The most important thing for founders is to keep your head in the game: Kunal Bahl and Rohit Bansal

Bansal: I remember the conversation after that. So, he came back and said, Rohit, he'd like to support us. What does that mean? We were so clueless about, you know, funding and the world of funding and that you need actually money to run a business. And then we got on the phone with him and he said, I'd like to invest $200,000 in the company. Back then, I remember the dollar was Rs 39-40. So, it was Rs 80 lakh. Again, both of us had the discussion. What will we do with Rs 80 lakh? So, we actually said no, we want only Rs 40 lakh which is more than enough. So, that's how we ended up raising $100,000 as our first investment.

Also read: India is destined for a new era of greatness: Kunal Bahl, Rohit Bansal

Growth pangs: ‘Do not conflate value and valuation’

Bansal: There were fewer number of (investable) companies but only a fraction of investors. I remember for our first fundraise, we met somewhere between 23 and 27 people over a multi-month period before we could raise even the first VC round. So fundraising was far from being easy because while the number of companies were far fewer, the venture ecosystem or the investment ecosystem was close to non-existent because you know no one had seen success.

Bahl: It was very hard (when we started). But having been founders for such a long period of time, and also investors for such a long period of time, surely, it is 10X easier now than it was 12 years ago. We’ve seen at least 3-4 cycles as operators and investors. Almost every exuberant cycle is followed with a passive cycle, which is followed with an exuberant cycle. We build businesses across cycles and we invest across cycles. Because fortunes are not built or large institutions are not built within a cycle. You just got lucky if you did that but you can't time cycles.

Bansal: And the other thing we've seen is the fundamentals of any business rarely change basis the market. We as investors, as well as operators, have always been very close to the fundamentals of running any business. I think what changes with markets is the perception of people in terms of whether to value this type of business very highly or very low, which doesn't necessarily change the underlying business in any way. It's very important for entrepreneurs to be focussed on building value in the business. As long as you're building value, long-term valuation will take care of itself.

Bahl: What we tell ourselves and the founders we partner with is that do not conflate value and valuation. They may be the same, but they may be very, very disjointed from each other. The value in the business may not be equal to the valuation. You can't focus on the valuation because that's something someone else has to ascertain the price.

Big lessons: ‘Importance of focus and customer feedback’

Bahl: Founders generally make more mistakes than good decisions, but thankfully, as long as you make enough good decisions, you can make up for the mistakes. At the earlier stages of a business, one of the most crucial things, and this probably endures for a long time in any business is the importance of focus, where often times founders will say, hey, let me pursue three different things. Let me see which one will work and then I'll double down on that one. We have rarely seen that approach work and, honestly, in the earlier stages of our business, we were also doing five things. I think, in hindsight one realises the importance of focus and discipline because in the earlier stages of a business you have very limited resources, limited people, limited capital, limited time, and you'd rather magnify all that energy and resources onto one thing and try and make that work really, really well. If there is one enduring lesson of entrepreneurship, it would be that, at least from my perspective.

Bansal: Our first year was very formative in very interesting ways. We started with the coupon booklet as a business and it was just me and Kunal. We saw this concept in the US, it seemed very interesting, and very relevant for India. So, we created this coupon booklet where there were a lot of coupons from restaurants, salons, etc. Both of us spent one year building that product and, by the end of it, we had put so much effort into building the product that both of us became so convinced that this is going to be a super hit product without talking to a single customer to clarify. We were so convinced that we are sure that the day we start selling these coupon booklets, we will run out of stock very quickly. So, to make sure we do not run out of stock we printed 50,000 booklets of the first lot. We knew there would be a queue outside our office when we start selling them. Talking to your customers, getting real customer feedback from very, very early on in the business is one of the biggest lessons we've learned.

