Mohandas Pai on Massive India Opportunity, Market Potential and Leveraging Digital India

Mohandas Pai, Chairman Aarin Capital and Manipal Global Education chats with Sanjay Swamy, Managing Partner Prime Venture Partners.

Mohandas Pai is a Padma Shri Awardee and former CFO and Board Member at Infosys. He is also the co-founder of Akshaya Patra, the world’s largest midday meal program. Mohan has served as the Chairman of the Board of SEBI, and is now a Board Member of the National Stock Exchange in India.

He has helped start over 10 different funds in venture, growth, and public markets. He also leads a private equity fund - Aarin Capital - along with Manipal Group Chairman Ranjan Pai that invests in life sciences and education companies.

Listen to the podcast to learn about

2:18- The digital ecosystem in India

9:35- India as being large but a different opportunity

15:16- The direction of doing business in India

19:21- The role of both entrepreneurs from the smaller towns in India as well as the opportunities for all entrepreneurs in the metros

23:45- The opportunities for the private sector and startup ecosystem to work with the government

Read the complete transcript below

Sanjay Swamy 0:56

Hello, everybody, this is Sanjay Swamy here. Welcome once again to the new episode of Prime Venture Partners Podcast, where we bring you stories from Digital India, the startup ecosystem, and in conversations with some of the most well known people in the industry. I have a very special guest today. Mr. Mohandas Pai, Padma Shri and Chairman of Manipal Global Education, as well as chairman and co-founder of Aarin Capital. Many of you may know Mr. Mohandas from several other hats that he has. I’ve had the privilege of speaking to Mr. Pai several times on the startup ecosystem and Digital India and several related topics. And that’s what we’re going to discuss here today. Mr. Pai, welcome to our show.

Mohandas Pai 1:42

Thank you, Sanjay, good talking to you and everybody.

Sanjay Swamy 1:44

Great. It’s a pleasure to have you here, sir. And wanted to focus today’s episode, I know you have a large number of topics you can speak very deeply about, our audience here is, entrepreneurs and people who are connected with the startup ecosystem here in India and related parties and wanted to get your views as you’ve seen this evolve over the past several years, on how you see the years ahead in India, where have we arrived, and what excites you about the years ahead for the startup ecosystem in India.

Mohandas Pai 2:18

But Sanjay, let me start with giving you some data about the digital ecosystem in this country. Because you know, India is a country with a $2,000 per head per capita income, $3 trillion of GDP. It’s a poor country. So many people outside don’t know how digital we are. I’ll just give you a short introduction. The digital network, we have 1.2 billion digital connections with 900 million unique phones. We buy something like 165 million smartphones a year. And we manufacture 250 million phones securing feature phones and export $6 billion, though much of it is assembly with the 25-30% value addition, data consumption on two networks. Jio is 14 Gb per person per month. And on Airtel it’s 17 Gb per person per month. And you can almost get unlimited data in this country.

At, let us say one and a half dollars a month. And that’s about the digital network that exists in this country. So we have some of the cheapest data. Then we have a global standard and the largest software service industry. We exported 150 billion dollars of services last year, we have four and a half million people employed in that area. second largest in the world, out of the four and a half million people, 2 million work for American companies. American companies have 6 million people in the United States, 1 million are Indians. So adding this 2 million, that means out of 8 million people looking for American companies, 3 million are Indians. So we dominate in this area globally. There’s no other country like India in software services, even close and if you look at Silicon Valley, maybe 25% of the startups maybe have an Indian founder, 35% in cybersecurity, you may have better data and most high quality companies have their back end engineering in Bangalore.

Bangalore itself has 2 million people and exported $55 billion of services. But these are based on the software startup industry. I mean, the technology startup industry has come. India today has 50,000 startups source for this is yourstory, which has done a story on each one of them and also inc42 from Delhi, out of which 10,000 have been funded all along others are not funded. And then we have got $65 billion of capital from 2014. Till let us say maybe June of this year on a calendar year basis. And the last year we got about 14.5 billion and before that $12 billion dollars, and we have got about 40 unicorns, the latest unicorn is PharmEasy, which became a unicorn maybe last month or so maybe the next year estimates another four to five unicorns especially In the tech area, which seems to be booming and they employ 750,000 people.

