they would have done some ref check for me before taking bet on me. One of the director who met me later told me that she had ref checked for me in Vodafone. And of course like I told you that Vodafone was a big role that I was doing and I was in the IPO team. IPO couldn’t happen but we had done everything which was required to keep it ready. We were ready to file DRHP. but geo launched in the market dynamics change. So I think some of that work also paid back in my reference check. If I just now summarize, I think what made me successful in Nykaa is combination of what I learned in Vodafone and Amazon. So because of Amazon, I learned the e-commerce and that was very handy in Nykaa. And because of Vodafone, I learned how to build processes that scale and how to, you know. how to make a company ready to go for listing. So those two learnings came handy and then I could run fast in Naika. I think, yeah, for Naika’s leadership also, the bet paid off and they all appreciated my contribution. But I’m sure they would have done some ref check and my past work would have also paid back. And therefore, you know, whenever I join a company, I try to leave a mark. I try to accomplish something so that people remember me.

Rohit Agarwal: Awesome. Well, what a story Nykaa has been and what a journey you have had there. We’ll certainly unpack a lot more on the IPO side a little later in this podcast, but tell me the move to pay you. I’m sure you could have just coasted at Nykaa as a public company, CFO, quite easily, but you decided to, you know, kind of change into another subvertical of technology and put yourself into another sort of rather uncomfortable position, at least from being the CFO of a publicly listed company as Nykaa. So tell us why join Payu?

Arvind Agarwal: So see, not only till IPO, after IPO spent one year at Nykaa, right? So four quarters of earnings release, post IPO was done during my tenure. And even the first AGM annual general meeting of shareholders, that’s a different thing in a public company. And even the let’s say, post lockup expiry placement of investors who wanted to exit. So all of that. was a lot of work that I had done there. Then I think it could it came to a logical end for me. I think I was at peak and then I was reflecting that what is the next big thing. Right. And and this is where I go back to what I described earlier that, you know, at least from the time I have been in telecom, I have been able to see slightly bigger purpose and figure out the sectors which are which are going to be big thing in my view and which are going to make meaningful contribution to the society. So telecom was at inflection point when I joined Vodafone, e-commerce was at inflection point when I joined Amazon and I think between Amazon and Naik I had done most of the e-commerce and then I thought what is the next big thing I thought financial services next big thing because I could see that UPI is completely changing the landscape you know, millions of transactions that are happening and now it’s, you know, 10 billion transactions every month, right. So, it’s a scale. The thing that I noticed that this is one innovation which is sort of, which is adopted from bottom of the pyramid. If you look at any other invention, it goes top down, right. And, you know, the richer people adapt to the new technology first. But this one is bottom of the pyramid. Every common man is adopting UPI. and their lives are becoming simpler. Due to this, I think there is an economic rationale for it and there is a digital ecosystem getting fueled by financial inclusion. That is the next big thing. And I think we, you know, that is why I joined PayU. It is an exciting story. We process almost 5 million transactions every day for UPI. But the bigger thing here is we not only do digital payment, we also do digital credit. we believe that India is still a credit star country. And most of the people don’t have credit card. And now they know how to shop online. They would need credit options as well. So we want to enable a lot more affordability and digital credit options for them. And I think it’s just a beginning. That’s the next big thing. Now, if I paint it out next five, seven years, India will double, right, from 3 and 1.5 to 7 trillion. those are the forecasts everyone is doing in 7 years another India will get added in terms of economic value and within that the digital adoption will go double. So the multiplier effect is 4x for anything which is shopping online or digitally and credit could be even 7 to 8x so because it is just beginning in terms of credit options. So it is a massive opportunity but it also has bigger societal purpose which is financial. and changing the society in a meaningful way. So that’s why I landed here. I got inspired from what my boss, who was interviewing me, CEO, Anirban Mukherjee, he told me, he said that, we are professional entrepreneurs building an entering institution, like maybe digital budgets, finance, or digital HDFC something. So professional entrepreneurs, so that entrepreneurial… energy I have because I’ve worked in startups, but professional entrepreneurs and building an enduring institution. So that inspired me and then I jumped on to join PayU.

Joining PayU#

Rohit Agarwal: Awesome. Certainly all eyes on pay you in terms of what the future hold for them. You’ve spent a lot of time in broadband, telecom, and try in general, then moving on to e-commerce with Amazon, which is I would say a lot more horizontal than vertical e-commerce with Nykaa and then now FinTech. Tell us how hard is it for a finance professional, a CFO, to make the transition from one industry to another? and if there are certain commonalities that you found across these organizations.

Arvind Agarwal: Yeah sure, first let me describe the complexity right and I think telecom had profound complexity in terms of the jargons it used to have internally and I learnt it hard way. So lot of KPIs, input metrics, customer metrics were very technical in nature, let’s say VLR ratio, HLR ratio right, a common man would not understand. Fundamentally it means a customer who is active and who is talking, right, something like that. So from there if I go to e-commerce there, you know, the whole thing about GV to conversion. GV is glance view, right. So page view, glance view, then you go to category pages and you know, there is an impression and then there is a click and then there is a conversion. So the whole cycle of digital journey. So those were very nuanced topics that I had to learn. But what was common was… you know the fundamentals of finance. Fundamentals of finance is the unit economics. So when you scale the business you have to focus on let’s say let me describe it like this there are four or five types of leverages that you have to play on. The first one is volume leverage, the second one is unit cost leverage, the third one is operating leverage, the fourth one is financial leverage. So these are four types of leverages that finance person would understand what it means. And they apply in different stages of business, they apply a different proportion of priority. That remains common. End of it, when I joined Nykaa, it was COVID, it was discretionary category. People are not going out, who will use the makeup? So there was absolutely, you know, crash of sales in first three months. What obviously came naturally to me as CFO was to conserve the cash because cash is the king and that doesn’t change. And if I reflect back to my genuine new broadband long back in a startup, how we used every rupee which was available in the cash balance prudently, I applied the same principle here and we survived that jolt and soon things started recovering and there was no looking back from there. What I am trying to say that the unit economics, the part to profitability, the cash flow management and the financial discipline on capital is something which is common in any business that you go and work with. In that sense, finance skills are quite fungible in my opinion.

