A VC's Guide to Managing Startup Finances | Manoj Agarwal from SeaFund

[00:00:00] Rahul: Welcome back to Understanding VC. I'm your host Rahul. Understanding MBA on a single subject, venture capital. And today I'll be having an in depth conversation on why it's important for startups to manage their finances with Manoj Agarwal. Manoj is a co founder and managing partner at C Fund, an early stage VC fund based in India.

[00:00:18] Rahul: And he has more than 25 years of experience in setting up and managing businesses, projects, M& A, fundraising, and business strategy. And let's talk to him.

[00:00:26] Rahul: Hey, Manoj, thank you so much for joining me today.

[00:00:30] Manoj: Pleasure, uh, Raul, uh, looking forward to this. we've been working on this for some time and, good to be here with you.

[00:00:39] Rahul: Yeah. So as a founder, you know, I hated looking at, finances, but one of our earliest angel investors, he forced us to make a budget and look, um, forced us to look into finances more closely.

[00:00:53] Rahul: And then once you do that, you quickly realize how important it is to, for startups to manage their finances [00:01:00] and look into it more deeply. How important do you think, Is it for startups to look into and manage their finances? I think finance

[00:01:11] Manoj: as a subject, you know, is very critical and important for any startup at any stage of their journey, other than their core product or technology which they are developing.

[00:01:29] Manoj: Because ultimately, if you don't manage your finances well, You know, at every stage you can go wrong and whatever good work you have done can fail. So finances, managing finances should not become a reason for your failure. Making a budget, following the budget, tweaking it. If required, you know, you cannot always go right, you know, initially when you make your budget, but understanding it, you know, step by [00:02:00] step process and then probably looking at it at every stage, you know, say every three months and see if you need to tweak it, following it To a large extent is very critical in that journey, irrespective of the stage, though the way you do it might change, right?

[00:02:19] Manoj: In every stage of your journey.

[00:02:21] Rahul: Yeah. Yeah. So how does it change? so when you're an early stage startup to like at the different stages of fundraising, right? Like at Seed or CDJ or beyond, how does the, the managing of finances evolve? So

[00:02:38] Manoj: while managing finance by itself, As the overall component remains the same, but the specifics keeps evolving.

[00:02:45] Manoj: At an early stage, you know, you have limited money available, say pre seed to seed stage. In many cases, you are pre revenue. You are, you are largely building a product. [00:03:00] So you have clarity to some extent on the money available with you, what you have raised, the timeline, the window, the runway available with you, say, 18 months, you expect your product to be ready in, say, 9 months or whatever, 12 months.

[00:03:17] Manoj: And you want to get into early revenue stage where you have early customers. So in this journey, you are largely building a product. So, you know, the team required, the cost is largely manpower or in some cases, you know, like these are deep tech startups, they need equipment, material, they need, they probably have access to some of the labs where they work with.

[00:03:43] Manoj: So they have to get down to the specifics, understand what they will need in this journey over this period and probably keep re looking at it every few months or three months and see if they've gone overboard or they need to reduce somewhere or they [00:04:00] need to raise capital at certain point. So if you're on runways for 18 months.

[00:04:04] Manoj: And if your product journey has, you know, evolved, you know, if you have not been able to build what you were supposed to build, you have to relook at it, or you have done it early, you know, you can get early customers, you have to look at the situation then and then plan your next fundraise well in time.

[00:04:26] Manoj: And sometimes if that is becoming a challenge, if you're taking time, depending on the scenarios, the funding scenarios, you may be doing everything right, but the market is looking at things differently, then you probably have to work on extending your runway, right? Reducing costs wherever you could, you know, working with the teams.

[00:04:46] Manoj: So you have to keep your teams engaged, you know, and though you can't share everything, but they should understand where are you in your journey.

[00:04:55] Rahul: Yeah, for an early stage startup, [00:05:00] this is very important, right? Looking at finances because it helps you operate very efficiently and, with, with high productivity and you don't have like a lot of room to be inefficient or taking.