In the software service industry of the top 10 software service companies by market value 5 are Indian, top five, three or Indian, of the 2 million employees there 1.5 million are Indian. So we have a huge amount of intellectual capital, huge amount of human capital in this country, all highly trained, very productive, and young people, the average age in the service industry is 27 years, which matches India’s average age of 27 years. On top of that, we have the technology startup industry. We have 5000 startups coming up every year, out of which maybe 1000 get funded. And we estimated by 2025, we’ll have a minimum of 100 unicorns in this country, and we possibly will have hundred thousand startups, maybe 15k, 18k, 20k would have got funded, the rest will be small companies which are still alive, or maybe in a zombie state, etc.

But all of them are trying to solve some problems. We are seeing this upsurge of innovation, upsurge of people getting into startups and starting in a variety of areas. Now, are all high tech companies? Maybe 10-15% of the ones funded are very high tech companies working across technology areas in artificial intelligence, machine learning, biotechnology, deep science, etc. Many of them are doing b2b businesses, which is a large sector, across a variety of industries. And we are mainly in terms of technology, two years behind Silicon Valley, even though some of the cutting edge work is done in Bangalore. And if you look at China, China is an economy in this area is ahead of India, they have solved many more problems using AI, they make enormous investment. They said they committed 150 billion dollars to AI by 2022. And there’s ofcourse United States too because they want to dominate the world. And of course, they’ve put in a little bit of money.

Although $65 billion, SoftBank is put in $10 billion, the Chinese put in $8 billion. And the government has said that we don’t want Chinese investment unless they come and apply. And we have to give you permission, so there is a challenge, because of some border issues. But this Sanjay is a big story. And going forward. This is the third largest ecosystem for startups in the world. And this is a place where you’re going to see much action. Now for most people, you will often see that in China, they invest $65 billion a year in startups, about 60-70% by Chinese companies. And if you go try to invest there, well, you have to tag along with them. Otherwise, you may not get great gains, because it’s a market dominated by local Chinese. The United States, of course, a market dominated by many big players with $135 billion of investment into startups every year. And in India today has become a battleground for global companies, we have the US venture capitalists come very less from Europe, we have the Chinese who have come, the Japanese are coming. The Indians are only 10% of capital. So this is the place where anybody can come and get an investment into a startup, which can do business in the US, business in Europe. And I think take the market here. So I think this is going to be the hottest place in startups in technology for the next five years, where investment is welcome. And people make a lot of money.

Sanjay Swamy 8:21

Fascinating. Now, these are amazing numbers, sir. And thank you for the quick overview there. So if we deep dive into it, we think about the first wave of startups that have grown up here in India, we had the e-commerce wave where obviously Flipkart was the one that emerged quite significantly. And then, of course we’ve had the financial services FinTech area, where there have been a lot of companies, notably companies, like Paytm, and Phonepe, and several other younger companies now coming up. And then we’ve also got into Byju’s in the education space and other companies in edtech.

And digital health is now also another large area that’s coming up. And first of all, of course, we had the government’s investment in Aadhaar and UPI and the whole India stack and other digital health stack. And broadly the belief is that India is going to, while it’s an opportunity that might be very large, the solution space in India is going to look quite different from what happened in the US or what happened in China as well like India will have very unique aspects as we have seen. Can you elaborate a little more on some of the thinking behind that and why you see India as being large but a different opportunity as well. And what are the areas that excite you the most?

Mohandas Pai 9:35

Well, I think in terms of verticals edtech is obviously exciting, because we got 265 million kids in schools. We are 37.5 million people in college that will go up to 70 million by 2030. And 60% of them can afford to buy technology. And most of the schools and most of the colleges here are now going digital. But that’s going to be a big big market. And that excites us because I think the b2c market is very much bigger, the b2b market is tougher. And in b2c, we are seeing a lot of action. We are seeing startups which are having a lot of videos and using videos to reach out to people as platforms, we’re having active tutoring coming, we are having tutoring for kids in the age group of 3 to 6, and then we are having it for college.

So edtech is one big industry. Health tech is suddenly taken off now, it was there for some time, but the market access was difficult. Now the regulations have been eased for health tech to use, let us say, tele medicine so that the doctors can consult in telemedicine is very efficient. All hospitals and care providers are now looking at technology in an extremely big way. And people too look at consultations, etc, with the doctors. And now many of these health tech companies are gathering enormous amounts of data. Now they’re getting a lot of data and collecting. And we have the world’s largest insurance programme called Ayushman Bharat, which has about 500 million people, which is a potential for India, which is funded by the government.

