“People want to become entrepreneur for all the wrong reasons. When I used to be on the other side of the table, I would never put money in a venture if the founder can’t treat it as life or death and put every single penny he could muster. If it can’t be the most profitable investment for the founder himself, it cannot be for the investor. Ideas are overrated; execution is the key. And execution can’t be seamless unless the venture carries the passion and entrepreneur goes all in”
says Tanuj Shori, who was very sure that he will never become an entrepreneur as he had not found anything giving up his nights and sweat for.
Having grown up with a modest upbringing, which drove him to excellence in competitive years, Tanuj rose to become one of the youngest Executive Directors at Nomura after his MBA from IIM Lucknow. Kanika Gupta Shori, a Wharton Alumnus, his wife and co-founder, was just returning to mainstream after a maternity break and started managing the duo’s personal investment portfolio. Every time they put more money in real estate, they realized the model and process is completely broken – gravity of it – India was a USD120bn unorganized market, with largest developer at ~1% market share, no large distributor, 500k small brokers, no regulator, no data transparency and the list goes on. “Property buying in India is so complicated, challenging and broken that it isn’t even a process in India”
, says Tanuj. Despite it being the biggest investment of an individual’s life, it is perception and social factor driven, with no science to it. Having themselves suffered due to lack of organized players and processes, Kanika decided to give it a go, and Tanuj became the first angel investor in Square Yards. Kanika laid the foundation for Square Yards in terms of early execution. While starting, she had no clue about how big this was, however soon they realized the enormity of the opportunity and before they knew it, they had built a 100 people team in just over 3 months.
“I only quit Nomura when I wanted to be with Square Yards 24 7. Not when it was safe or we had raised external funding, but the day I realized I wanted to work 20 hours a day and still had energy for the next day. There is nothing called as safe bracket for entrepreneurs – every good thing worth having comes with a risk. In fact when I quit I was at the peak of my banking career, and everyone asked –“ Why”,” Is it worth it”, “Hedge your risks”, “Stay put and let it grow first”. And I told myself, what if we lose everything - we will still survive. It will never get worse than growing up years and if we survived then, we will survive now”; there is never a plan B with Tanuj and Kanika. “Plan A has to work. We can’t be starting by thinking about failure – the difference between success and failure is not the plan, but the execution itself”
They went all in – sold their portfolio of houses, parental house, jewelry, everything liquid- illiquid investment they could muster. They are so convinced on the opportunity and Square Yards that even today, they save from the salary and put money back into Square Yards.
Square Yards never went to VC’s to raise seed capital; Rather, Tanuj approached his ex clients - global fund managers, managing billions of dollars of assets (with funds such as Capital, GIC, Fidelity, Aberdeen, MFS, Wellington, ADIA etc.) to trust him with their personal capital, “the smart money”
he calls it. The investors backed Tanuj because they had seen him execute in the past. Square Yards raised ~USD12mn, one of the largest retail angel rounds, through a unique convertible structure.
That was a year before Reliance (ADAG Group) backed Square Yards with USD12mn series A round. Since then, Square Yards has raised further ~USD30mn of convertibles, highlighting strong demand and acceptance for investment rationale.
But the most important milestone was putting together an all-star team. Tanuj went across convincing people he played with, grew up with, studied with; on his vision of Square Yards and roped a strong talent pool. “We realized that we need to build people and people will build businesses”; and overnight Square Yards went from 2 co founders to 15 co founders who were willing to give as much time and energy to Square Yards as their own venture. Kanika adds “We hire people on passion, ownership and trust first, and everything else later. We would rather have an under graduate passionate hard working individual who is willing to learn, rather than a IVY school pass out who thinks he knows everything. Businesses evolve, strategies evolve and people who are able to learn on the job go much further than people who seem to know it all”
. There is no substitute for hard work and discipline, she believes. Being able to change has played a critical role in Square Yards rise to the top.
As with like any other start up, the journey has been riddled with challenges; receivables and counterparty risks, leakages in the sales process, limited talent pool, real estate not being seen as a lucrative career option, product issues, figuring out the right tech roadmap etc. Tanuj says the company has built a very strong change ready DNA, which helps as the organization transforms every few months. Fortunately or unfortunately, there are no best practices or benchmarks and Square Yards learns and sets the right processes as it moves along. The variability, complexity and multiple issues make it challenging but that also creates natural barriers to entry too. It is that constant evolution, learning, changing, re-calibrating and pushing the boundaries again, which sets Square Yards apart. “But clients remain the core focus of everything we do – whether it is ensuring we chose and structure the right products (and that was an evolution in itself), bringing data to the opaque market, being available to handhold like a premier wealth manager, extending help and support (including legal) in case there are issues with principal’s commitments”.