[00:05:13] Rahul: unnecessary sort of risk. Otherwise you go bust. Right. So, what, what do you think are some of the other reasons, why managing finance is important? So I can think of couple. One is like, yeah, like I said, improving the productivity and efficiency. The other thing that I thought was like, if you really know what your unit costs, unit economics and things like that, it helps you grow sustainably.

[00:05:40] Manoj: Yes. So, you know, The whole managing finances within that efficient financial management, where you are, you have, you have the money you need in your journey. So that is out of your way, that tension. So, you know, many times [00:06:00] founders are always, you know, planning on raising capital while that is an important function, but there should be a gap between two fundraisers and And founders should have enough time to build their products, companies and all.

[00:06:16] Manoj: So that, planning is in place and you're following it to the T and you are able to execute the plan along with the financial stability. It helps you manage efficiently. Your productivity certainly improves because. You know, otherwise it takes away your time, it takes away your energy. You're sometimes running, meeting investors, you're talking to people to raise capital.

[00:06:42] Manoj: So I think that becomes a very critical function. And also, if you are able to do things efficiently, like, you know, you can raise capital, you can go and hire a fancy office. Which you may not need. [00:07:00] Like I was with a startup a couple of days back and they were in a very expensive office. And I thought that probably is not required by them.

[00:07:09] Manoj: Because they're, they're not really so much outside world facing. And we said, you know, you can be in a more decent office. It will probably cost you half. And, you know, comfortable office, you don't have to compromise on the comfort of people. But sometimes locations and things like that can change the cost and all.

[00:07:28] Manoj: So I think things like that where you spend money is also very critical.

[00:07:32] Rahul: Yeah.

[00:07:33] Manoj: You know, budgeting it right is very critical, which can take away that, you know, extra pressure on you.

[00:07:40] Rahul: So if you, if you know all this, it also helps you sort of, raise the right sort of, uh, fun of funding, right? Whether it's equity or debt or whatever, if you are like on top of your, finances.

[00:07:53] Manoj: Yeah, a hundred percent. I think, People, investors, I mean, we don't expect founders to be well finance [00:08:00] experts, but a good understanding of finance, how they have been managing their investments, their expenses during their, you know, growth journey, product building journey. You know, sometimes, simple things like, you know, you need as part of your, you know, product development, you need a certain set of equipments, which you can go and buy expensive equipments, or you can go and access labs, right?

[00:08:25] Manoj: Yeah. There are enough, uh, Facilities available or sometimes when you are building your prototypes in case of hardware, how efficiently you can do that matters, right? You know, because if you just go and buy things, they can be expensive, but efficient planning is very important there. So it is, you know, not just finance management, then it comes into like procuring it right, which again, is an extension of same function.

[00:08:54] Manoj: Yeah.

[00:08:58] Rahul: And, what do you think [00:09:00] about, the compliance side of things? If you, if you're on top of finances, you sort of reduce all the compliance risk,

[00:09:07] Manoj: So compliance, is a separate function in a way while it probably comes under the same umbrella if even if you manage your finance well, but compliances require you to follow the rules, properly, you know, like in the Indian context, we have, secretarial, requirements.

[00:09:30] Manoj: We have, Income tax requirements. We have various labor laws requirement. Sometimes, it also depends on the sector you are. FinTech startup, there are RBI regulations, which you have to follow. So good understanding of the compliances your business needs to follow. So they're set of standard compliances, which every business has to follow.

[00:09:49] Manoj: And they're set of specific compliances. Which a particular nature of business has to follow, depending on what you are doing. So a good understanding [00:10:00] of that, a fair understanding of that, you may not know the specific details. And having the right people around you to help you do that, and doing that on time is very important.

[00:10:11] Manoj: And it is also important in your fundraising journey. See, when you go and raise capital, you know, VCs or whoever it is, they do diligence. And if things are not managed well, if your finance, your reporting, your compliances, you know, is not managed well, if you're not done it right. You know, you might lose that opportunity and sometimes that delays the whole process.