Rohit Agarwal: Got it, very cool. Across these sectors, as I think through, is it right to say that they all require upfront investments? Whether you think about broadband or telecom, upfront infra investments, or as you think about maybe an e-commerce or a fintech, there are a lot of upfront investments to be able to maybe change a consumer habit. right, like an Amazon or Flipkart did from a horizontal e-commerce perspective, or a Nica did from a vertical e-commerce perspective and sort of pay you from a FinTech standpoint. Is that the right way to think about it or there are sort of nuances within that as well and maybe, you know, my analysis is not apt on?

Arvind Agarwal: No, your analysis is apt on. It’s just that the accounting standards make them very different viewpoint. Both are investment if you think like a CEO, if you think like a business side. But actually in accounting standards, both are different. So, let’s say telecom, infra, they are all asset heavy business model. You put a lot of money in balance sheet and then you generate a capacity and you start monitoring. you know generating revenue and monetizing it. So, it is asset heavy model versus let’s say versus e-commerce such as Amazon and Nike, they are actually asset light. So, the CapEx is not very heavy, but to be able to reach to that breakeven situation, you need to build a scale and to build a scale you need customers and to get your customers you need to invest you need to spend lot of money on marketing and that takes time and therefore, you burn cash at the P and OPEX level. So, they are asset light, but OPEX heavy, the telecom one is more of capex heavy, but OPEX light model. Once you hit the scale, you know, EBITDA is 35 percent in telecom for example. I am talking about good days when pricing power was still there. But in. Retail business which is like Nykaa, I think a bit of 10% will be fantastic because the return on capital will be 30%. So you know ultimately you need to measure ROE, return on equity or return on capital employed. I think that’s a true measure if you have to compare different business model, there’s only one unifier which is ROE or ROCE. Other metrics you know they apply differently in different businesses.

Rohit Agarwal: make sense. Let’s think about, I mean, you have spent a lot of time around the startup ecosystem in India. And I am sure you would have looked at multiple different businesses during your last five, six years time frame. There’s a lot of criticism about profitability, or rather the lack of it in the India ecosystem. Why is profitability elusive in the new age businesses? You alluded to this kind of OPEX versus CAPEX kind of a phenomenon. Are there other elements to it? And how should people think about profitability of new age businesses?

Arvind Agarwal: See, I think little contrary in here. I don’t think anybody gets a license by being called a startup or new age business to shy away from discussion on profitability. I think that’s inherent in any business model. Otherwise, why do you call it business? In my view, and I paraphrase it because I’m from telecom, I call it 4G model. And when in any discussion I am talking about four things. The first thing is growth, which everyone loves to talk about it. First G is growth, but the second G is profitable growth. Right. So you should choose. those transactions which are adding some economic value to the organization. If you are giving a 200 rupee cash back for getting a customer who would have let’s say annual contact value of 500 rupees, does it make sense to you? I don’t think it makes sense. But just to get customer numbers, just to get some revenue, some GMVGs or vanity metrics, I don’t think it’s the right way of thinking. So in that process you end up burning lot of cash which drags down and which makes your path to profitability even tougher. It’s a vicious circle if I may say so. I think you need to be choosing profitable growth from beginning. So that’s the second key. The third thing is sustainable growth. Now sustainable growth comes from the fact that how much your customer love you. Is the customer coming again and again and is the customer upgrading itself? to higher value transaction that makes it sustainable. Otherwise, transaction. So have you built an emotional connect or brand connect or a lifecycle connect with the customer? If you have done that, that will keep you keep growing, even if there is a diverse economic cycle. So your customer value proposition has to be really strong, and you need to keep on growing your repeat customer share in the revenue. G now I have added is responsible growth. It also goes back to your ESG framework, responsible growth. For example, if you are growing, but let’s say the working conditions of your manpower in the warehouse is inhuman, someday it is going to blast over your face. If you are ignoring the safety aspect for example, welfare aspect. So you know it is not a responsible growth. In my view if you look for long term value creation for your shareholders and you want to base long term business success story, you need to focus on 4G from beginning. Of course your prioritization may you know increase. Let’s say initially you want to prove the customer value proposition as a market fit. So you get into growth, but start looking at profitable growth, sustainable growth and responsible growth in that tandem. Don’t postpone it. That’s my advice. Like Nykaa, for example, is unique because Falguni built that company in just 500

Rohit Agarwal: it

Arvind Agarwal: She built a company which was listed in 50,000 crore valuation. That was because she built it with a lot of financial discipline. She never threw good money behind the bad money and tried to win the customer hearts who will keep coming again. That’s why they repeat customer share of revenues 80 percent. That shows how much customers love Naita. So I think that’s a good example among the startup stories.

Defining the modern CFO#

Rohit Agarwal: That’s an amazing framework to think through growth and profitability. I think also gives us a good segue to think about what is the role of a CFO in current times? How do you think about that?