Already about 12 and a half million people have got services done in hospitals in the last two years. And when we have this app given by the government to try COVID, there were 50 million downloads in 13 days, there was the fastest number of downloads after Pokemon which took 19 days to reach 50 million. And now this enormous amount of data is going to come because we got a public utility called the health stack, a government health stack where the data will be there and payments can be made, etc. And that will gather the largest quantum of data on the human condition across many ailments anywhere in the world in the next two or three years. It is just like we have the India stack, which is Adhaar, by which we had 1.2 billion people come on and get a unique number we have UPI, where 1.6 billion transactions are done.

You can transfer money from one mobile phone to another, almost without cost. In 30 seconds seamlessly it goes through the clearing system of the bank itself. It’s not a wallet it goes to the banking system, it’s enormous, and digital payments have taken off, etc. So I think FinTech is another area which is taking off, both in lending, both in getting the data out to find out who can borrow money in the SME lending, and in the stock market trading in using artificial intelligence to do back testing for derivatives market, and also in bond trading in all facets of fixed income equities. And also in derivatives in gold, etc. a lot of companies come and we have some investment. And then we have some deep tech biotech companies which have come up which are very long term, which are trying to find a cure for many diseases, which are doing an active work in developing new API’s, which are doing active work and using AI to create databases to come to a conclusion about the ailments that people have, you have invested in one of the latest one, which is doing very well.

And then they’re doing research, like we do have a company, which is getting into superbugs, they’re close to coming out with a product next year. And I think they’ve done a great job. They’re among the two or three top people in the world. And as horizontals a lot of companies come up in AI. I know when you talk about AI, every kid seems to be doing an AI company. But I think this AI is becoming all over the place. Yes, there are maybe 100 companies doing deep AI, very high tech AI, which is really world class. The rest of them are all using algorithms using simple AI to get the data across. But the mentality across has changed. We have electric vehicle companies, which are doing fairly well, I think they’re growing up now. Because after COVID, mobility will change. And now climate change has become a very big issue. So mobility, IoT companies are coming up with a smart city.

So Sanjay, I can go on and on. But a lot of companies are very high tech as horizontals. And in various businesses verticals are coming up. But we must remember one thing, Sanjay, the total spending on software on everything else, excluding e-commerce in India is maybe $35 billion. It’s still a small market. Ecommerce today this year could be about $20-$25 billion. But it’s growing in double digits, maybe in the 25% plus as a marketplace. And since the market is so big, we are a $3 trillion economy. We could be $5 trillion by 2026 and $10 trillion by 2031. One year later because of COVID. I think the market expansion in this country and growth will be enormous. All of them I guess with a lot of assimilation. And everybody going digital we’will do extremely well.

Sanjay Swamy 14:47

Great. So switching gears a little bit to doing business in India, I think definitely people looking at it from the outside have always looked at doing business in India with the question of is it easy to do business in India and companies over the years you have been very actively involved in trying to help make India an easier place to work with and improving policies. Where do you see that journey now and directionality wise? What should people be expecting?

Mohandas Pai 15:17

Sanjay, I helped build Infosys since 1994. Infosys today is a $13 billion $55 billion market value company with 250,000 people, one of the globally dominant brands out of India. So, we’ve been in India, we build campuses, we build everything else. So building companies in this country is not difficult. Business is not very difficult. And you’ve got so many 50,000 startups, it’s not difficult at all. India has a bad media, bad press, we criticise ourselves too much. In the last 25 years, a lot of things have happened, that are one or two challenges that we have which need to be solved. And I’m sure the Modi government will solve them. That is in forex, we don’t have capital convertibility. So money coming in requires documentation money going out requires documentation, we have taken up with the Reserve Bank of India to ease the documentation with $545 billion of reserves, hopefully, they’ll be doing something and the tax area, on listed companies and startups, the tax cap was 30%, we asked the government to abolish it, a parliamentary committee said we should abolish it. And they also suggested that we should bring it down to the capital gains on listed stocks with about 11% with a surcharge. So I think these are the two big issues.

And I think the next one, one and a half years, hopefully, we’ll see greater development. But in all other issues, I think India is a great place to work. There are 75,000 IT companies in the services area, 450 of the fortune 500 companies get their work done out of India. And there are maybe 2000 multinationals already working in India, in the technology area, now all of them won’t come if things are difficult. And every year India absorbs 12 to 15 million square feet of office space in all companies coming. So we got to see this upsight, we got $75 billion in FDI last year, this year, we could do more, of course, FDI to the stock market, FDI in companies etc. In the last six months, they’ve been reforms in labour laws, they’ve been reforms in defence area, they’ve been reforms in the agricultural area, a lot of reforms have happened, so India is a very different country, yes, you get only a small economy of 3 trillion dollars, but it’s growing rapidly.