[00:10:36] Manoj: So according to me, a lot of times I see founders completely neglect that when they set up. Well, I understand that the focus is on building the product, but there are basic compliances, which is very important. And what I also see sometimes they have gone to professionals who probably have also not helped them, right?

[00:10:59] Manoj: So getting the [00:11:00] right professional, probably talking to your advisors, your other founders, who have worked with such people, getting the right professional to assist you also is very critical in this journey. Yeah.

[00:11:14] Rahul: Yeah. So as a founder, I neglected it. So from your experience, like What percentage of, founders take this seriously?

[00:11:23] Manoj: I think, it's improving, but probably a very low percent, you know, 25, 30 percent in the early stage. You know, when they start, but I guess, you know, as they go into the journey, it does become, important. I've seen some of our startups, you know, some of our founders are very particular. They do regular compliances.

[00:11:43] Manoj: They have the right company secretary and, you know, CA's on board. they do regular board meetings, which again is, you know, very critical that you, you know, though, as investors, we keep talking to founders, but a formal Regular board meeting also becomes very important, [00:12:00] both as a compliance process and also from, recording developments and, you know, taking the right approvals as required by the law.

[00:12:09] Rahul: Yeah. And you mentioned about the, the, the compliance process. the startup that's in a fancy office, right? I kind of feel that, if you operate under constraint, in a frugal way, you build up some sort of competitiveness because then you can, you'll strategize better, you will allocate resources better.

[00:12:30] Rahul: And then you'll be also, and if you're really looking at your finances closely, you'll be more guarded on all the external risks that you might have. So I kind of feel that if you operate like that, then that becomes like a really great competitive sort of, advantage that is startup.

[00:12:51] Manoj: So yeah, in a way, yes.

[00:12:53] Manoj: You know, if you have, You know, so it's not just about a fancy office. It's about so many things, [00:13:00] right? You know, throughout the culture, the culture of, yeah, you know, always, see you, if you have raised capital, you are not a profitable company, then you are building something using Somebody else's capital, which is fine because that is how businesses in, in this world has been built, especially in the startup ecosystem, but then using it right because we're critical.

[00:13:27] Manoj: So it is not that you have received, you know, sometimes tens of millions of dollars in funding, so it can be just splashed. We have seen that startups also go on a hiring spree, so you should also have people as required. Sometimes just having too many people may not help you. You should understand what are your people requirements?

[00:13:48] Manoj: People are important. They're the most important, you know, component or the, you know, element of this journey, right? You need good people, but you need right people. You, and you [00:14:00] should have the right, number of people whom you need, in this journey. And you should hire as and when required. Yeah. You should do planning in place when it comes to using resources like, you know, office, equipment and things like that.

[00:14:16] Manoj: While you should not compromise on comfort level, but should not go overboard there, you know,

[00:14:21] Manoj: You need to give enough, you know, good working environment to your employees, which is fine, but they also understand that they're working in a startup, which has a long way to go. So people understand that.

[00:14:34] Manoj: So you have to find the right balance there. And today with, you know, what has happened post pandemic, you know, Flexi working, people working from home, a lot of our startups are now, you know, You know, working the full teams are working from home. They meet once a quarter to get to know each other to share experiences.

[00:14:55] Manoj: Those things are also helping in, you know, reducing those cause those some costs to get [00:15:00] added there. Also, you know, the security, the compliance is that has added another element of, you know. You know, technology layer, which you have to ensure that, you know, you, you are in a secure environment. Your product is being developed in a secure environment.

[00:15:18] Manoj: So while that complexity has got added, but then it gives you flexibility to some extent productivity tools have become important. So that again, becomes part of your compliance regulations and all that journey, you know, people also have issues there in terms of work hours and so yeah, overall, I think comfortable environment is important, but luxury is not.