Arvind Agarwal: so I think CFO plays two roles. On one side, CFOs are strategic finance partners, right. So, they play as much role as a CEO would play or CBO would play in, you know, contributing to the strategy as well as how do you execute that strategy successfully. So that is a strategic finance partnership role. The second, which is 180 degree to that is control ship rule, which is to set the. processes, governance, rules and discipline. Sometime it also means that you are a little bit unpopular for saying the things which people may not necessarily like. But I think that is very much needed as CFO, because we are also custodian of shareholder interest. So I mean, we are the voice of shareholder and the board in the company on day-to-day basis. That’s what CFO. is supposed to do. So sit on the fence and be a great business partner but also make sure that the controllership and governance is taken care of.

Rohit Agarwal: Has that role changed over your tenure as a finance professional or has it remained more or less the same?

Arvind Agarwal: I think it has changed, it has evolved. I think initially people used to see CFO more like controllers, people who would do the bookkeeping, reporting and helping in the governance. But now everybody realizes that finance has a big role to play in the economic value creation. In fact I describe it as 3 V model, which is, you know, finance plays a role. role in across the value spectrum in those three V’s are protective value, creative value and unlock value. Product value is about again, control the shape, compliance, governance, you can’t take chances with the compliance. So that is how company has already become unicorn. But if you don’t have strong finance team with that unicorn can become nothing. There are examples, there are stories like that. So that’s protect value. Second is create value where let’s say I talked about Nike had only one business model beauty but it became four businesses. So I brought a lot of knowledge from Amazon how to diversify, et cetera. And we debated and we ventured into new verticals. So how do you contribute to business strategy and value creation? That’s the second role. The third role is unlock value, which is about strategic projects like IPO or M&A. or capital raise or capital structuring. So finance plays role across. I think that appreciation is much more prominent now versus let’s say 20 years back. But like I said, some fundamentals haven’t changed. So when there is a crisis, people will expect CFO to roll up the sleeves and save the company by doing prudent cash flow management.

Rohit Agarwal: Make sense. There has been this eternal debate and kind of exacerbated more recently with the more strategic nature of the CFO that should the CFO be a charted accountant or maybe like a CPA in the US context or an MBA, right? Most of your journey as a CFO has been as a charted accountant CS kind of professional, right? And then later on, you ended up doing a strategic or rather a more executive MBA. How do you think about that CA versus MBA kind of a conundrum? If you have to choose aspiring young professionals in your team, how are you balancing those two traits?

Arvind Agarwal: Yeah or is it a debate of CA versus MBA really? I don’t think so. Why not CA and MBA? It’s not CA or MBA, it is CA and MBA is what I will advise. In fact, that’s what I’m advising my son. He is doing CA and we have these debates. And I tell him like this, that CA is more like an engineering. It’s more a technical education. But you need to layer it with more general management skills. which comes from MBA. So my advice is either you do engineering, an MBA or you do CA or MBA. This is one and same thing. CA is more a technical education in my view. So one should have technical expertise on something that brings the skills. But MBA teaches you how to think about business as a whole or strategy or marketing, other functions beyond your core domain. that is also equally important if you want to grow into C level leadership. So both are important in my view. There is no conflict.

Rohit Agarwal: Very cool. You have led teams of multiple different sizes, including teams of over 300 professionals at a time. What is your approach to leadership?

Arvind Agarwal: so again, like I said, I learned it in Vodafone. The golden rule that they used to teach is, treat everyone the way you want to be treated. That’s so fundamental. But it’s not just that. And again, because I use a lot of jargons, let me give you one simple framework for this, which is 3R, respect, recognition and reward.

Rohit Agarwal: I’m loving all of it.

Arvind Agarwal: I think, you know, as a leader, you need to promote three yards. As a team member, you will also contribute to that and you will feel that it’s a team right, which makes a powerful union. So respect is fundamental. And that’s very human thing. You can’t be yelling at your people, right. So respect is fundamental. Recognition is the second layer, which is, you know, you if something is job well done, you better say job well done and you say it publicly so that it motivates the person who has really excelled or taken that stretch. And third is reward, which is about how this good work reflects into monetary recognition or compensation, which is market benchmark, etc. I think we need, if you want to retain best of the talent, then you need to take care of these three hours. I’m not a HR professional, but I think. instead of complex HR models, this is my simple approach. I also realize that five fingers are not same, which in people come with different skill set and different orientations and background. You need to identify the potential and the stronger aspect of the skill set in one individual and then harness that rather than focusing on the weak areas. On the weak areas, you do a role of a coach and try to do a mentoring, but on the strength part, you need to really elevate, give them opportunities to play on their strengths. So if you provide such an environment, your team will stick to you. I take this pride that, you know, even if even after changing, let’s say, five, six companies, people who worked with me, let’s say, in U broadband or Tata Docomo, what I mean to say that people who worked me long back also. wants to work with me yet again because you know it’s a mutual respect and relationship of recognition and reward also learning from each other. I think that makes a good leader which is what I learned in Vodafone. My mentors are actually like my lifetime mentor is ex Vodafone, his name is Dilip Paul so learned a lot from me.

Rohit Agarwal: That’s a great testament that people want to work with you again. Let’s think about team building. How do you know that you want to hire for a certain position? And how do you go about then building the right kind of persona that you want to hire for that position?