Equation with investors: ‘The business has to be built by the founders’ 

Bahl: Investors play a very crucial role. We were very green when we started. There were total of, I think, ten venture capitalists in India. And in that context, you want someone in the room who has seen some of these journeys play out before, whether those worked or not, where they funded other companies or they've built companies of their own where they can at least guide us as to what to expect in this arc of building this business from zero to a certain point in time.

How to build an organisation, how to raise capital, how to think about strategy, how to think about reducing the number of things to do as well as expanding in certain areas. It was immensely helpful. That said, the business has to be built by the founders. The investors can only provide inputs and guidance. In the end, all the important decisions have to be taken on a day-to-day basis by the founder.

Bansal: That's one of the things that smart and wise investors understand really, really well.  You know, they have a great ability to be great sounding boards for entrepreneurs without necessarily making the founder feel like they are running the business or they are sort of getting directions from the investor. That's the worst place to be as an investor, when the founders start feeling that actually they own the business and I am just running it for them.

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Equity dilution: ‘Function of how quickly you want to build the business’

Bahl: There is no right or wrong answer because obviously a lot of people have done it like Mark Zuckerberg or Jeff Bezos. They raised a lot of money and, in the end, they owned 15-20 percent of their company. It's not like they also owned 80 percent of their company. Vast majority of businesses that we see around us were not built with venture capital in the traditional economy etc. It's all a function of how quickly you want to build the business because of your own impatience or ambition or because the market opportunity, the window, is open only for a short period of time before other people come in.

So often times, why do founders raise a lot of money and front load a lot of capital raising because they want to move very fast. Now, if they were willing to move more patiently or give themselves a lot more time, they may need to frontload less of the capital, and raise lesser money over longer periods of time in multiple intervals, and so dilution would keep going down progressively. But not all spaces allow for you to build like that. Obviously, every founder would want to own more of the companies if they could.

Bansal: Like with many, many important things in life, we wish the answer was as black and white as possible, but you know, I think the answer is always a different shade of grey. There are many pros, many cons, and every situation is very different. There are certain businesses which you can’t accelerate even with the use of capital, and the only way to build them is to build patiently. There are other types of businesses where the opportunity is immense, but it is also time-bound. If you don’t do it fast enough at a certain stage in the business, then the opportunity will be gone.

The road ahead: ‘Our starting point has been Snapdeal but we are not stopping there’  

Bahl: Yeah, and we are atmanirbhar. We've not had to raise capital for seven years as a business. Not only that, some things people didn't expect happened. For instance, we created a completely new business called Unicommerce, which is our software business, which is doing extremely well, highly profitable. It was sitting like a small software within Snapdeal. We took that out, created almost like a business around it. Now 5,000 of the leading brands and retailers in India, we're processing, you know, hundreds and hundreds and millions of transactions through Unicommerce.

Then we gave birth to another business from Snapdeal called Stellaro, which is our house of brands. Now, it's running various brands that are leading in the categories that they play in. So, the most important thing for founders is to keep your head in the game. Even if the whole world is collapsing from everywhere on you and saying you are dead, you are dead, you are dead. You are not dead if you are not dead. You just have to keep going. You just have to keep moving forward and opportunities will keep presenting themselves to you. Just keeping your head above water and, most importantly, finding the courage to continue when you are at the bottom of the abyss is so critical. And, by the way, we've seen the abyss so many times in the last 16 years that we almost expect it to happen every few years.

Bansal: Now, we have Stellaro as well which is our house of brands which is at a very nascent stage. It started just 8-9 months back. It's already on a fantastic trajectory. It's already profitable and growing very rapidly. I think we are almost growing by 10 percent m-o-m given it is early days in the business. So, I think it's not large enough yet, but we can see all the kernels of it becoming a successful business.

Bahl: Our starting point has been Snapdeal but we are not stopping there. We are going to keep building more businesses within the group and now we have a very good track record of actually creating new businesses within the group, which are successful and profitable.

Watch the full interview with Kunal Bahl and Rohit Bansal on Forbes India Pathbreakers on November 29 for more insights on their journey as entrepreneurs and investors.