Two questions are important. How do you convince people in India and abroad to give you money for your fund? And after you are done with that, how do you make money? For yourself and your investors.
If you’ve ever done either of these tasks before, you’d have a rich experience — stories to tell — of the people you’ve met, conversations you’ve had, the singular moments of the pitch and the follow. A while back, I reached out to Karthik B. Reddy, the co-founder and managing partner at Blume Ventures, to check if he would be interested in chatting about his experience. This was around the time Blume Ventures closed its Fund II, having raised $60 million. Karthik agreed; sure, let’s do this.
What follows below is an edited transcript of two, very long chats. The conversation is candid and thoughtful. Karthik’s candour is evident, in parts where he talks about the herculean task of setting up a venture capital fund in India, especially when raising money from domestic investors, the taxation quagmire and the odds a VC firm is up against when it comes to delivering multi-bagger returns. The choice of subject is important. Blume Ventures was the first VC firm in India to have raised 100% of its money from domestic investors: Rs 100 crore. Karthik’s perspective is a fresh break from the platitudes espoused around VC firms and the art of deal making. The conversation is also interspersed with observations and data from this writer to put some of Karthik’s points in perspective.
I have to begin with a few words about Karthik. The first time you sit face to face, across him, for the first few seconds, his smile throws you off. Because it is not a genuine smile. It starts with a slight contraction of his eyes, then his lips spread, he opens his mouth, just a little bit, he puts himself at ease, the head settles back on the chair and a full, brimming smile appears, seconds later. You almost assume Karthik is about to say something funny…
Karthik: So I was meeting this very large family office. People will take issue with me for naming names and I don’t want to do that. But a large family office in Kolkata. The patriarch came and sat. It is a ‘baithak’. (Like a sit-down.) Some of these meetings are like this, so, there are eight guys on the other side. Patriarch. Son. Grandson. Uncle. CFO. A white man, who is a consultant. Everybody is sitting. I am with the wealth manager who took me to the meeting.
This is Fund II, not even Fund I. In Fund I, I have done this 500 times. Even after establishing ourselves with Fund I, we were a marquee fund and which is why we were being presented to this family. So, they said, “aap bataiye, aapka tax lagta hai.” (Tell me, does one have to pay tax?) I said, “yes”.