So I think there are opportunities all across the place. And the ease of doing business is not as difficult as some people make it out to be, you must ask all these people, of course, there are some policy flip flops, because when government makes policy, they have to balance the views of many stakeholders, for example, in e-commerce, there are maybe 50-60 million mom and pop shops, you can’t afford them to be thrown out, because they have no alternate source of employment, so government wants ecommerce companies to be platforms, but all of them can go and not to dominate the market like, Amazon does the United States or elsewhere or Alibaba does in China, etc. So things are much better today than they were five years, five years back was much better than 10 years before that. So I’m very, very optimistic about this country.

Sanjay Swamy 18:08

Fabulous. So, a couple of other things, I would love for you to elaborate on and share your views. So obviously, the internet when it came to India came into the metros and gradually expanded out and started with the more affluent class and over a period of time, thanks to mobile data and certainly with the launch of Jio kind of suddenly, had a step function growth and a mass reach and as you said, in the consumption of data per capita is very high here in India, and the solutions that the phone was used for initially, a lot of it was around entertainment and video consumption and things like that, but now people are starting to use the internet and mobile internet much more for actually solving business problems and going away from just the metros to the tier, two tier three and the remotest parts of rural India now, from an advice to entrepreneurs perspective, when you look at what problems we should be tackling and solving where there are opportunities for building outsized returns, how do you see the role of both entrepreneurs from the smaller towns in India as well as the opportunities for all entrepreneurs in those geographies?

Mohandas Pai 19:21

Sanjay, that out of 1.38 billion people, maybe 300 million people are the middle class by our standards. Now when you say middle class per capita income, say $4,000, okay, 4,000 dollars, will give you $1.2 trillion. The rest of them could be maybe $1,200, $1,300, or whatever it is, and this $4,000 in PPP with a multiple of four is something like about $70,000. So that passing $10,000 makes it a big market. So you must segment the Indian market and look at all that, and much of it is urban, a little bit maybe 20% is in the smaller cities. So I would urge all entrepreneurs to look at people’s problems and solve them, which are the problem. We have massive problems in agri tech. What are the problems in agri tech, in agri tech connecting farmers to markets. Now agri tech agriculture is 15% of India’s GDP.

That means about $450 billion. Half of it is grains, remove maybe 250 billion dollars, there’s a $200 billion market for consumers. How do you connect farmers to the market now we are seeing more than 600 agri tech companies come up there got apps, they are training the farmers, they connect into markets, they increase the value that farmers get and increase the income tremendously. And people are able to get good produce at reasonable prices, the sorting grading supply chain has come up and all of them are growing, they require more capital, but I think they will grow. So I would urge you to look at that. Second, look at local languages to give local information, connect to the districts, connect to society, etc.

Get them entertainment, I just read about an Ott platform, which has got maybe about 45 million people, who are Bengali and is going 150% 200% year on year, I mean, I was fascinated by that, it is pure Bengali. And we got multiple languages, you’ve got 29 states, you can do it across maybe 15 major languages, and each one of them can give you 50 million people. And that will pay for itself for a period of time because the content is there, everything is there. So local language news, local language, media, local language, entertainment, local language, other things that people want, is something that you can do, and then education, the local languages, because remember that maybe 75% of India is still getting educated in local languages. They don’t know much of English, but local languages. So I think solving the problems that people face in the towns are the places where you are, but learn how to scale up, learn to be frugal, and gather capital as you go along and give them easy technology solutions.

Just like Uber, Ola has got a 3 click fulfilment makes sure that fulfilment becomes easy, because 680 million people on the internet, that is fantastic, isn’t it? out of 1.2 billion and mobile connections 680 million are on the internet, we don’t come in the top 25 globally for the internet, because nobody is a large country, when you look at global rankings don’t get carried away, you can’t compare a Singapore with India, Singapore is 50-55 million people. India has 1.38 billion people, so there are 680 million people on the internet, you are very large, but you will not come in the ranking because they’re saying internet penetration, the penetration rate could be low, even China has low, they got 900 million people on the internet, but you gotta look at this, I think the local problems are something that they can solve, and also create a network of investors and angels in one area willing to give smaller amounts of money till you scale.