Arvind Agarwal: Actually, my model has been changed after working in Amazon and what Amazon believes is that you don’t hire for a role, you hire for the organization. What it means that, you know, people should be movable across roles, any which way, but they should have right attitude and right behavioral aspects of their leadership when you hire them. So, When they interview the candidate, it is a panel interview they do, they have 14 leadership principles. So, they test the candidates on those leadership principles. And if the panel says yes, you know, the candidate has at least 7 out of 10 or if they are testing for 10 let us say. So, then it is good enough because rest can come along. So, I think that is the right way of thinking about hiring. Because you may hire someone let’s say for control of ship but then how do you keep that person motivated for long career you have to rotate that person to a business facing role now that skill that person may or may not have at the time of hiring but if that person has analytical skill then he can shape up into that role right he or she can shape up into that role so look for behaviors and look for skills rather than a functional domain expertise when you do the hiring. That is the learning I have and I think it works.

Rohit Agarwal: Do you have a go-to question that you ask every candidate in all of your interviews?

Arvind Agarwal: I ask them in their own words, I ask them what are the top three things that you are proud of having achieved in your career. Because it gives me a sense of what challenges they were thrown to and how they applied themselves and why they feel proud of that particular achievement. I think it’s a positive way of asking people about the challenges they have faced and how they have come out of it. That’s my favorite question. It is very simple, but it is my favorite question.

Technology and automation in finance#

Rohit Agarwal: Very cool. I’ll certainly think about that. What kind of impact technology has had on the finance function? I’m sure across the various organizations, you have deployed a bunch of different technology solutions for finance. Finance technologies have evolved quite a lot as well. How do you think about that?

Arvind Agarwal: I can give you a contrast of how it started and how I see things, right, shaped up. So when I started, most of the work that we used to do was manual, like we used to account for Intelli and you know, it was subject to human errors, etc. What say let’s say if I look at our company is called Vibnumoo. It’s a SaaS company under the pay you portfolio. There, you know, we have a process where. a bot will actually do end to end accounting and invoicing accounting reconciliation invoicing. So, what it does it downloads the file from bank server it then downloads the files from our server which has transition level data then both are matched and in case there are any exception they are thrown as alert. If there are no exception then it is posted into accounting system pushed to accounting system which is SAP. and on the other hand it is pushed into invoicing system and then the third bot will actually create the invoice and also email it to the customer. So, this is three bots doing end to end reconciliation accounting and invoicing with no human involvement. The human knowledge is involved in developing right checks and balances in this process which is more a design and development application. So, it has changed a lot. And if I talk about the business that we do, we do millions of transition every day. It just not possible that I have, let’s say 100, 200 people team just doing the reconciliation and cash matching, etc. It’s just not possible. It’s not scalable. It’s a low margin business also. So the only way we can survive is deploy technology at a scale, which does auto match, auto reconciliation, auto invoicing, and also accounting end to end. using the technology solutions. That’s what we have done in PEU and I think so my goal in PEU is to reduce the cost of transition processing by 50% in next three years by using technology at a scale because that’s the only way we can survive into this low margin business. So technology is not just enabler, it is a business imperative now and finance plays very important role. in making sure that we are proactive in building these technology solutions that will take care of accounting controls, compliances as well as customer satisfaction.

Rohit Agarwal: Well, I was certainly very proud of advising Wibmo on that transaction to pay you when I was at the vendors. Good memories.

Arvind Agarwal: Very good, so we could connect. So I am the beneficiary of what you advised. Now I advise it to everyone. Yes.

Rohit Agarwal: Very cool. If you have a magic wish, what kind of technology would you ask for your finance departments?

Arvind Agarwal: I think we are now getting deeper into AI and see while AI has become a buzzword now, but in FinTech that has been in the design, in the thinking, in some shape and form, but now the time has come that we scale it as well. Let me give one example, right. So because we deal with financial transactions, right, and fundamentally financial transactions are subject to fraud. despite your all the checks on KYC and risk monitoring, etc. So you need to develop algoes which will highlight a potential fraud transition and alert it real time. So it’s a fraud risk management, which gets better with the data science and with the AI logic. That’s what we are trying to develop at Wibmo at a scale. It has been tested in pay you. Now we want to make sure that it takes care of all the different use cases. and probably we can outsell it to other fintechs also someday. But my wish would be yes, real time fraud monitoring at friction of the cost, which is foolproof and that is a very strong use case for business benefits as well as compliance for RBI.

Rohit Agarwal: Very cool. Makes a ton of sense. I would now like to move, Arvind, to a broad topic of IPO. You have been around this India startup ecosystem for a while now. And certainly, Naika has a unique place in the ecosystem where you are leading the charge of their IPO. Can we get a master class on IPO in India? Are you ready for that?

Arvind Agarwal: the

The IPO playbook#

Rohit Agarwal: So let’s start with kind of establishing, how does a company know it’s ready to go public? What are the strategic considerations to think about?