[00:15:47] Rahul: Yeah, I think, after 2021 with the whole, um, there were, there were startups in India that was offering like a BMW bikes and, things like that as [00:16:00] a signing bonus. And there was a lot of, a lot of, people getting very inflated sort of salaries.what do you think of, such approaches, especially from, like you said, startups who are not like profitable?

[00:16:12] Manoj: Yeah. So unfortunately, yeah, well, I'm not aware of BMW bikes. I would like to probably I would have joined one of them, but, coming to inflated salaries. Yes. While, you know, you need to pay people as per their capabilities, but then in the startup ecosystem, when people come and join, they are aware, you know, they're taking a journey which has a different path where success will mean much more.

[00:16:42] Manoj: So that is where ESOPs come into play. So especially at the early stage, an early growth stage, it is very important for startups till they have achieved sufficient revenue to hire people efficiently, right? They should offer them an upside so that if things go right, [00:17:00] you know, they, and we have seen that people do, you know, work in that situation.

[00:17:05] Manoj: We have seen some very good people working with, you know, as part of the early founding teams and joining them early. Who could have earned like four times, five times or much more, but they enjoy doing it. Soon. Those are not easy to find people, but I think founders who are able to find such committed people end up building good products and good businesses.

[00:17:29] Manoj: You know, that becomes very critical at the early stage. Similarly, the tech salaries had gone over, over the roof, you know, Which put a pressure on a lot of startups, see the growth stage, startups, which had raised a lot of capital where like hiring people and putting them on the bench, you know, they, they were afraid that they'll not get people, which was in turn putting pressure on the early stage startups because they were not able to pay those kind of salaries.

[00:17:59] Manoj: So [00:18:00] they, they found it difficult to hire people in a way that situation seems to have corrected a little bit now, you know, which is good thing. I think that kind of a situation where people go overboard on hiring just because you have raised a lot of capital does not mean so that is where again, the, you know, managing financials efficiently.

[00:18:23] Manoj: So you end up burning your capital. Till you have reached, even if you have raised a hundred million dollars, you, you will burn it very fast till you have reached your profitability or, you know, path to profitability, whatever you call it.

[00:18:37] Rahul: Yeah, that's the thing, right? Like for startups, it's not. It's not enough to do just, product innovation.

[00:18:44] Rahul: There's also need to be distribution innovation and also team innovation, right? Like, how do I find clever ways to find people at, you know, reasonable cost so that, you know, they can grow sustainably. And, uh, the point that you mentioned [00:19:00] about managing your finances, even for managing the team, what do you think, like, what is the role of managing finances when it comes to the team?

[00:19:09] Rahul: Improving the team morale and also retaining the team.

[00:19:12] Manoj: So, yeah, I mean, uh, see to retain people, to have people working for you without any worries. It is important that they know that, you know, month on month, they're going to get their salaries because, you know, whether they are youngsters or whether they are young, young families, they need that safety.

[00:19:33] Manoj: They, they may be okay with being paid less. But they need that certainty and safety. So founders role is very important in communicating that, you know, we have this available for the next, whatever, 18 months. And, you know, as they go into the journey, maybe a communication in that regard. How is the company doing?

[00:19:58] Manoj: How are the numbers working [00:20:00] out and also working with them if they need to tweak it like, say, if you, for example, you realize that you need to manage your, you know, expenses better and your fundraising is getting delayed, say, at the next stage, then you, it is better to go and talk to the teams in advance and see if you can, you know, Take their help in, you know, increasing your runway sometimes, you know, you know, probably I while you can call it salary cut, but, you know, some salary adjustments can be done, which can be paid later.

[00:20:35] Manoj: Maybe some ESOPs can be. brought in, but teams are happier knowing this well in advance than being told suddenly they're in trouble. So then if they sense trouble, they may look at opportunities, they may move out. So we have seen this happening with a couple of our startups where, you know, we told them that, you know, talk to your team, you know, since you have this [00:21:00] runway, you're raising capital, may get delayed a little bit because of the environment.

