← Prem Bhatia — Co-founder & CEO, Graas
Full transcript · DBS Kopi Time E098
Prem Bhatia on shifting sands in the tech start-up scene
Prem Bhatia, co-founder & CEO of Graas, in conversation with Taimur Baig, Chief Economist, DBS Group Research. Recorded 6 April 2023. Episode 98 of Kopi Time, the DBS Group Research podcast. Transcript republished with light cleanup; the audio is the record.
Welcome to Kopi Time, a podcast series on Markets and Economies from DBS Group Research. I'm Taimur Baig, Chief economist, welcoming you to our 98th episode. Today, we will put aside most of global macro. There will be a little bit of it, but mostly it will not be the usual global macro that we talk about because we will delve into the world of tech startups. Prem Bhatia is Co-founder of Graas, which was recently named by CB Insights to its annual retail tech 100 list, showcasing the 100 most promising private retail tech companies in the world. According to Graas's website, it is a growth as a service technology solution provider using predictive AI to help enhance the growth of e-commerce businesses. Its proprietary platform integrates previously siloed e-commerce data, but more about them, about all that from Prem in a second. But before Graas, Prem founded several companies, served at the board of several more and has been deeply involved in tech investment. Prem Bhatia, welcome to Kopi Time.
Thank you very much Taimur, big fan. I started listening back in the early days of Covid and I haven't stopped. So, pleasure to be here.
I've spoken with your partner and some of your employees and that has made me a fan of yours as well. Prem, we will talk a lot about your journey as a tech entrepreneur, Graas, the startup scene and so on. I really would love to hear about your insights on all of that. But first, we're discussing this in the middle of March. A few things have happened in the form of Silicon Valley Bank and a few other banks that have got under. So, talk to us about its impact on the tech startup scene.
Well, I think there are two lenses to it. I think as a depositor, it's really quite worrying that you can deposit money in a bank that you trust and then one day wake up and not be able to withdraw. That is obviously extremely worrying. I think the other lens is that as a technology startup, if this were to continue, along with high interest rates, I worry about the venture capital ecosystem and the ability for other entrepreneurs and startups to raise money. Things have fundamentally changed from 12 months ago since we raised money at least.
Right, so let's stay with that a little longer. So, my understanding is two Fridays ago when the SVB issue was front and center, a lot of VCs lobbied Washington D.C. very hard. And their point was that in SVB, you have a lot of startups and tech companies with much more than USD250,000 deposits and SVB going under without taking care of those depositors would be very, very problematic. What were you hearing from your peers? Or perhaps even you had some exposure to SVB? I mean, what was the mindset in those days?
Fortunately, no. We are DBS born and bred. But you know, everyone's worried about, what if they have made this mistake or what is the mistake? The mistake is they managed risk badly. I don't know where DBS, i.e., my bank, invests. And everyone is now worried, it's fundamental. This is existential almost that if you have to now double click on where your bank invests and whether there's timing mismatch to your deposits, are they at risk? And that's really scaring everybody. I think that at a more macro level, we're sort of just seeing the aftereffects of the Covid hangover. And we saw a prolonged period of zero interest rates. We saw a lot of liquidity in the system. We saw some fast and loose bets being made, during that 0% interest rate regime. And now you've got a Fed which is basically taking up interest rates fast. And you're going to see the aftereffects, not just in banking, but in every single sector. But I would have thought that banks would have been able to manage risk better, long story short. And now I think you're faced with a sort of a question on whether banks that invested in crypto, for example, should they be back stopped by the government, or their depositors be back stopped? And yeah, it's an interesting time. It's reminiscent of 2008 in some respects, hopefully nowhere near as bad, where in 2008, a lot of it was banks and housing. And now it's sort of banks and technology. And I think that a lot of people have climbed all over venture capital. And I don't know, I have a fairly contrarian opinion.
Right. We're going to get into that in greater detail. Talking to people in Silicon Valley, which I'm sure you did during that time, was your sense that there were a lot of companies which only had business with SVB and therefore, if SVB collapsed, they would not be able to make payroll or was it exaggerated that actually companies had multiple banks.