Arvind Agarwal: let me let me give a simple framework again. And that comes after reflection after doing like IPO. I think there are three things that needs to tick off. And the first thing is market being ready. The second thing is business being ready. And the third thing is your processes being ready. Or I call it internal readiness. The first thing which is market being ready is something that you don’t control. And since you don’t control, you shouldn’t overthink about it. There are experts who will advise you what is the right time to go for an IPO and they are always doing it for their living. So banks will advise you, advisors will advise you. So it’s not something that you should worry too much. Don’t try to time the market. There are experts who will guide you. It’s anyway not in your control. The second thing which is business being ready is definitely something which is the first important tick. that one should think of. What do I mean by business being ready? Now, there are companies who have done IPO even when they were not making money or they were not profitable. And that is okay. So long as you can explain to the investor path to profitability in very succinct and you know, a very clear articulation of which KPI you track and how does it. become part to profitable measurement criteria and how do you reach there. But I would still say that if you have a choice then avoid entering into market before you are profitable. So in my view, let’s say Naika for example, and I learned it from Falbhuni, she has been IPO banker for years and she has seen many hundreds of maybe 100 IPO plus as investment banker. And she had that very clear thought process that we should be path positive before we go IPO. And that made sense because it clearly tells your investor that your unit economics is already proven and it’s a profitable business model. It needs capital to grow further and create value, but there are no challenges in terms of business model being proven. in the EBITDA positive zone for three years before IPO and just became bad positive before IPO. It is a good sign, good place to be in. So, the other thing about business being ready, I will tell, okay, unit economics should be proven, you should be ideally seeing first sign of profitability. The other thing is, have a clear strategy and not necessarily too many bets, which are yet to be proven, right. So, if you are… If you have four business model, one is proven, three are yet to be proven, it is still, I will say postponed IPA for couple of years. So because the ability to experiment goes down dramatically once you are a listed company. If you want to experiment, continue to be private and there is enough private equity available. It is not that capital is a constraint for a private company. One should be very clear why do you want to do IPO? The objective of IPO should be very clear. So it could be raising of capital but then capital is available in private side also. The other could be that you want to create a brand which attracts talent, which attracts other business partners. That’s a valid purpose. The third could be that you want to build a positive performance pressure. Once you are listed, you will be judged every quarter, how you are executing. Are you ready with that kind of maturity or not? So these are some of the questions. I think the last one, which is process being ready, that is where CFOs play a big role. And that means that you have a solid finance team, also solid legal and company secretarial team. These two teams are absolutely, you know, must to build before IPU. because what you take on is lot more scrutiny, lot more governance, lot more regulations that you will have to comply on, you know, say be a lot of the year, et cetera. So, then you set up strong finance team like reporting, control of shape, planning, budgeting, all of that. And you obviously set up a strong board because, you know, say we will sequels us to have at least one turn independent directors. So, and directors will also expect finance team and secretory team to be up to a standard where they can they can guide the organization through them. And then of course you know you should have ideally big four auditors not necessarily but I advise big four auditors because they bring different level of rigor and scrutiny in your numbers. So these three are must and then you start behaving like a listed company even before you are listed which means you have quarterly. board meetings, you have the independent board members coming on board early enough and they ask you right questions and you really put those disciplines and governance structure in place and then of course you can start working on preparing the DRHP which is very intense process of you know 500 page documents, 600 page documents so but anyway there are experts in terms of lawyers and bankers who will advise you. So I think what finance CFOs need to do is to build strong finance team, quarterly reporting processes, board governance, and then ability to track the performance through very clearly defined measurable matrices that are auditable. I’ll pause here. I think this is my third bit of readiness advice to this.

Rohit Agarwal: Quick question, how long before the actual IPO would you start doing the quarterly board meetings and kind of start acting like an IPO company, a public company?

Arvind Agarwal: at least a year before, if not two years. Like in Vodafone we used to do it any which way, even when we are not formally declared that we are going for an IPO because it just brings that level of maturity in the company and it really helps not just for an IPO but generally improve the compliance culture, generally improve the performance culture. So in Vodafone we started doing it much before, maybe two, three years before IPO. But even if you do. one year before you have a board in place and you have quarterly reporting and board presentation and review that should be good enough for a startup company, but minimum one year.

Rohit Agarwal: You said something that was one could put under a contradictory or a bucket where it’s not a general perception, where you said ability to experiment goes down dramatically as a public company. As a startup, especially as a technology company, not necessarily startup, but more of a scale up, but as a technology company, one would think that you would continue to innovate and continue to remain at the forefront of your industry. Right. If, if experimentation or the ability to experiment goes down as a public company, how should one think about putting a certain dollar behind certain experiments that can enable you to be at the forefront of those technology advancements, like let’s say AI, for example. Many of the companies, whether it’s software or B2C internet companies, they are public companies today. If they have to invest, let’s say, 10 million, 20 million USD behind a certain effort, and that is going to be seen quite unfavorably by the public market investors, how should they juggle between those two?

Arvind Agarwal: No, actually I mean it. It’s a fact that markets will expect you to deliver consistent performance. In fact, one of the ability that you need to create is to be able to not surprise the market negatively or rather surprise the market positively if you can. What basically it means that even if you don’t give the guidance, market will expect you to perform at a certain therefore, if you venture out in a completely different direction and that is funded from your current P&L which you have not indicated to market, market may not digest it, at least in the short term. It may take a couple of years or three years to recover from there. It’s a different thing how good investor communication you do. But the fact is not everybody has same risk appetite in the public market. There are different investor groups who invest for different. purposes and different time horizons. So, versus a private company, right, where let’s say if you have even if you have five, six investors on the cap table, you will be able to explain them what you are experimenting, why you are experimenting and how it as to your core flywheel and how does it help in the value creation for shareholder. So, your ability to experiment suddenly goes down. But I do not intend to say that you do not promote innovation, right, because in the tech company innovation is integral to business model. And therefore, you know, the way to do it is you keep some headroom in your profits and you fund the innovation from your profits, because then market is happy to say, okay, this company is delivering profit and yet able to fire a new flywheel from its own internal accruals. It’s ideal situation, but it’s difficult to achieve. Okay, so if you have some like let’s say if a company which has a track record of so many years let’s say Infosys or TCS, if they go into some kind of new business verticals, I think market will digest easily because they have long track record of performance. But a newly built tech company entering into a market and doing a complete U-turn on its strategy or business direction, market will not digest it, it is my sense. It will be a lot of hard task to explain it to market. So, better you remain private, one should have very clear articulation of why do you want to go for IPO and what type. There is no necessary thing about IPO if you are getting capital at your terms and somebody who is willing to back you up even in the private stage, why do you want to do an IPO? Why do you want to rush into it? I will rather say that let these initiative develop and mature and stabilize and then of course you have built a fantastic company which is profitable then of course next stage would be to go public.