[00:21:04] Manoj: So please do some salary adjustment, cost adjustment, and sometimes you may have to let go people who probably are not, you know, at that time, critical in a good way, you know, which again, you know, rationalizing the teams becomes very important. But ultimately, you have to ensure that the company survives, right?

[00:21:26] Manoj: Companies above everybody else. If the company survives, everybody benefits, right? The founder, the teams, and everybody else. So I believe in that company first approach, which is beneficial to, to all the, you know, stakeholders. I

[00:21:42] Rahul: think that's the only approach that matters. Right. Yeah. So see, but the, the problem is like most of the founding teams does not have a finance background, right?

[00:21:54] Rahul: So

[00:21:56] Manoj: like, except for some CAs who have become founders.

[00:21:59] Rahul: [00:22:00] Yeah. Yeah. So how do you think, founders can get started and what are the basic things that founders should pick up as soon as you start building a business?

[00:22:10] Manoj: So, yeah, so, you know, especially when we as investors invest in a company, we try to bring that learning, that value to the founders.

[00:22:23] Manoj: So I think, having the right advisors can help you taking help from investors can help you if you are not strong in that. And sometimes you may feel, you know, but you may not know everything, right? So even while you have the professionals guiding you. See the company secretaries and the chartered account and all of that.

[00:22:41] Manoj: But it is good to, you know, work with your advisors, your investors to understand that to go to them when you have a problem or rather not wait for the problem to probably sit with them. And we do that, you know, we try to do with. With specific set of founders, some of them probably [00:23:00] been have done that already, or some of them understand because they come from corporate backgrounds, you know, they're experienced enough, so they would have done that, but still, you know, sometimes the corporate backgrounds, the corporate finances are managed very differently.

[00:23:17] Manoj: So, I think this learning is important. These things cannot be learned in books, right? They have to be understood from experiences of people. So, I think working with your investors, working with your advisors becomes very critical to understand that.

[00:23:34] Rahul: And for any business, what are the sort of basic metrics, financial metrics that they should be looking at?

[00:23:40] Manoj: So, you know, there are a number of things which one should, one should have an annual budget in place, which is probably the most important document every year. Probably have a broad, you know, two year, 18 months, 24 months plan while you can have five year, 10 year, but that doesn't [00:24:00] work in the startup ecosystem.

[00:24:01] Manoj: But at least for the next, you know, till you are go to your next round, at least. a broad plan for that and now a detailed plan for say next 12 months. And then you kind of monitor it on a month on month basis. Where, where are you? Depending on whatever stage you are, I think this becomes important to revenue earning also, are you meeting your revenue targets?

[00:24:27] Manoj: Then things like cost of goods sold. Cost of services sold. You know, whether you are a, if you're a consumer product company and you have, you know, non-software product, you have cost of, you know, making or buying or whatever. So understanding that, so is that as per the plan, so where is it got wrong to get it right or, you know, change the budget accordingly.

[00:24:52] Manoj: Similarly, your co you know, overall. I would say in a SaaS kind of a company, people cost [00:25:00] is under, under your main cost. So where are you, you on that? And then, you know, demarketing different set of people, like, you know, the R and D kind of people, what are you? Spending on product development. What are you spending on support and services?

[00:25:16] Manoj: What are you spending on your ancillary services in terms of people also becomes very important. Today, cloud costs have become very important, especially in technology companies. So managing your cloud costs is very critical. I have seen situations where, you know, even a pre revenue company started spending a lot of money on cloud where there were ways to manage that better.

[00:25:41] Manoj: You know, so sometimes when they have money in the bank, they lose focus on that. They feel it's part of their necessary cost. It is, but there are today plans available, you know, to reduce that for a certain, you know, extent of time. So I think [00:26:00] costs, management of costs is very important. Then, you know, where are you in this journey when it comes to, you know, revenue?

[00:26:11] Manoj: So understanding your revenue growth is also very important, you know, and are you, one, one challenge which people face in new products is how much to charge exactly, you know, that is sometimes you either undervalue your product and you charge way less. Sometimes you're asking for too much which people are not willing to pay.

