Sajith Pai - A Venture Capitalist Looks at the World on The Seen and the Unseen podcast

The key idea of the podcast is that venture capitalists need to be intellectually curious, empathetic, and optimistic, with an understanding of society and the ability to peer into the future and invest in startups.

00:00 👨‍💼 A venture capitalist needs to be intellectually curious, empathetic, and optimistic, with an understanding of society and the ability to peer into the future and invest in startups, as discussed by Sachit Pai, a director at Bloom Ventures, in a podcast on economics, politics, and behavioral science.

• A venture capitalist needs to be intellectually curious, empathetic, and optimistic, with an understanding of society and the ability to peer into the future and invest in startups, as discussed by Sachit Pai, a director at Bloom Ventures, in a podcast on economics, politics, and behavioral science.
• The speaker discusses their background and career path, highlighting their interest in trivia and diverse perspectives, and mentions that venture capitalists often have broad world views and intellectual curiosity.
• A venture capitalist explains that out of the 25-27 companies they invest in, only three to four will generate significant returns, and founders have the power to choose which venture capitalists they want to work with.
• The speaker discusses the insights gained from observing Indian society, including the segmentation of India and the existence of a separate class of people called "Anglo Indians," as well as their personal journey and the impact of liberalization on their life.
• Writing consistently and improving the quality of writing can help enhance thinking and lead to personal growth, as it serves as a medium for structured thinking and provides clarity, even though it may be challenging.
• A venture capitalist discusses the importance of consistency in building a YouTube channel and shares his productivity hacks for managing time and responding to emails.

24:34 📺 The changing landscape of media has resulted in the decline of traditional outlets, the rise of individual creators, and the fragmentation of content consumption, with a focus on specialized platforms and the dominance of platforms like WhatsApp, while filtering content in China remains a complex issue.

• Calendarize your tasks, use time hacks and software like Alfred to increase productivity, and plan for serendipity while being aware of the potential loss of free moments.
• Journalism has undergone significant changes over the past decade, with mainstream media organizations failing to adapt to the new ways in which people consume and discover content, resulting in a decline in talent and the erosion of the print business, while the future of media consumption is expected to involve the fragmentation and splintering of the landscape, with the creation of new platforms and a focus on specialized content.
• The speaker discusses the changing landscape of media, with the decline of traditional magazines and the rise of individual writers and creators, as well as the shift towards communication through memes and cartoons.
• The creator economy has allowed top creators to monetize their brand directly, but it has also eliminated the structured growth and consensus of truth that institutions provided, leading to a fragmented media landscape and the dominance of platforms like WhatsApp.
• Historically, media consumption has become more fragmented and people are selecting the content they want, but there is no easy solution to this issue, especially in countries without the necessary institutions to handle it.
• Filtering content in China is a complex issue, and the speaker believes that the tech media often misunderstands technology, highlighting the importance of seeking information from specialists rather than generalists.

43:34 📈 The Indian venture capital industry has experienced waves of growth, with the most recent wave driven by mobile-first companies, and the ecosystem has become overdeveloped, leading to an abundance of opportunities for venture capitalists, a shift towards younger founders, and a focus on keeping founders motivated.

• Venture capital in India originated in the mid-80s with the term "risk capital," and the start of TDICI in the late 80s marked the beginning of Indian venture capital as we know it today, with businesses like Masstech Software and Kali Consultants benefiting from it.
• India has experienced waves of venture capital growth, with the most recent wave being driven by mobile-first companies benefiting from increased internet access, and the Indian venture capital industry is significantly larger compared to countries like Mexico and Turkey.
• The venture capital and startup ecosystem in India has become overdeveloped due to brain drain and the creation of extraordinary institutions, leading to an abundance of opportunities for venture capitalists, but the approach and mentality of VCs have evolved over the years, with a shift towards younger founders and the use of software tools and APIs making it easier for startups to launch.
• Young founders in the tech industry are now being valued more, venture capitalists are playing long games and focusing on keeping founders motivated, and there is less stigma around failure in the industry.
• India can be divided into three categories: India 1, which consists of the middle class with smartphones and higher incomes; India 2, which has lower incomes and is emerging as a market; and India 3, which has a large population with very low incomes, and understanding these categories is crucial for the Indian startup industry.
• The speaker discusses the framework and asks the listener to explore a direction not mentioned in their essay or other written pieces.

59:44 📈 Indian startups face challenges in sustaining large businesses in India 2 and bridging the gap between India 1 and India 2, leading to expansion abroad; successful startups need to rethink design and distribution channels for different cultural contexts, while venture capitalists should have strong views but be open to changing them based on new information.