Rohit Agarwal: Makes a lot of sense. How critical is the role of leadership, especially of a CFO, in steering a company towards an IPO? Can you share any insights on maybe building and guiding a team through this whole IPO process?

Arvind Agarwal: Now, in fact, CFO is the pivot, who plays a critical role in the whole process part of it. And I said three readiness, market readiness, which is not in your control. The business readiness is something which CEO has to steer, the business leadership has to steer. In fact, I would rather say that CFO should take all the burden of IPO, such that business teams are not distracted from what they need to build and perform on them. on the business part of it. IPO can be actually a big distraction. It can actually disrupt your journey if too much business bandwidth or leadership bandwidth goes into it. So I would say that keep a detached process and let CFO lead it because anyway this is about getting board approval and then shareholder approval and then SEBI approval, all of that. Of course, business leadership plays important role in editing the strategy and equity story that comes from the CEO himself. It has to because that’s what you are telling investors about how great this business is. So that comes from the CEO but rest of it is more a compliance process and CFO can lead into that process. Let business not get defocused while you are going for this very. intense and you know at least 12 to 18 month you know process of regulatory governance, talking to markets etc. and I think CFO plays very critical role there but rest of the leadership can focus on the business.

Investor relations as a public company#

Rohit Agarwal: Makes a lot of sense. As I think about a company becoming public one day and then trading on the bourses, it’s only human for the employees to start tracking the share price on a day-to-day basis. And it’s not uncommon for the macro to change and then those stock prices across all the companies, not just one particular company, to move maybe, move down 10%, 20%, even 30%, over a matter of just a quick few weeks. How? Should a CFO think about managing that kind of a morale impacting event across the company? Because people may just say, hey, maybe my share was worth 100 rupees yesterday. Now it’s worth 70 rupees or 60 rupees. And I’m just all of a sudden poorer by 30%, 40%. What a CFO should do in those kind of circumstances.

Arvind Agarwal: no, that’s a very right question. And it really happens, right? It is something that you will face. And those are the perils of being listed. But I think before that, before you are listed, you start engaging with the employees, where you show, where you make them part of the value creation story, because what you’re taking to market is the business. And business is successful because of its employees, right? So how they are part of the value creation, how they see the big picture, and how they’re part of the world getting public starts much before you are listed. I generally tell, at least to the management team, I tell that we make a mistake in thinking that IP is an exit event. It is not an exit event. It is actually an entry event. You’re entering into a market where different sets of investors will come and judge you. And they have different… So there could be foreign institutions, there could be sovereign funds, there could be domestic mutual funds, insurance companies, H&I, diverse set of investors. And everyone has different objectives. Some people have short-term objectives, some people have long-term objectives, different criteria of judging your performance. So it’s very complex. So you are entering into that complex environment. The only safest bet is you continue to perform well. Which means that everyone should focus on what they were focusing on even when they were private. Whether you are private or public, it is all about winning the customer, growing the revenue profitably and then delivering the return on equity. If you focus on these three as you were doing even before getting listed, you continue to focus and execute well on those parameters. Market will reward you. In short term, it might so happen that. you know, you have a headwind or some pressure on the stock, but it will bounce back. And I learnt it from Falbini, she used to say that in short term, stock market is like a voting machine, but in the long run, it is like a weighing machine. So if your performance is solid, then the business is solid, your customers love you, sooner or later, your stock will come back to where it should be and it will reward. to the employees and to the shareholders. And I think this is a constant teaching, mentoring that she used to do, I used to do. Despite that, there will be some young employees who will get nervous about the stock movement. You can’t avoid it. But of course, you can be a little open inside the company to talk about what could be happening in the market. But again, you also go through very stringent rule on insider trading. So, once you are listed the rules on prevention of insider trading will apply and employees are not supposed to talk about information or not use an information use it for trading. So, you have to also do a lot of internal trading safeguarding compliance orientation to employees and then I think it takes a part of six months before and six months after and after that stabilizes my sense. employees then are behaving like how they should focus on normal day to day business and not look at the stock prices.

Rohit Agarwal: Makes sense. So communication, education and focus is the key. Make sense? How did you develop the muscle for public market investor relations? Because I’m sure as a private company CFO, you don’t have to just deal with any of that, right? There are very limited set of investors that you have to… discuss sort of your vision and sort of your quarterly and monthly performance and so on. But public market investor relationship is quite different. Number one, did you enjoy it? Number two, how did you develop that muscle?