No, I think it was quite the opposite. I think SVB was home not just to funds, but also to their portfolio companies and hindsight it's a great thing. But look, at the end of the day, startups, they've got a lot to worry about. It's a bit like dancing between raindrops, trying not to get wet and the last thing you need to worry about is managing multiple banking entities. So, yeah, I think most of them struggled with payroll and are still worried about when their money and how it's going to come back. I don't think it's a straightforward process.
The guarantee is there, but that doesn't mean that everything can be straight forward.
And I think right now for startup founders, I think 2020 - 2021 was very much about growth at all costs, 2022- 2023 very much about survival, runway, cash flow, margin. And yeah, cash flow is cash flow.
That's a good thing.
I agree. I think at a fundraising level, we've raised USD50mn bucks so far. Let me just put it this way, USD40mn, the 1st 40 much easier than the last 10. And investors, their LPs, everyone is looking at the unit economics and profitability with a magnifying glass and that was not the case two years ago.
One wonders whether the good thing also has some downside, which is that you do want a lot of creative destruction and free germination of ideas and very eager money. If that were to get constrained a little bit, maybe that put some dark cloud for the outlook that we won't have that many interesting things percolating through the system because the fear of failure would constrain money going in.
Yes, I mean, if you total up all venture capital globally, in 2021, it was about USD700bn. But I think it's settling at USD400bn annually, and you have got to ask yourself, USD400bn on a global GDP of USD100trn. That is your investment in innovation. And if that dries up, I think that innovation in its truest sense, whether it's climate change, whether it's health, whether it's commerce, whether it's financial inclusion, that will slow down. So, there's much larger implication than short term blame.
Right. Now, which is why, I think we have seen regulators particularly in the US not necessarily go with the playbook of just letting people who have more than USD250,000 under the bus because I think those are the concerns echoing through them to some extent. Alright, Prem, your journey. Are we going to start talking about cricket or are we going to talk about something even before that?
We can start anywhere you like. Where would you like to start?
Well, tell us about your journey. What brought you to Graas? Mind going back to say 20,22 years?
Oh man, loaded question. So, I guess my journey, to borrow from Hollywood has been, I went from Mad Men and Maguire to today, Money Ball and Minority Report.
I hope everybody got that. I got it.
Let me explain. So, I grew up very much in a marketing family. Dad was one job only all his life at Unilever. Mom worked at an agency, started off in advertising, moved into what embarrassed my father, which was something called sports marketing, managing celebrities like the likes of Tendulkar, Ganguli and Shoaib Akhtar. And he was embarrassed until the movie Jerry Maguire came out and then it became the new sexy thing to do. And yeah, I ran that. I was fortunate, had an early exit in my 20's and then went on to found tech and digital marketing companies across India and Southeast Asia and the Valley, and now very firmly sconced in the world of data and artificial intelligence but with a marketing twist. So, marketing has been the common thread, I guess that's run through my existence.
Right. I want to talk about Graas, of course. But before that, so staying with that issue of your sort of journey over the last few decades, I see that you also advise a lot of companies, and you also act as a direct investor in certain stuff. So those things are also with the marketing lens, or you do some other stuff as well.
Yeah, myself and my co-founder, we've been advising and investing in multiple startups for a few years, but more often than not, it's startups where we can add value that typically seed stage investments anywhere up to like half a million dollars. And yes, I would say marketing is the common thread because we're investing in companies that have some consumer facing business advertising included.
All right. Let's talk about Graas and let's see how that sort of culminates everything that you've been doing in the last two decades.
So, Graas actually is a sort of an acronym for Growth as a service, which is a nice play on. And very simply put, we help companies grow online, we help them grow topline and we help them manage margin. And we use artificial intelligence and automation to do it. So, we take gut instinct out of the equation, and we automate their decision making via data. We're not your typical startup. You know, Graas raised money in April 22. We acquired two software companies. Our thesis was that retail and eCommerce, and advertising are going to become one and the same thing. And our thesis from two years ago, I think it's come true. And we are going to that in a second. And yeah, I think geography is important unlike the US. When you look at a country's GDP, let's say, at a global level, the world does USD100trn, and GDP retail is probably about USD30trn. E- commerce is probably six on that USD30trn. It'll vary by country, region. But we play in from Mumbai to Manila where you're looking at a combined GDP of about USD7trn, 30% of that maybe is retail. But eCommerce is only USD200bn. And so, there's a lot of room for growth. Now, what's peculiar is that in this part of the world, unlike the US or China and the US, to do well online, you have Amazon, you have Shopify and in China, you have Alibaba, and you have JD.com. But for some reason, in India and Southeast Asia, you have a very peculiar scenario where you have some of the world's largest companies going head-to-head for two things. One is eCommerce wallet spent, the other is advertising dollars. And so, you have, Amazon, you have Reliance, you have Tencent, you have Alibaba, you have the C group, you have TikTok, you have Google, you have Facebook, you have all these juggernauts playing in this arena. And so, when players of that intelligence, capitalization and sophistication play in the same arena, the only people who lose out actually are the people selling online, the brands, the companies, the small and medium sized businesses. And so, we're here to try and level the playing field via AI.