• India's middle class growth and the success of Indian startups depend on the speed of transition from India 2 to India 1, but the challenge lies in sustaining large businesses in India 2, leading startups to look abroad for expansion; there is also a gap between India 1 and India 2 in terms of language and cultural barriers.
• The need to rethink design and distribution channels in order to cater to different cultural contexts and consumer preferences, such as using symbols that are familiar to the target audience and considering alternative models like reseller networks, is crucial for successful startups in India.
• Startup founders in India often come from privileged backgrounds, but there are also those who come from smaller towns and have a mix of traditional family businesses and tech knowledge, and it is important for venture capitalists to have strong views but be open to changing them based on new information.
• Having a forward-looking thesis in the venture capital industry is important, but it's also crucial to have the humility to revisit and adapt that thesis based on new data and changing circumstances, as seen in the example of a venture capitalist's initial skepticism towards an Indian coding company that later proved successful and expanded into other categories and markets.
• Indian startups face challenges due to the country's undersized consuming class, limited business segments, over-ventured venture ecosystem, brain drain from tertiary education, and the need for apps that help users earn extra money rather than spend.
• India has a large English-speaking population and the country is poised to produce breakthrough art and fiction writing in the next 10-15 years, thanks to opportunities created by the startup ecosystem and the ability to navigate between Silicon Valley and the US.

01:33:54 💰 The influx of money in the venture capital industry has led to increased competition for high-quality founders, resulting in higher asset prices and potential distortions, while the rise of technology and stock market boom has created a more zero-sum form of inequality, leading to the need for government intervention like universal basic income, but venture capital remains a powerful signal for growth and success in tech businesses.

• Quantitative easing in the US and the need for higher returns in pension funds are driving more investment into the venture industry.
• The influx of money in the venture capital industry has led to increased competition for high-quality founders, resulting in higher asset prices, but the founder pool has not expanded proportionally, leading to potential distortions and the need for careful management of funds.
• Easy money and the rise of technology have led to a stock market boom, causing the value of money to decrease and creating a situation where those not involved in specific domains like stock markets or venture capital are losing out, resulting in a more zero-sum form of inequality.
• The increasing trend of venture capital investment in startups and delayed IPOs is creating a distortion in the market, leading to both inequality and opportunity, and governments may need to address these concerns through measures like universal basic income.
• Venture capital is a signal that can change the perception and reality of a company, attracting more money, better talent, and creating a virtuous cycle of growth and success.
• Tech businesses have high fixed costs but low variable costs, allowing them to scale quickly and acquire customers easily, making them attractive to venture capital, which focuses on high-growth, high-scale companies, although there are emerging innovations in allied spheres such as revenue-based financing.

02:01:26 💼 Venture capitalists use private metrics to evaluate high-growth businesses, as traditional financial statements are not useful, and they follow protocols to bring the best companies and maintain reasonable stakes.

• Over the past 30 years, there has been an increase in spending on intangibles in the venture capital industry, but the accounting industry has not evolved to capture their value, leading to the development of private metrics and norms within the industry.
• Venture capitalists use metrics like annualized revenue and daily active users to evaluate high-growth businesses, as the traditional financial statements are not useful for predicting the future success of these companies.
• The speaker discusses the incentives and structure of venture capital funding, highlighting the importance of understanding the different stages of funding and the goals at each stage, such as achieving product-market fit and preparing for series A funding.
• Startups need to fail fast and take risks, and venture capitalists play an infinite game by removing failure stigma and providing comfortable exits, as they understand the best prices and risks to move a company from series B to series C and D.
• Venture capitalists follow protocols to ensure they bring the best companies, avoid overpricing, and maintain reasonable stakes, creating a system of agreed-upon rules and conventions within the industry.
• There are no incentives to communicate too much outside, so conventions and protocols are not necessary.

02:18:26 📚 Venture capitalist discusses the importance of incentives and ecosystems, the evaluation criteria for investments, and the potential for innovation in the education sector in India, despite regulatory challenges, with the Indian government being largely supportive of the startup ecosystem.

• Playing an infinite game changes incentives, as seen in the example of tipping at a restaurant, and these incentives are reinforced by ecosystems; in terms of venture capitalism, product-market fit is crucial for success, requiring a strong customer problem and a scalable monetization model.
• The evaluation criteria for venture capitalists are team, product, and market, with team being the most important, and market being defined as the universality of the problem and its potential for scalability.
• The speaker is passionate about investing in education technology because it is a product with universal demand and has the potential to disrupt the broken education system in India.
• Indian tech companies have been successful in providing access to education through online platforms at a lower price, but the highly regulated industry and the need to keep certain parts of the economy gated have hindered the ability to innovate in education, although there is potential for Indian founders to create innovative products that cater to the specific needs of Indian students.
• Innovation in education is happening in the US with startups offering homeschooling alternatives, while India has been less innovative due to a strong state presence, but there is hope for more innovation if customers are willing to pay.
• The Indian government has been largely supportive of the startup ecosystem, with some occasional challenges and regulations in certain sectors, but overall they have created a favorable environment through initiatives like the India Stack and Jio, and are actively engaging with startups.