Sanjay Swamy 22:51

Thank you. So these are really fascinating opportunities that you’ve been describing that are sort of fairly invisible still to the mindset of the entrepreneurs because they will still be solving for the most part of the problems for the urban customers and solutions that are variants of what has existed and worked in other markets. On the use of technology and scaling up of solutions to much lower cost solutions. Of course, we’ve been delighted to have the initiatives by the government on Aadhaar and India stack and UPI and GST and all of these initiatives. What opportunities do you see for the private sector and startup ecosystem to work with the government? Because the government is obviously one of the largest potential customers of technology. How do you see those opportunities and the willingness of the government to engage with the startup ecosystem?

Mohandas Pai 23:45

Usually the government is very willing to engage with startups. They want to encourage startups, but we have a challenge here Sanjay, I want to be honest with you. And the challenge is, the government is unsure how to do it, they had to go to the tendering process, even though they cut the rules to say they will not have tendering, the payment doesn’t come on time, there are a lot of challenges. So you have to suffer those challenges because the government is the government. That is the system is streamlined in some areas, some areas it’s not streamlined, so you must engage with the government. But the bigger thing which I would urge you to look at, look at the flat forms that the government has created and see how to use the flat form. Aadhaar is a flat form. With aadhaar, you can get aadhaar number, you can make money transfers, you can go sell to them, you can get everything else. We’ve got the India stack, where 1.6 billion payments are made every month now It must have gone up last month in September.

Sanjay Swamy 24:33

The numbers just came out for September it was 1.8 billion.

Mohandas Pai 24:38

Sanjay, 1.6 to 1.8 is fantastic. Isn’t it? 10%. Last month? Yeah. in one month, amazing. And at hardly any cost.

Sanjay Swamy 24:46

To put it in perspective, card transactions have stayed stagnant at about, I think, 0.2 billion a month about 200 million a month. So one area, UPI has really been continuing to grow. And I think the growth is equal to the total card volume in a month.

Mohandas Pai 25:07

Absolutely. And here, the important thing to understand is on public platforms, you don’t pay a cost, there is no cost, in any other country, you will be controlled by somebody, you have to pay a heavy cost, like in the Play Store. Now Google is saying pay me 30%, Apple is already taking 25-30%, you don’t have to pay the cost. So your cost can be low. Now the health stack is coming. And the health stack is well underway, because all the data will be inputted the next one, two years. And you can use that. I would urge you to look at all the things that the government has done and use the systems and processes available as a public utility to dominate the market. We’ve got about 60 payment companies, but many of them may not survive, because they’re not having good revenues. But some of them will be world class companies in a short while because the technology is fantastic.

You can do it in a blink of an eye, you can transfer money. In the healthy area, education now we have a digital challenge. And I think in the next year, maybe two or three years, we will have another 100-150 million kids get a tablet with preloaded software. And the governments are going to come and get it done. Because there’s a push from the parents that their children don’t have in the rural areas, that tablet or something like that. And in a democracy, political leaders respond to people, I think that markets in local languages will be available. And if we’re able to give a leasing model, where you tell the parents to pay me 200-250 rupees a month, and I will give you this model for three, four years and try to work out a revenue model. It’ll be fantastic.

And then we’ll know clean energy, leasing of electric vehicles, etc. What we need Sanjay in all these areas is business process, business model innovation. We haven’t seen much business model innovation, we have seen technology innovation, we need business model innovation, where you reduce the monthly cost of all these people who can use, then you can dramatically increase, increase the volume of business. And with interest rates now down and capital becoming more easily available. That could be something that people should try to to scale up. I think all these things are coming up. But you have to choose an area, you have to make sure you’ve got access to capital, you’ve got to make it user friendly for people to use no heavy technology, because the ordinary person doesn’t care what technology you’ve got the back end, all they want to know is can I use it easily? And I don’t have to exercise too much of my mental faculties to make things work.

Sanjay Swamy 27:32

Great. I think these are really some of the exciting platforms and some of the early successes. And we have seen several companies both in our portfolio and in the startup ecosystem, things around, in particular, the use of Aadhaar, and payments, things that were almost impossible to do, opening a mutual fund account. You were deeply involved in helping facilitate that regulation, merely with an OTP for up to 50,000 rupees and virtually zero cost. And I think one of the examples I had read there was that the cost of opening a mutual fund account was somewhere between 500 and 1500 rupees, and at a half percent margin. That meant that you had to save a minimum of 400,000 rupees a year to make it viable for the account opening. And less than, I think 4 million Indians can save that kind of money in the year. So just by driving that cost down to virtually zero, we will enable people to save as low as 10,000 rupees a year. And suddenly that makes the market size probably 10x.