Ok, I'm going to give you a hypothetical. It's not entirely hypothetical because I know the company. So, this friend of mine, he's trying to set up a fledgling company. It's about sports content based out of Singapore, broadcast sports content, but he has to face ESPN and the big TV networks of the world. And so, if he were to come to you and say that I have some approvals from the regulators to capture local sports content, but I have no idea how to monetize this. You know, who in Singapore wants to watch like school sports or Premier League of Singapore for football or something like that. Again, we have not prepared for this at all. I'm just completely extempore. What kind of strategy would you help a company like that do? Because you're talking about smallish companies. So, he's not doing ecommerce, he's doing content.
But he wants to, hopefully get a subscription service, and sell it to people and that sort of stuff or sell it to other large content managers in the world. So that I think is more sort of under SaaS or subscription services. And yeah, it's not easy.
Yes, it's not easy. I noticed that already.
So, you've got essentially two monetization models. You have subscription and you have advertising and sometimes you have a hybrid. And advertising is obviously based on, it used to be based on eyeballs and how many people watch. Today, it's based on how many people buy.
Correct.
Right. So, a little more difficult for a generic content operator. Like a Netflix to tie the loop between watching something and buying something. So that leaves the other business model which is subscription as a service or SaaS. Look, the reality is that in India and Southeast Asia, SaaS has just started. You literally have a handful of companies that have exited IPO or in terms of acquisition. But the important thing is that it has started, and the region doesn't have the depth of, say US. But it only started 2,3,4 years ago, maybe five and we're seeing a lot of innovation in the SaaS space in terms of our monetization model. So, my advice to him would be it's difficult. Content is just a very, very difficult business.
Very investment intensive?
Investment intensive, long payback periods and so be patient, find your niche. But you know you say this and then you have what I thought was almost impossible where you have influencers like a MrBeast who every time, they put out something is watched more times than the Super Bowl.
My 10-year-old is an avid viewer.
Kim Kardashian, another one. Every time she puts out something it's watched by more people than the Super Bowl or the IPL. So, you got to find that scale. Or you've got to go deep into a niche, I guess.
Ok. This might be a little closer to your heart. So, I recently was in Bangladesh, and we met a B2B company. They are trying to become like the original form of Alibaba, which is bring brands to their marketplace and then connect these brands to retail stores in which they have good data and information about what is the demand side and they're trying to get like say a Unilever to Bangladesh and then market their products. They probably can benefit a lot from market intelligence and user data and so on. So, your AI thread, how does that sort of feed in?
So, I'll tell you a story about how Graas started and the moment at which I thought this is now something very real and worth pursuing. I'm not going to name names, but I was talking to a very senior Chief marketing officer of one of the FMCG companies in Asia. And he said to me, if you ask me how many chocolates, I sold today in Vietnam on how many different channels, website, marketplace or how much chocolate was in my warehouse or how much Facebook or Google or TikTok contributed towards the sale of that chocolate. He said it would take me the best part of two weeks to find the answer. And I was like, wow, if a company of this size has that problem, I wonder what's happening with smaller companies. And so, we went, and asked dozens of ecommerce heads and CEOs and the response was identical, which is that it is almost impossible for companies to put all the different data sources together. They're very much in silos. So that's problem. Number one, collecting the data. Problem number two is what do you do with the data? And that's really where data science, data engineering and AI come in. So, I think India and Asia or Southeast Asia where at the start of the journey where companies are understanding the power of data and putting it all together. But I would say less than 10% of companies in this region, have understood, how important data is, how to put it together and what to do with it. So, it's very much the start of the journey.