[00:26:37] Manoj: So that, I would not say that investors are the right people, but there will be, you know, that you will have to probably do some research, work with people who understand that, work with, you know, initial set of customers to get that right. So, and monitoring this, these metric on a regular basis, you know, [00:27:00] your cash flow, cash in the bank, Receivable management becomes very important.

[00:27:06] Manoj: You can't, especially in enterprise sales kind of a situation, you sometimes don't get money for 90 days, so you have to manage that well. They are, in Indian context, there are today, you know, regulations in place to help you that, right? You know, the MSME regulations which, you know, government has put in place which insists that, they should be paid within 45 days.

[00:27:31] Manoj: If enterprises don't pay, then they're penalized, right? Right? So that way, those, those things are in place, but you should also monitor that. So the whole thing, you know, your cashflow management, your PNL becomes also very important. Okay. If you're burning also, how much are you burning? How is the movement in that burn?

[00:27:50] Manoj: You know, your revenue, difference of your revenue and expenditure, whether it's positive, negative, and what, what, what kind of [00:28:00] revenues you are earning. Sometimes you get this one time revenue, which is not recurring. So. Probably not really part of your MRR, ARR in, in the right way. Because typically startups are, you know, in the technology phase, either a product company, whether it's SaaS, whether it's a hardware, so they're, they're not project companies, right?

[00:28:24] Manoj: So they don't have these one time revenues, mostly. Once in a while they may have. So the, that regular fund rate becomes very important monitoring that. Yeah.

[00:28:33] Rahul: Yeah. What you mentioned about cloud cost and also the R& D cost and the pricing, when you, these are all very difficult, especially for software companies.

[00:28:45] Rahul: And I've seen, where software companies have started that I've worked for have like very low margins because of the cloud and R& D cost and they're charging not enough.and this is this, I [00:29:00] think this can only be fixed through experimentation and really testing, in

[00:29:06] Manoj: the market. Right. Especially with the AI companies now, I mean, that kind of data they need to have, you know, that probably will, that major cost will probably be cloud costs, right?

[00:29:19] Manoj: Yeah. So which will become, while you may on paper have those huge margins, but understanding that So you have to probably reach a certain revenue scale to utilize that data.

[00:29:32] Rahul: Yeah. And,you mentioned earlier also that, you know, it's important for startups to report these metrics, to their VCs so that they can also help.

[00:29:43] Rahul: so from a VC perspective, so by one first question is like, how important is like reporting your finances to VCs on, on,consistent basis. And then what are some of the mistakes that you've seen personally that startups make in terms of [00:30:00] what they report or, or frequency?

[00:30:04] Manoj: So yes, we, we have had, different, you know, situations in different, startups, but typically what we look at and what we prefer is that certainly quarterly financial data should come in, but, what we also look at is some kind of a regular monitoring of the, You know, sales, what is happening with the revenue numbers, cash flow.

[00:30:29] Manoj: So we, we look at starters putting this data on the cloud, you know, and which we can have access to. So where on a regular basis, it gets updated. Certain businesses allow you to do that. So where we are aware of exactly, you know, what is happening at any point of time. You know, how many customers are there, what is the run rate, what are the expenses incurred, you know, expenses where probably it's more many times routine nature, which are updated [00:31:00] and probably the some tweaking can be done month on month.

[00:31:04] Manoj: So that kind of regular cash flow monitoring, which includes revenue expenses becomes very important. And then some kind of monthly MIS. Which we designed for each startup because each has its own requirement is important for investors to understand and then tracking the performance vis a vis the budget, the numbers projected, and then doing this quarterly reviews also detailed reviews on a quarter on quarter basis to cash flow monthly MIS, you know, quarterly PNLs and things like that.