Mohandas Pai 28:40

Yeah now we’ve got about 100 million people who have got demat accounts.

Sanjay Swamy 28:45

Yes, I know we’re capable of saving and because the cost of just onboarding them is so low. So that’s a fascinating example. And of course, we have the story of Jio, which went from zero to 300 million plus subscribers without a piece of paper. Not to mention the environmental benefits of a lot of that. So one of the other areas, obviously, that the startup ecosystem thinks about is the exit opportunities and potentials in India. And of course, very recently, we had the all cash acquisition by Byju’s of White Hat Jr. For $300 million, which is obviously a watershed moment. What are your views on how liquidity will be achieved? I know the stock of private companies being allowed to list overseas etc. How would you look at those questions from either the entrepreneurs perspective or certainly the LP and investor base perspective?

Mohandas Pai 29:37

Sanjay, the public markets in this country are deep and wide. Right now. We have an IPO boom, maybe $20 billion will be absorbed through the IPOs this year. We’re seeing a huge boom coming. And this market rewards high growth companies, whether you make a profit or loss they reward high growth companies. For example, you can see in the FMCG area the PE is 70, Sanjay they are going at 7-8% the PE is only 70. Why is that? Because they see it as a hedge against, as a defensible. So many companies with a PE of 50-70, etc who are not growing.

Many companies are growing 30-40% plus and got a PE of 40 or 50 because the high PE catches up after a couple of years with the growth. So this market in the public market is hungry for high growth companies and even high growth companies and you establish a business where you see growth for the next three or four years and go to the public markets. And you go to the public markets your stockholders can sell after one year at a very low rate of tax, you get access to more capital, but you must develop an ability to go market many some of the startups who went to the public market have not done a good job of investor relations, you must market to investors constantly, you must go meet them You must go meet new investors and create the story the story will sell when I was CFO of Infosys from 94 I used to meet 300 investors a year I should be in a roadshow every quarter even though we never raise capital till 1999 and then we made a billion dollar ADR in 2002.

So, I think you must go to the market. The key thing is you must market yourself for capital you must go to all the people. We have a mutual fund industry of about nearly $400 billion out of which $200 billion is in equity. So, we have huge markets here, market capitalization India is close to $2 trillion. And the market is hot. There are a lot of people waiting to put money and they may raise a billion dollars. $2 billion is no big deal. Companies are 3-4-5 billion dollars in this in this country. And I think you should raise this look at the public market. The second thing is you must go meet India Inc. and talk to them about what you’re doing.

For example, Hero Motors has put money into one of the EV companies, we have seen the TVS group put money EV companies, we have seen the JHW group put money into some startups etc. And you must go to all these companies. IT service companies are buying companies outside because for them it is a strategy to get access to the market, they don’t have much of a market here, but you must go market to them. The key is our startups feel it is easy to go to venture capitalists than to markets, but after you have got your capital, you must get an external source because all the venture capitalists require exits. And if you want to give them exits, there are practically five ways of doing it, you can go list outside that is fine, then consider listing in India, because listing in India, you can get a good valuation and the market will decide and give you more capital as you grow.

And once you list the price settle down then investors can sell in the market directly or indirectly, third, get acquired by a company in this country. And the fourth, get acquired by a company outside India and the fifth, go raise global debt and adjust your cap table. Because you know beyond the point you may not require more equity capital, you may require more debt to grow. So I think the multiple areas but the point is Sanjay, the CFOs in the startup space are not very well versed about all the multiple areas, they’re not trying. I’ve not met any big names in the CFO world. Among all the startups. You know, when we were growing Infosys Sanjay, we wanted to get marketing people, we got them from the big fmcg companies, because they know how to sell. They are the brightest of the bright people, we got good techies from some of the manufacturing companies.

We’ve got some techies from some of the banking companies, especially the multinationals, so I would urge you all the bigger companies to get CFOs from some of the big India Inc. companies who have gone to the market to know how it is and create the network. So I think you must look at public listings. And public listing is taking off in this country in a big way. It is a huge market. And I think that’ll be very good. And once you look at public listings, you get a currency for acquisition, you get access to more capital, taxes come down. And I think it’ll be very good. And of course, acquisitions are already there. I hope more and more of the big startups start acquiring to consolidate. I see that trend coming in the next two or three years for a very important reason.