So, I am a prime example of this complication. I recognize the value of data. But this podcast, for example, will go out on a podcast platform, Apple Google, Spotify, etc. It'll go out on YouTube and there's a DBS website in which there will be some of my clients who will come and download the podcast or watch the PDF version or the audio version. I can't consolidate all this. I cannot. So, for me, if you were to ask me a week from now, how did the podcast go? I'll be able to give you some isolated answers about how much download was done through a specific platform, but I will not be able to consolidate. It'll take me also hours.
But you're not alone. I mean, a lot of people won't admit it but they're in exactly the same position. I think that if you again pull back for a second and you look at what's happened over the last 20 or 30 years, I think that there have been sort of 3, 4 mass mega trends. I think thanks to Nokia and then Steve Jobs, I think mobile and mobile internet to be specific was the big theme in the 2000s. I think that somewhere in the succeeding decade that mega trend became the cloud. And then I think the next trend is AI. There was a smaller, maybe trends like crypto and web3 and the metaverse and who knows how that will play out. But I think that AI is the next mega trend and you're seeing with ChatGPT and all that. But I think it all begins with putting all the data together and that's really what Graas does. We're helping companies put their data together, we're helping them make decisions based on that data in real time. And we're taking gut instinct out of the equation and automating a lot of those decisions.
So, you are at the cutting edge because I think that's a big hold right now. But even in my podcast example, technically speaking, it's all out there, but I don't have a neat set of APIs or a consolidator out there to give me a full picture at any real time at a given moment. Ok, so that certainly tells us a bit about Graas and you talked about your fundraising round. So, congratulations on the USD50mn fundraising. So given that companies right now are going to be struggling either in terms of higher cost for the availability itself. Give us a sense of the startup scene. Maybe not just what's happening right now, but overall, I mean, are you excited by South Asia and Southeast Asia startup scene right now?
Yeah, I meet about 100 maybe 50 to 100 founders every month across seven countries that we operate in. And it is hot. And the innovation that's happening honestly, it's for me, I'm 48 years old, I haven't seen this volume of innovation happening at the startup level. But I think that what's happened over the last couple of weeks is really worrying because if venture capital dries up, what happens then? I mean, at the end of the day, I have a question for you, I mean if you were a billionaire and maybe you are.
Good one.
But if you were a billionaire, would you rather put your money into a fixed deposit at 5% or give it to a venture capitalist in the hope that he could return 20% IRR, triple your money for in five years. It's a tough call right now. And so, my question to you is that I don't think most founders or if any founders have ever seen a global situation in which interest rates may remain between 5% and 10% for the next five years. What happens?
I don't want to come across as utterly pessimistic because, you know, I am with the founder, and I know founders tend to be optimistic. But in this particular instance, I have no way of sugar coating the answer. The choice that you mentioned, I think the answer is very clear. It's the 5%. The zero-rate environment enabled a lot of things that you and I think will agree that whether there was excess or not, it created an unleashing of capital to all sorts of projects. And that was even if there were excesses, it had an overall positive impact to your point that, you know, the scene became hot and there are all these dreamers and thinkers and entrepreneurs, bringing their thoughts and ideas together. And there was a flow of capital that was available for them. It's going to be difficult. I spent earlier today talking about the impact of the SVB collapse. And we can talk about a wide range of impacts. But the bottom line is it translates into higher cost of capital. And the higher cost of capital changes a wide range of calculations in terms of RoE, in terms of margin and so on. But that takes me back to my question for you.
But I have one follow up question. So, the flip side to that is that valuations have halved. It's a great time to be investing in younger companies. And so, 5% versus a curated list of investments that could be the home run. It's not that easy a call, right?
So, I met an investor who's on that camp yesterday and that investor was basically saying that, you know, but it was not your typical, it was a family office. They've been successful, they have a lot of cash, and they rather bluntly told me that they're waiting for the crash because they want to deploy capital and they want to buy a lot of things to your point because they felt that the valuations were excessive in recent years and they don't think the valuation adjustment is done, but they have a lot of dry powder and they will deploy it. My response to them was that if there are many people like you, then maybe the valuation will not go down much further because people are sniffing around and looking for value.