[00:31:42] Manoj: In terms of, how startups are managing, you know, it is certainly very different on, you know, case to case. Some suddenly do this very well, they're put in place. Processes sometimes with our help. Sometimes the other set of investors also [00:32:00] work with startups. So where we are able to, you know, get access to that.

[00:32:05] Manoj: And so we have that comfortable. Sometimes we have seen kids very difficult to get this out of founders. They don't. To the extent that we literally have to play a hard ball, which is not what you want to do, you know, to get those out. And we have seen that, you know, also the understanding of numbers, you know, is very important.

[00:32:28] Manoj: Sometimes what you get to hear, you know, they feel they're doing good, but the way they have projected the numbers or put the numbers may not be right. So you to probably do a deep dive and get that corrected right.

[00:32:43] Rahul: Yeah, it would be great if you could share one example of a startup that's doing well in your experience and one example, one bad example.

[00:32:52] Manoj: So, well, in terms of doing well in their, managing,

[00:32:57] Rahul: Managing finances and also reporting [00:33:00] and communicating to you as an investor.

[00:33:03] Manoj: So, yeah, I mean, there are a number of them, but, let me, so there's this startup of ours, which, you know, they have these financial metrics on the cloud. So, which they, you know, including their customer data, or, you know, they are in a business, which, you know, you onboard customers on a daily basis, right?

[00:33:27] Manoj: So, where we, they are a front end, so where we know that, you know, who has been onboarded, what is the revenue, what is the margin they've made. And suddenly their cap, their expenses are captured. They follow compliances also very well, you know, they have the right professionals on board. So, you know, so there's that comfort level that, you know, what is being reported is correct.

[00:33:54] Manoj: So sometimes you may see a number, but whether it is correct also is important. [00:34:00] Then there's an extreme case where we probably. They also defaulted on their, you know, filing, right? So when the numbers were not regular, we had, like I said, you know, play a hard ball, but then beyond a point, it becomes difficult.

[00:34:17] Manoj: So sometimes there are issues when founders have issues, you know, these things take a backseat. There are these extreme cases of somebody probably delaying the filing of, you know, statutorily returns to. a case where everything seems to be, you know, going smoothly. We know specifically, and sometimes if you ask them something, you know, this is how you have access to it, you know, you, so this is where the link is.

[00:34:46] Manoj: So, you know, where you, you are not worried about those aspects.

[00:34:54] Rahul: Yeah. Has there been a case where, you've not, because of financial compliance risk, [00:35:00] you've not. Invested in a startup or one of your startups have, you know, gone bust.

[00:35:08] Manoj: there was a case in which, we had kind of, signed the term sheet, and when did we did diligence, we realized that, and these were, you know, founders who came with good pedigree, you know, good background and not too freshers, not like early, early founders.

[00:35:28] Manoj: These were founders with some experience. But their finances were in a mess when we did diligence, and their, Compliances were in a mess. Their GST reporting, GST payments were not made. Their income tax return was not filed. So we took a call not to invest because, you know, though we like the business, but we, while we could have got that corrected, but what was important was to understand that, you know, you know, yes, like I said, when you're building a [00:36:00] company, sometimes you feel that is more important, but then these are things which actually don't take that much time.

[00:36:06] Manoj: You, if you have the right professionals helping you. So somewhere we felt that that commitment was missing to do it right. So we took a call not to invest. We've also seen it, sometimes in, you know, one of our companies where it was not, probably the intention was not, to, you know, cheat anybody or something like that, but that focus was not there.

[00:36:30] Manoj: The commitment to do, you know, to keep things or books in order was not there, but then, but when you are inside the company, you can push and make it happen. Right. But when you're not part of it, you can't do that. So, so there, there are these situations, you know, where you take a call not to invest, you take a hard call.

[00:36:52] Rahul: Yeah. And, what do you think are some unexpected sort of financial challenges, that startup might [00:37:00] face?and how do you think, you know, Startups can mitigate or navigate them.