Arvind Agarwal: Now of course, it is very important skills, skill that CFO needs to add to his experience and see, I used to talk to investors even before company was listed, the private equity investors and we had investors of, you know, the boot like Fidelity, who are both in private market and public market. So when you interact with them. they will anyway ask you tough questions even when you are private, right on your performance. So in that sense there was some continuity. But having said that, it is definitely a much wider set of an investor pool that you start detecting when you are public. And initially I thought, you know, it’s about IP road shows and we did almost 100 meetings and met 300 investors. really helped, we had a solid demand on Nykaa IPO, but soon I realized that, you know, that is only for getting the IPO subscribed, but people who have put in money for in the IPO, they should continue to remain invested for longer tenure, which means that your investor relations is a continuous job, it’s not a one time job. dedicate 15 days to meet lead investors and analysts who will track your stock without fail. It was like more of a routine that every result announcement next 15 days meet at least 30, 40, 50 investors and analysts. And then of course, over time, you will see a consistency in how the research reports are talking about your stock, how your investors are seeing you. in terms of your performance. I think it is also a specialist job in the end. So, you know, we also realized that CFO needs to also help the company in the performance and in running day to day business. So, we then hired a senior IEA specialist, Investor Relations Specialist reporting to CFO, who would then also pick up the sentiment. Sometimes in the express the sentiment or undercurrent that they have in their mind. But the IR specialist would be able to informally collect those sentiments and relate back to the company management so that they can make course correction. So it’s a two-way process. You communicate to investors but also take their feedback and sentiments and see where you need to course correct. But of course, you don’t need to change your core direction and business model. But if there is any communication quickly wipe it out. So it is interesting but it is also too much on the plate once you are listed. So therefore, my advice would be hire IR specialist to support you.

Rohit Agarwal: Makes sense. Based on your experiences, what are some common misconceptions or overlooked aspects in the IPO process?

Arvind Agarwal: For the one which I said, many people think IPO is about making money or is an exit even. It is not. It is an entry event. In fact, being public means you are being scrutinized even more and not only different investor group, but also the regulator, also press and media and everybody. So you are in limelight. So if you think that IPO is about… making money and exiting from the scene that’s not what it is. It is about reaching to a particular level of maturity both as a business model and as a governance internally then you hit public market which means you are raising money from new set of investors and you are accountable to them right. So you need to deliver on their expectation quarter and quarter at least okay one or two quarter may go bad but then you know, let’s say people, there are many investors who commit three year, five year with you, right. So they will give you that much time, but you need to meet their expectations so that they remain invested. Otherwise, we have seen that companies destroy value after being listed. Some companies even pull back and get delisted for that reason, etc, etc. So it’s a lot more coming on your plate if you’re going there.

Rohit Agarwal: make sense. What advice would you give to companies aspiring to go public in the near future?

Arvind Agarwal: I think you should have number one, you should have be very clear why do you want to do an IPO? Is it for capital? Is it for building a public profile and attracting talent and brand partners? Or is it for, let’s say, getting a positive performance pressure through the markets or anything else? Right? For example, sometimes companies may like in Vodafone, we thought. we are seen as a foreign company. If we are listed in India, we’ll be seen more as an Indian company. So there could be different reasons of why do you want to do an IPO. Please think about it. It’s not just that everyone is doing IPO, so we should also do. It’s not a cakewalk. Certainly not. The second thing is start building finance team muscles much before the IPO event itself. In fact, in my view, one should think as somebody who can help in creating value, not just unlocked value. So you should have a strong controller shape, you should have a strong CFO early enough, even at the stage of series A, series B, hire a matured CFO who sees a vision of scaling the company with you shoulder to shoulder and then taking it public rather than hiring a CFO just before going public. because by then lot of things would have shaped up where you need a clean up. So why to land up into that situation. So ideally hire a CFO early and CFO should build a strong finance team. In fact, sometime I wonder that why people, let’s say if they have something to invest, they will hire a techie rather than a finance guy. Always that will be the choice. Now, of course, you should hire. tech team and business team, but also build strong finance team. They only help you create value. Of course, they will also help you unlock value at some stage. So those are two advices. Have clear vision for why should be an IPO and secondly, invest into finance team early enough.

Rohit Agarwal: Is there a particular quality or a milestone that the company should hit or a quality that the company should have to understand that, okay, now is the right time for us to hire a CFO? You said you refer to series A, series B, many companies do it after only series C or once they reach a growth stage, when, you know, is there, is there some metric or any specific quality?

Arvind Agarwal: See unless you have a finance domain expertise as co-founder, I would say you hire a CFO even before you do your first fund raise. right because they help you build the company and create the value from beginning. Even during the fund raise I have seen that CFOs play that role of wearing that negotiation hat and negotiating right shareholder agreement and the clauses under it right. Sometimes founders end up giving too much on the rights. because they don’t understand these aspects of governance. But if there was strong CFO on the side, that person will take care of it. I’ve also seen that, you know, people do bad negotiation during fund raises, which again, it may be more anxiety to have sufficient cash and close the fund raise, but again, CFO can play a role of balancing it out. taking care of future interests as well. These are strategic aspects. So I would say have a strong CFO on your side from day one.

CEO-CFO relationship and the first 100 days#

Rohit Agarwal: Very cool. Let’s assume a hypothetical to say that I’m joining a company as a CFO and this is my day one. How would you advise me on my first 100 days at this company?

Arvind Agarwal: I think it’s about know the business model, know the company and the company means people, right? And then know where it stands in terms of processes and governance. These are three must know and accordingly you can frame your 100 day plan. This is advice my mentor gave me before you. In fact, it’s not. So he told me that. if you are joining a new company, you should have, you must have 100 day plan. But your 100 day plan, first 10 days, 15 days, you just invest into knowing the business model of the company and then knowing the people and then knowing where does it stand on processes governance, which is the core finance rule. And I think that will give you sufficient insights into what are your must achieve and then divide into which are low hanging ones, which are the medium term. and which are the long term correction that you need to start collecting on. So, have that plan in first 100 days.