02:39:56 🎯 Venture capitalist discusses their role at Bloom, emphasizing the importance of ideas in action with MVP and customer feedback, and invites listeners to connect with them for potential investments in sectors like Agritech and B2B.

• The speaker discusses their role at Bloom, including being part of the investment team, focusing on marketing and writing content, and being interested in ventures in sectors such as Agritech and B2B, and encourages listeners to reach out with any ideas.
• Ideas alone are not enough for venture capitalists to invest in, they look for ideas in action with an MVP and customer feedback.
• A minimum viable product is when you have a basic product that has interacted with a few customers and is ready for piloting.
• I spend a lot of time writing and thinking, and my job as a venture capitalist is exciting because I receive visions of possible startup worlds and have the opportunity to determine which ones will succeed.
• The speaker expresses gratitude for the opportunity to participate in the summit and encourages listeners to check out his work and follow him on Twitter, while also promoting the podcast and inviting support for its production.

Key Insights

Venture Capital Industry Dynamics

• 💰 Venture capitalists rely on a power law, where a few companies generate most of their returns, while the rest may lose everything.
• 💰 The Indian venture capital industry has experienced waves of growth, with the current wave being driven by mobile-first companies benefiting from Jio's launch and the democratization of internet access.
• 📚 Venture capital is an infinite game, where VCs aim to take as little stake as possible and focus on keeping the founder motivated and attracting future investors.
• 💡 The Indian startup industry can be categorized into three segments: India 1 (middle class), India 2 (emerging market), and India 3 (low-income population), each with its own unique challenges and opportunities.
• 💼 The VC industry should not be prisoners of their patterns when evaluating founders, as there are diverse and pattern-bursting founders who come from different backgrounds and bring unique perspectives.
• 💰 Venture capital self-selects for high-growth, high-scale tech companies, leading to winner-take-all effects and concentrated winners that make up for the failures of other investments.
• 💰 Venture capital is a different world with its own set of metrics and evaluation methods that shouldn't be judged by the same standards as traditional businesses.
• ♾️ Playing the infinite game with founders and venture capitalists is crucial for long-term success, as it allows for comfortable exits and the potential for unexpected successes, such as a unicorn referral.
• 🎮 The venture capital industry operates as an "infinite game" where both parties, investors and founders, aim to win together, rather than a Ponzi scheme as some may mistakenly perceive it.

Evaluation and Success Factors in Venture Capital

• 🌍 Venture capitalists must have an understanding of society and how it is evolving, as well as a sense of the human condition, our needs, desires, and problems that need solving.
• 💰 Product-market fit is crucial for startups, requiring both a strong customer problem and a scalable monetization model, as well as a playbook for expansion, in order to achieve success.
• 💼 The evaluation framework for venture capitalists includes team, product, and market, with team being the most important factor.
• 💡 Education technology is a promising sector for investment because there is a universal willingness to pay for it and it has the potential to uplift the entire startup economy.

Impact of Technology and Inequality

• 🌍 India has the third largest English-speaking population in the world, which creates opportunities for breakthrough art and fiction writing that can have a global impact in the next 10-15 years.
• 🌐 Technology, particularly in the tech industry, is creating a world where there are a few winners and a lack of equal opportunities, resulting in a hollowing out of the middle class and a poverty of opportunities.
• 🌍 Inequality of opportunity is growing, as tech tools become more accessible and affordable for those who know how to leverage them, while the poor may not even be aware of their potential.

Q&A

Q: What are some examples of creatures from mythology mentioned in the podcast?
A: In the podcast, creatures like the centaur, kraken, manticore, and basilisk are mentioned as examples of creatures from mythology that the speaker finds fascinating.

Q: How has writing helped shape the speaker's thinking?
A: According to the podcast, writing of a certain quality is said to improve thinking and help in gaining clarity. The act of writing allows for the organization and structuring of thoughts, leading to improved analytical skills and a clearer thought process.

Q: How has the media talent in India changed over the years?
A: The podcast mentions that the talent in media in India has decreased over the years, particularly in the times of India and English newspapers. This decline in talent is attributed to the media business being largely a monopoly, which allowed them to make more money and potentially hindered the influx of new talent.

Q: What are the different segments of India mentioned in the podcast?
A: The podcast mentions that India can be divided into three segments: India 1, India 2, and India 3. India 1 consists of approximately 100 million people with higher incomes and contributes to a trillion-dollar GDP. Each segment has different characteristics and per capita income levels, highlighting the diversity and disparities within the country.

Q: What are some key challenges and opportunities for Indian startups according to the podcast?
A: The podcast discusses various challenges and opportunities for Indian startups. Some of the key points mentioned include the need for startups to focus on creating apps that help users earn extra money, the impact of forcing functions and constraints on the startup ecosystem, the influx of money leading to higher valuations and increased competition for founders, and the importance of achieving product-market fit with guidance from venture capitalists. Additionally, it is noted that the lack of innovation in certain sectors, like education, is holding back progress in India.

Listen to the entire Episode here

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