How an entrepreneur and an investor together created a fintech product for the middle class
In an interview with Bala Parthasarathy, Co-founder of MoneyTap, and Shripati Acharya, Co-founder and Managing Partner of Prime Venture Partners, YourStory Founder and CEO Shradha Sharma finds out how an entrepreneur and an investor bring different skillsets to the table but are ultimately able to work together to build a solid startup with a great business value.
Here is an edited excerpt of their interaction.
Shradha Sharma: Tell me your story, tell us what has been happening between both of you over the years.
Shripati Acharya: Bala and I have known each other since the first day of college; we were in the same hostel while at IIT. After we graduated, both of us landed in the Bay Area for our grad school and then our work. We started Snapfish together as co-founders, Bala was the CEO and I was the product guy. After that, we ended up in India the same time about nine to 10 years ago and had the opportunity to work with Nandan [Nilekani] as co-volunteers in the Aadhaar project. Then we started Prime together, that time it was AngelPrime. We were co-founders there along with Sanjay Swamy and now I have the privilege to be on his board on MoneyTap as an investor.
SS: Bala, how has your relationship grown over the years?
Bala Parthasarathy: I think our wives will probably have more interesting interpretation to this question because at various points of time they have accused us both of spending more time with each other than with them! But definitely, it has been a very interesting and very rewarding journey. It's evolved over the years, we were partners, co-founders, co-investors, and co-volunteers when we were working on UID. But we have also done other stuff together, we go on hikes together, have a lot of shared hobbies as well and now we are at yet another state of evolution where he is on my board and I have to watch what I say!
SS: What we see typically in startups is young people coming together. How have you been able to retain that magic together and how have you been able to evolve over the years in your relationships?
SA: I will say that ultimately the relationship is about two things: trust and transparency. For example, once we were in Sikkim, our tide was very random. We were at a very high point and I told Bala that I'm not feeling that great. So Bala and I decided we should go down to the previous camp, spend the night there and then come back up. Bala ensured that all systems were okay for me and then he continued on the trek later. I don't think we can say that we won't have different opinions, but I think that there has to be an element of belief that the argument the other person is going to come forward with is fair. I think one has to reach that level before he can move ahead.
I don't think we can say that we won't have different opinions, but I think that there has to be an element of belief that the argument the other person is going to come forward with is fair. I think one has to reach that level before one can move ahead.
SS: Bala, was starting MoneyTap and getting Shripati on board as an early investor and partner a conscious decision for you?
BP: As an entrepreneur, you want the highest valuation and as an investor, you want a low valuation so there is no middle ground on that one. In a situation like this, we actually had New Enterprise Associates set the valuation but we wanted Prime in, because of the specialty of AngelPrime that we have built and now continue with Prime Ventures. It focusses on some of our long-term plays. We started the company in October 2015 and launched a product in October 2016. It takes a lot of stamina to last through and an impatient investor will push you to do something that is incorrect. So, besides him [Shripati] being my friend, Prime Ventures was the right fit for us.
SS: Tell me about MoneyTap, because we believe this is going to be the next big thing from India.
BP: While we were working for Aadhaar, Shripati and I saw what technology could do to transform the landscape in five years. We want to solve the Indian problem the Indian way and not copy something from the US or China or do some jugaad. We wanted to build a real technology play and we are solving the real problem of consumer credit for middle-income consumers. They are constantly short of cash. They may even have some savings, but you can't break it when you want to pay your school fees or go on a trek or there is a wedding or a medical emergency. Every family has some unexpected expenses and its ticket size is maybe Rs 5,000-Rs 50,000, which was not being served by any banks. Today, if you need Rs 30,000 you go to your family or friends. The unique thing is to partner with banks. Some of the banks also want to lend to them, but they don't have the tech and the setup to do that.
We are bridging that gap; MoneyTap is an app you can download. We tell you yes or no for a credit limit, which can be anywhere from Rs 25,000-Rs 5,00,000. We're an interest interface for the bank, but the Money Tap app controls everything. If there is a medical emergency and you want to borrow Rs 20,000 in the middle of the night, you can tap a button and the money is in the bank account in 15 seconds. Then you pay it off on EMIs to the bank, all from the app.
SS: This is solving a real problem in our country. Shripati, what excited you about this idea?
SA: The financial inclusion through fintech presents an enormous opportunity in India because we are a country of entrepreneurs. We don't have a social security net in the country. We felt that the opportunity in driving financial inclusion to the people. At a fundamental level, it can move the needle for the country, which means it's a huge market. At Prime, it is our belief that we have a lot of first-order problems that make sense from an investment standpoint.
MoneyTap is not just a digital channel for a bank. It is actually core-driving an innovation and providing a product that does not exist. It is not available even in the US. You have a personal line of credit tied up to a home mortgage but this is an unsecured line of credit that Bala was talking about. The product was very new and it was partnering with the banks instead of trying to replace the bank.
The advantage is a huge scale because the banks have the regulatory umbrella and the ability to provide funds. And of course, the team that is behind it is great -- Bala, Anuj, and Kunal. Bala has been an entrepreneur before, but he has gone and crossed over to the dark side, being an investor and now he is back to being an entrepreneur. I know the bar that Bala sets for himself and I was very comfortable to invest.
SS: Bala, why did you choose Shripati not as your co-founder in this venture but as your investor?
BP: You should ask him.