Rohit Agarwal: as a new CFO, how do you think about sort of, you know, plucking some of those low hanging fruits and getting some early wins? Is it important or you think that kind of tackling the longer term or getting onto the journey of longer term items are way more fruitful?

Arvind Agarwal: I think both are important. You need to survive in short term to thrive in long term as they say. So if they are very obvious ones. For example, when I joined Payu, I could quickly figure out that there is not enough focus on receivables collection. Right, because bulk of our business is anyway prepaid. So you collect and then settle. So there is no problem of receivables any which way. It’s fundamental of business. But there’s some part like government accounts where there is a problem on receivables and nobody was focusing on that. Now it’s very low hanging. According to me, it’s matter of focus. So I immediately sort of brought focus into it and I started paying up. So you need to figure out those low hanging which. you will be able to figure out because of your experience. But more fundamental, structurally, is what I told you earlier, that how do we use technology to reduce our cost of processing by 50%. And that vision has to be formed based on where do we stand today and where do we want to go and what is the path. So I had formed that vision, and I shared with my boss, and then I also shared with a little wider group of management team. And I have that requisite sponsorship. So within one year, we have moved into S4 HANA. Like four out of seven companies have moved into S4 HANA. And another three are moving by end of March. Because I don’t think without that, we can deliver on any of these three, which is customer experience, compliance, and then cost advantage that we want to build. So it’s very important to have that plan early enough. Cough cough

Rohit Agarwal: Very cool. What are your views on the CEO-CFO relationship and do you do anything specific to continue to foster it?

Arvind Agarwal: No, of course, that’s the most important relationship to invest into. CEOs lean on CFO on two, three things for sure. One, they lean on CFO to make sure that the reporting, the compliance, the hygiene factors are taken care of. Nobody will give you kudos for doing that. But if you miss any of those, you know. you will lose trust day one. So, you know that’s that goes without saying. The second thing that they lean on is also to be an internal challenger or internal critique sometimes. In in Payu which is process company in process actually there is a concept called red team. Red team is kind of Rather than everybody running behind one particular view and then you miss out some essential counter view, you are actually encouraged and mostly I have seen finance team take that role of being on the red team to say okay this is the risk I see. So one has to call that out and also suggest a solution for that not just be raising the flag just for sake of raising the flag also be constructive about it. So that’s our second expectation which CEO will have. And I think the third one is, of course, how do you help the business? So whether it is cost optimization, whether it is cash flow initiatives, whether it is even supporting the new revenue work streams or monetizing what you’ve already built, is also where you don’t have very solid, crystallized But if you do that, then CEOs will trust you that, you know, this finance guy is not just a controller but he is a true business partner. So I think these three, take care of the hygiene and highlight the risk, but also be a business partner who creates value. If you adhere these three, I think you will have trust from CEOs. And they will use you more as a sounding board. In fact, when you become a listed company and you have to manage a board, so both CEO and CFO have to share that report to be able to. combine the view and present a common view to the board. And if there is a disconnect there, it really bows back harder on the company. So it’s a relationship of trust and partnership.

Rohit Agarwal: Arvind, what does a successful career look for you?

Arvind Agarwal: I said it in one of my connects with my past colleagues, where I said, okay, I didn’t have any particular definition of what a successful career means. I don’t compare it with my peers as such. I had my own journey. I had a vision which I shared with you that have been accomplished. But having said that, now it’s more about building the community, finance community and be part of. some nation building business model. So that’s what it is, more of it from here on. And I think the other thing I shared with my colleagues in Amazon last week is that, change an opportunity, but don’t be opportunistic. Work in a mission mode and leave a legacy behind. So wherever I have worked, at least You know people recognize that I accomplished something and I contributed something to that company’s vision and mission and then moved on which is why they called me back to share my journey. So, yeah work in a mission mode but leave a legacy behind.

Rohit Agarwal: I think that’s a great advice to even the emerging professionals in the field of finance or just in general. Very cool. Do you have any, as we are into a new year, any top three predictions for the tech space for 2024?

Arvind Agarwal: I think it’s not necessarily my prediction. But you know, last three years have taught us that frangy on tech business model which came after COVID is, I mean that exuberance has come down. But it has come down in a meaningful manner to say that which are those tech business model, which are, you know, profitable, scalable, sustainable, and value creating to customers rather than just having tech as a label and not having a right business model or not having way to earn customers love consistently. So 2024 will further filter it out. And I think some of the startups are still sitting on valuation, which is a bubble valuation because they have not done any fundraisers after 21 on 22. So they may be sitting on a valuation which is not justified. Till the time they have cash in the balance sheet, they can probably live in that illusion. But once they hit the road, they will realize what is the actual valuation for them. I think in 24 many of them actually can come. So they have survived two years, but in 24 many of them. So there has been one set of value correction, but the another set of value correction is bound to happen more on the private side. Public side it has already like market doesn’t wait. So market has already corrected some of them and they are now inching back by showing part two profitability. But on private side, some of them are still sitting on exorbitant valuation. still not having part to profitability, I think they will come to a hard reality shock in 2024. Having said that, I am very upbeat about the whole tech ecosystem. I think it’s changing the society in a meaningful way and consumer behavior has also shown a big shift from a brick and mortar based business model to digital commerce and digital shopping. So it’s changing the country also. So In the long run, there’s a lot more opportunity for those tech companies or tech businesses which sharp shoot the customer experience and solve the real problems and also make money for the shareholders. So I remain optimistic about that.