The PE industry is now investing in startups, because they’ve been wanting to come to a certain stage, many of them have come to that stage where they want to invest. And they’re clearing the cap table of all the companies. And then I think you should be able to go to the PE companies and then they’ll hold you for five to seven years before they sell you off. And then I’ve been talking about starting some funds for secondaries. Now I was talking to a banker who said this year, they’re going to personally enable two and a half billion dollars of secondary sale. $200 billion. Sanjay, as one bank, and we spoke to some of them to start a fund to buy secondaries.

Why can’t they buy secondaries at a 10,15,20% discount before they raise capital that you could see a bump up another 40-50%. So there’s a good market for secondaries in many other companies that are more than 125 soonicons who are potential to become unicorns in the next two to five years. And my last point on this is today there is close to $45 billion of sovereign debt, out of which maybe 50% has negative interest rates and $15 trillion of stimulus money is coming to the market. And the interest rate the FED has said will be 0.25% till 2022-2023 now, and that means there’s going to be surplus liquidity, money is there, you have to go, market yourself, and you’ve got to sell. And I think this year too, sees an upsurge of money coming in, Reliance has already got $20 billion, they’ll get another $10 billion. So I think this money is there, you must go on the market, and these are all the ways.

Sanjay Swamy 35:33

Wonderful. Definitely appreciate all your insights.

Mohandas Pai 35:36

And also Sanjay, I would like to venture capitalists like you to encourage your companies to go to the public markets, because I see a reluctance upon many venture capitalists to say no, no, we don’t want to do that, blah, blah, blah, because maybe they feel that they will not get the prize and not be able to raise capital, and they will lose their special rights. You know, but I would urge them to think about it in a bigger way. And work with the founders to go to the public markets.

Sanjay Swamy 36:01

Absolutely, I think we are certainly motivated to build these lasting companies, you know, companies that are visible in the local markets and earn the trust of the common man here in India, and are serving the local communities solving local problems. And that’s where the most ability is going to be.

Mohandas Pai 36:20

Sanjay, people used to ask us when we were a $75 million company, why did you go and listed NASDAQ in 1999. And we told them, we went to NASDAQ not to raise capital, we wanted to raise 72 million on a $3 billion market value. And we got $5 billion of books. All right. For 72 million is peanuts. The cash remained in the balance sheet remains even today, because you know, a cash surplus company didn’t needed the cash, but we want it to list there to build a brand. If you’re listed on the NASDAQ about 60% business comes from America, there’s a brand when you go to a customer and say we listed on NASDAQ, there’s a brand, there’s a trust, there’s a brand, they can see a stock price every day you disclose information. Again, we said we want to create options for our American employees and global employees who can pay stock options.

Third, we want to create a currency for acquisitions overseas, because it becomes easier right? Now, you must look at this money listing in the markets as one raising capital, you may not require the capital, second, giving liquidity to investors. Third, giving liquidity to your staff for esops and fourth creating a currency for valuation. And fifth building your brand. There’s a very big company in the travel space, which is listed in New York, not in India. But if you are listed here, your stock will be traded, your brand will be traded, you’ll be on CNBC, ET Now on all the business channels every now they will talk to you because your business is here. If your business is here, listed only overseas, you don’t get the brand value in this country because the people don’t talk about you so much because they’re listed overseas, a listed company is traded every single day news comes out about the company every time it trades up and down, something happens. And when they give quarterly numbers, you can do very well the stock price goes up. Everybody knows about it. Many investors buy it to create a great following. The brand value of that is fantastic, Sanjay, that’s what people should understand.

Sanjay Swamy 38:09

Absolutely. So now these are really valuable insights. Mr. Pai, I think everybody who’s watching the India story in the India ecosystem, I think really high quality data that is, I am amazed at how you are constantly on top of this data and can read it off the top of your mind. Thank you so much for sharing these insights with our audience. And I’m sure this podcast will have a lot of questions and comments. And we’ll be posting it publicly and of course, request you to do comment on them as the questions arise. Thank you so much for your time. I really look forward to this exciting next wave of growth here in India.

Mohandas Pai 38:52

Thank you, Sanjay, great talking to you. Thank you.

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