SA: I think it requires a different kind of mindset and I felt for that 'knowing thyself' is the motto here. For me, the pace, that is long term, and the patient play works well because being a VC is also a hard business as ultimately you have to give returns but it plays out over a longer period of time. The pace where the action happens is very concentrated; it's like hunting: you have to wait and all of a sudden a whole bunch of things happen. I felt that it fits my DNA and knowing Bala he likes to be in the action.
SS: Shripati thinks through rather than speaking just off the cuff, and he also brings that empathy of being an entrepreneur in his investor's hat. Bala, tell me, why young entrepreneurs should get to know him?
BP: In the investment business, unique brains and the ability to think through not only what is going on right now but center size everything else that trends is important, along with plenty of patience. If there is one word that can describe him it's that he is a 'thinker'.
You can do all your planning before but in the field, you have to deal with it, the ball does not exactly come the way the drawing board said it will come, it comes in a different way. He has done that as well, that puts him in a unique position to look at both perspectives.
SS: Bala, do you see in your second stint as an entrepreneur an evolution in terms of how you emotionally respond or react to things?
BP: Definitely. You become a lot more patient, especially when you're working with banks and banking partners. Things take time and you need to be more thoughtful and not react immediately.
Emotion gets you out of the bed every morning and drives you to face things. But you cannot let it take over. One thing I learnt is a little subtlety to know which situation needs a reaction.
SS: You have raised money, and are now in the coveted club. Congratulations! How does it feel? Is the journey going to get very accelerated for you? Shripati, how are you able to raise money in this tough market?
BP: Good thing about raising money in this environment is that one can be more patient, as opposed to two years ago when everybody was just going crazy and investors had a lot of pressure to go and spend the money. Our goal is very clear: we want to build the unit economics for the business, make sure what we spend and what we make matches up in a very short time frame. This is what we missed out in the last two years of the ecosystem. It's easy to spend the money and I hope that you will make up that money. We want to grow smartly, so we are not planning to blow up the money tomorrow. If I was sitting here two years ago I would not have been able to say this. I think the board and the investors will have a different type of pressure.
SS: Bala I think you both have said this because of your level of maturity now. Would you have said the same when you were running your first venture many years ago?
BP: Shripati and I did go through the same cycle at Snapfish when we grew that company and raised $40 million on a Powerpoint. But we nearly blew all of it. Miraculously, for us, the dotcom bust happened, and we couldn’t spend money. By this sheer accident, we kept the money in the bank and Snapfish became a success. There was pressure from partners and everybody in the Indian ecosystem to grow about two years ago. Luckily, that pressure is not there today. I would say this is the best time to be an entrepreneur.
SP: A lot of the narrative in the media is about the funding. It's exciting and easy to call it a success if somebody gets funded $50 million. I am an obsessive loan taker but the guy who introduced me to loan taking was Bala. We are ready to continue the journey because it will happen in six months even if currently the investment climate doesn’t favour it. We are just comfortable backing the company.
SS: Being successful role models yourself, what would you tell entrepreneurs about dealing with rejection?
BP: When I wake up in the morning I think everything is an opportunity. It's just a mental flip. Your life will be better and you will be able to solve the big problem and build a very successful business. I would just say when everybody is trying to be pessimistic you should be optimistic.
SA: I would just say that capital doesn’t provide validation; customers do. We have to just focus on the time put in by the entrepreneur, which is worth far more than the capital that the investor is putting in. The customers need to like the business.
Then there needs to be an opportunity if it needs to be large enough. Ultimately, if you are making good business decisions investors will come knocking at your door.
SS: How do you see your relationship growing?
SA: I see this as a long-term journey and I feel privileged to work with quality people like Bala. More importantly, I also learn as an investor watching entrepreneurs like Bala making certain decisions and trade-offs.
BP: We need a board member in providing the governance that we don’t let our success go to our head.
SS: Do you both disagree with each other?
SA: Absolutely, I think we had this even when we were in Prime together. Sometimes, we differ in our views about an entrepreneur with an idea. The ultimate quest for the right idea to win makes us go past the disagreements because if the wrong idea wins all of us lose.
BP: I agree. When we were partners in a fund, we would have that kind of 'my idea, your idea' thing going. But I think a little bit of age helps there, and you say it's okay to lose. Now, as a CEO, me running a company and him [Shripati] on the board, the disagreements are different. Typically, the board member is there to provide advice and let the entrepreneur run the show.
SS: What do you think is healthy board dynamics between an entrepreneur and investor?
SA: The purpose of the board is to provide a bouncing board for the CEO in terms of what you are seeing out there and providing that input. But it is also important not to push the entrepreneur too much and mess with their decision-making because we can be wrong too.
BP: One can do whatever diligence, but once a cheque is written, it's all one team. The need from the board changes with every stage a company is in, whether it is connections, a sounding board, or mini-governance. You should be mature enough to know what you want and that will save the company and demand from the board. If you’re lucky enough to have the choice of taking two cheques take the one from the person who's going to be on the board and will add value to your company.
SS: Bala, do you have any tips for entrepreneurs on how they can articulate their story better before investors? Because, as you know it can get intimidating?
BP: It is important to understand that VCs are not managing their own money. They have to return funds and it's a long-term progress report. An entrepreneur gets a report every hour with customers and employees giving immediate feedback. But, as a VC, your feedback comes much later. They are not there to be the nice guys, they are there to return the money that they have invested in you and one needs to always be aware of that.
SS: I wish MoneyTap a great success, and we believe you will be the next big thing.