The crux of Square Yards’ existence has been based on issues Kanika and Tanuj faced as clients; hence it is always aware and responsive to the gaps of industry offering to retain consumers. Square Yards tracks tens of data points pertaining to every primary project in the country, which helps it to better analyze the risk reward opportunities for potential investors and end users.“I am often asked what did we do very differently. We were able to scale in an industry where practically everybody had failed. Players with deep pockets, Institutional houses, PE funded players, no one had been able to scale. I believe it was not a rocket science, we stuck to basics – we were probably most desperate to succeed, we intended to and took care of clients at every step, we took challenges in our stride and set upon changing the entire eco-system, which probably no one tried. It is not just a simple business model of making money and gaining market share. It is a unique journey and industry where entire value chain needs to be fixed – how developers operate, how consumers perceive the purchases, how distribution process needs to evolve, how to convince the brightest talent to look at it as long-term career option. It is this holistic approach, which helped us succeed”
And indeed it has. Today, Square Yards has grown into the largest proptech player in the country. With 2000 people, presence in 30+ cities, unique integrated model, largest lead generation capability in the primary under construction market, 1mn+ unique visitors a month; Square Yards is now touching ~USD30mn revenues and ~USD750mn Transactional value with ~12k transactions annually.
To add, Square Yards is now RERA registered in 10 states, only player in India to have such broad-based compliance in place.Execution matters, and strategy is overrated.
A key example has been how Square Yards’ mortgage digital lending arm Square Capital has grown into largest integrated mortgage distributor in the country. “When we started mortgages, the idea was to understand the value chain so as to better control product selection, reduce TAT for disbursements, pick (& resolve) pain points in the loan related under-construction sales. To summarize, the idea was to target captive business, but soon we realized, it is as broken distribution chain as real estate; and we started building non captive piece out of it”. And now, Square Capital is probably the most understated and underrated fintech start up in India. With ~USD650mn disbursal in last 2 years, ~7000 transactions in FY18,
revenue of run rate of ~USD4mn, close to breakeven EBITDA; Square capital is one of the fastest growing fintech plays in India.
Tanuj believes the key pillars to this ability to scale have been people and tech. “Will property purchases totally move online? I am asked this question at least 10 times a week. Will it happen, possibly – markets have an amazing capability and track record to surprise the non-believers. We don’t wish to speculate and prepare (or not prepare) on when it happens or how much. The reality is that tech and automation play a significant role even today, which will continue to evolve”
Tech solves the data asymmetry through search and discovery, it brings standardization and comparative market analysis, it helps reach to a wider target audience, it can help manage and digitalize the documentation, it helps scale the sales processes, and much more. Square Yards looks at proptech as an assisted sales process, wherein data, products, leads, automation drive the value chain, with an agent acting as a conduit to deliver these.
Tanuj says that businesses should not be built to satisfy market trends. “They should stay ahead of trends and try and add value at various nodes to stay relevant. Nor should they spend too much time worrying about terminologies and definition of online and offline. The idea is always to capture lion’s share of economics in any business. The idea is to build an ecosystem, which can continue to scale, possibly for the next 100 years. You can only make money (and businesses need to make money) if stakeholders in the value chain need you, which in our case are consumers, developers, brokers and banks. We continue to build a business which constantly thinks about how to add more value; how to scale to next level; how to automate and ensure there is leverage in the eco system – some of that is achieved through tech, some of that through people and some is just plain aggressive execution”
Diving deep into various peer models where Square Yards operates, Real estate services businesses can be tracked across 3 categories -Traditional brokerage businesses (hyper local reach, offline distribution), Pure classified models (search and discovery platforms, marketplaces, subscription models), and Evolving proptech plays which combine scalability quotient of tech (search and discovery, ERP’s, online processes, Machine learning tools) and distribution and monetization power of transactions to create a scalable platform“We believe the future is moving towards integrated plays – and the success of global players like Redfin, Compass, PurpleBricks is a testament in that direction. They have been able to create significant value by merging the right product with people. Planned listing of E House in HK is another example of unlocking value in the sector. Whether India will have such stories – absolutely. It’s not every day that a USD100bn sector moves from being unorganized to an organized play. Proptech in India is one such opportunity, and it’s a matter of time and matter of when (rather than if) this sector will throw up giant organizations to match global peers”. “I tell my team that if we don’t it someone else will. But India would have proptech plays worth tens of billions of dollars in years to come. It is not just a unicorn tag, which is at stake. We truly believe that if we don’t go on to become the largest consumer tech company in India, we would only have ourselves to blame“
India today transacts roughly 20-25k new/under construction homes a month in the top 10 cities, as against the latent demand of 300k units and as against China’s volumes of 1mn units a month. Even a developed country like US transacts 50k units/month on new builds. It is a unique case study of massive oversupply and unsold inventory despite a robust latent demand – because assets are mispriced. “We believe there will be a volume explosion in India at the tail end of the market, middle-income housing (affordable housing), and the volumes in the next 20 years will dwarf whatever we have seen so far.
And with RERA enforcement becoming stricter, this expansion will come with underlying consumer trust that has been missing from the market”, concludes Tanuj.