[00:37:07] Manoj: So financial challenges are part of any startup journey, right? You know, at every step in a way, I think. So today there are ways to, you know, for example, if you're an early stage startup, you know, You've raised some initial capital and you've gone on to build the product, but then your next round is becoming difficult.

[00:37:33] Manoj: Now, in some kind of businesses, it is, it is possible for you to cut down on the expenses. You know, probably raise some debt. There are institutions today available, like, you know, government institutions who have started, you know, like in one of the states we work with, the state financial corporation have supported startups in such situation, as long as they have some revenue, right?[00:38:00]

[00:38:00] Manoj: So they, so in those situations, you can get those support. You have to manage your money, right? And you can sustain for a longer period. There has been examples. If you see of startups who have come out of, you know, their shell after six, seven, eight years and gone on to build large businesses, I mean, they were literally written off, you know, people didn't even know some early investors put money say in 2012, 13.

[00:38:31] Manoj: And they went probably till 19, you know, and suddenly they saw the Traction building up and their business started growing, especially in pandemic it happened and where then new investors came in. And if so, I believe that if there is a good product, sometimes the time may not be right. And if you can sustain for a period.

[00:38:56] Manoj: You know, every business cannot be a rocket ship, right? We [00:39:00] have seen these businesses, which, you know, raise hundreds of millions of dollars and become a unicorn in three years, five years, and all of that. Those are rare examples, right? But, business, startup is a business, right? And sometimes there are products and services which take time to, you know, for you to go to the market.

[00:39:21] Manoj: But if you are aware, if you understand that, and if you are convinced you can lie low, you can build slowly, sometimes, you know, you have to take debt. You may not get, or you have to find individual investors, keep your costs low, you know, and you may have examples from the dot com bust era also of starters with, you know, make my trip is a famous example, which, you know, raised a lot of capital, you know, lied low, went back to the garage and then became a very successful venture over the years.

[00:39:56] Manoj: And there may be many such examples. [00:40:00] So doing that is very important, you know, as long as your product has some revenue, some sales, you know, but then there are these deep tech startups today. So if you're building a rocket, there is no way you can build it without sufficient capital support. Yes, they're also able to be careful, but in that, what becomes very important in those situations is every step of your journey.

[00:40:29] Manoj: You should. Look at the outcome, right? See, if you have raised 2 million, what are you achieving out of that 2 million? Are you building an engine or something which, which will achieve something, which, for example, if you don't raise any capital after that. Will that IP or that product have value? Maybe you can realize some value out of that.

[00:40:54] Manoj: Today, there are situations where people, you know, [00:41:00] do acquire hire, right? Where they hire you for what you have developed, you know, and the product. And sometimes investors also get back their money, which is a good situation if you are able to do that. It should not be that you only when the final product is built, it should have value.

[00:41:18] Manoj: You can create IP, you can create technologies which can have value in your journey, even in a deep tech startup.

[00:41:26] Rahul: Yeah. I mean, one final question. This is just to reiterate how important managing finance is. Have you seen any startup get away with not managing finances well for long?

[00:41:39] Manoj: I don't think so. I don't think that I am not aware of such, but, you know, we don't know the inside stories.

[00:41:48] Manoj: We have seen, you know,many situations where it has come out in the open. And one of the factors was not managing finance as well, whether it was [00:42:00] done purposely or it was done unknowingly, whatever it is. But these things will, managing finances, whether you are a startup, whether you are a large corporation, you know, at some point you will get stuck, you know, so you have to manage your money well, you know, in the right way.

[00:42:21] Manoj: You may get away with some, splurging of money here and there, but, not by, you know, not doing it right, you know, overall financial management and finance compliance, regulatory compliance, these are very important, you know, in your journey, along with your IP protection, legal, and all of that.

[00:42:45] Rahul: Yeah, this is great.

[00:42:46] Rahul: Thank you so much for taking the time to do this Manoj.

[00:42:49] Manoj: Thanks, Rahul. It was a pleasure. You know, you know, I hope, people who listen to this, get to learn something and probably if, [00:43:00] and probably follow the right path.