Rajeev Chitrabhanu is the CEO of JM Financial Capital and the Managing Director and CEO of JM Financial Services. Born and brought up in the United States, he has spent his formative years working for corporates in the US and then worked in Europe after which he moved to India.
He has led the IPOs of several of India’s largest companies such as Tata Consultancy, Maruti, Citibank’s – Iflex, Bharti Airtel to name a few. He is one of the earliest and most successful angel investors in India; investing in companies like Nazara – India’s largest gaming company, Safari Luggage – fastest growing luggage company, Rento Mojo – India’s largest online consumer rental company.
Additionally, he serves on the board of Manipal Cigna and has served on the advisory board of a few global private equity funds like TPG and Bessemer Venture. He has also been advisor to the US-India Investors Council.
Avant Shrestha of B360 caught up with Rajeev Chitrabhanu on his visit to the Himalayan nation for the NEXT Growth Conclave 2018 and talked to him about the challenges and opportunities of Nepal’s entrepreneurial space.
What brings you to Nepal?
I have done a couple of trips to Nepal in the last two years. I am a big believer that the macro economic indicator that you tend to see are not actually lead indicators but they are lag indicators, which basically means that they eventually show up later. But I see the change happening in the consumers of Nepal. I see Nepal’s young population today have more disposable income compared to the past; all of that goes to consumption. So I see a lot of consumption happening by this young population and lots of these tend to happen in term of improvement in lifestyle. So lifestyle FMCG, food, entertainment and media; those are the things that I think will be benefitted by the young population.
And additionally you have the influence of digital marketing. Statistically in Nepal, let’s say almost 10 million people are on Facebook and 5 million people on YouTube and that’s quite a lot out of the 30 million population. And even if we minus the older population, it will still be about 30% to 40% of the entire population. You have a mobile penetration of 125%. So all of these factors make me believe that the pace of change is going to be much faster and this as an entrepreneur excites me.
We have access to information like never before but are we able to consume all the information that comes our way. Why is that?
I think the first big challenge is information overload. You have a smartphone in front of you all day and it’s feeding you with so much information. Plus, the more sectors you are interested in, the more information you need and it is not only to keep abreast of in terms of what is happening in that particular sector but also the pace of disruptive innovation is so fast that you also need to keep track of all the changes that are happening or that are expected to happen in the next couple of years. So sometimes all this information tends to get a bit overwhelming.
I think the second big challenge is attention span. Because again you know the amount of information we are being packed with; it’s surprising that even though we have many more tools to be efficient, at the end of the day we still have very short attention spans.
Could you tell us about your transition from the financial sector to the entrepreneurial sphere?
I have worked in many industries, from commodities to jewelry business, apparel business and even tried running a factory in India. Eventually, I got into the financial service space where I built a career. My last assignment was as the CEO of JM Financial Services which was a joint venture partner of one of US’s largest investment bank, Morgen Stanley.
Along the way around 15 years ago, I started making my first investment in startups. My first investment was in a mobile gaming company which today is India’s largest mobile gaming company called Nazara. And since then, I have always been fascinated by the whole entrepreneurial journey. So over the last several years, I have been making investments mainly around consumer, health care, financial services and e-commerce.
What interests you most in the entrepreneurial journey?
Basically my day job is really working with large corporates and helping them through IPO, M&A and their wealth management. These aspects kind of made me understand that there is a massive opportunity for disruption. I realized that sometimes larger companies find it very difficult to innovate within the company and therefore, a major part of the innovation has to be a very strong and conscious effort. Great companies do it at the edge of the organisation which means it is not done within the organisation but it is done through a separate team. Even ‘Apple’ has this strategy where a separate team of 200 members are trying to create innovative ideas and if they are successful they bring in these ideas inside the company. So the large corporates find it very difficult to do that so therefore, there is this massive opportunity at the early stage where you could look at some of the lacunas or the inefficiencies in a large company where you can come up and disrupt the spaces.
There are lots of startups in Nepal? How would you suggest them to scale up?
In the developed nation a startup can actually take the money and the investments from investors, venture capital firms and accelerate the growth and deliver a quick exit for the investors.
So if you can take venture capital money or angel investor’s money and accelerate the growth and you know that you can exit quickly, it makes sense to go that way. But when you have an environment where the exit is very difficult which is the case in Nepal, investors will have second thoughts before investing. So, basically, a startup needs to present a viable exit channel to the investors.
And there are three ways for exit. You can exit through an M&A, either you can exit through an IPO, or you can exit through a buy back where the founders or the company buys back the shares because they are doing very well. So in Nepal the IPO market is there but it’s not that conducive for early stage companies. M&A is something that I would strongly encourage corporates to do because a lot of the time large corporates don’t find the talent pool within the organisation to innovate so they can acquire or partner with many of these great startups. And the last option is buy back, but I think that is again a little far away because until the company does not become big and doesn’t have cash flow, it wont be able to buyout its existing investors. Therefore, the corporates really have to lead the initiative and my recommendation for startups is to not follow the global model to burn money but to build the model of profitability.
You have invested in a number of startups and helped them scale to unprecedented levels. How do you assess a company before investing in it?
I spend a lot of time with the founders and I think great founders are people who are able to innovate, disrupt and pivot because I think that’s what is required to be a step ahead in this sector. I don’t think anybody has a clear picture of what the path is going to be so, as I said, I look into the sector and if the sector is something I believe will benefit by the macro economic trends and if the entrepreneur is capable to navigate. I also look into some kind of a mote or some kind of a differentiation they can build in the business plan.
I like to come into the business very early, extremely early so I understand the way entrepreneurs think and I can use my work and experience to help them.
Moreover, I look at the macro-economic situation first; then I look at sectors which I think will benefit from those changes and the macroeconomic trend; after that I try to find great entrepreneurs that are trying to build business around one of those sectors. And it’s not necessary that they need to have everything figured out but as long as they are strong entrepreneurs and they have a big vision of macro thesis on that sector and if that sector is something I am excited about and more importantly if that is some place I can add value to, I try to look into those companies to invest on.
E-commerce has not been able to get stability in Nepal. Your thoughts.
I think there are two sides to an e-commerce business. There is the demand side and there is the supply side and there is again what we call a market place model. So the problem is not on the demand side, in fact, I think the Nepali people are very tech savvy. It’s not that they are not able to or want to buy online. I think the real issue is on the supply side because the logistical infrastructure and the system to deliver the goods are not matured enough. Many of the great companies actually took control of the customer experience and solved the logistically problem they were experiencing.
Another challenge in e-commerce is acquiring customers. In order to acquire customers all e-commerce companies need to spend on social media and generally the cost of acquiring customers online is very expensive. Again, if an e-commerce startup does not have the funding and deep pockets to spend money upfront to acquire customers and bring them on to the platform, the company will lose out on a lot of potential customers.
There is a time lag between the money that a company spends to acquire customers and the time that the company needs to make money from the customers. That’s why the company calculates what they call is the life time value (LTV) of a customer which basically means spending a certain sum to acquire a customer so that the company could make money from that customer over the years. However, most e-commerce companies are not properly funded or do not have the availability to fund and bridge that gap of paying the upfront money to acquire customers and waiting a year and half to make money from that customer.
Basically the issues in Nepal are on the logistic side and lack of funding. If the e-commerce companies in Nepal are properly funded and properly manage the logistical affairs, the market will slowly and eventually start shifting towards this space.
What does the future hold for you?
For me, I am at a point where I am very excited to spend time with entrepreneurs. I think the time for Nepal and India has really arrived where the entrepreneur spirit will be unleashed and I would like to take my experience of capital markets, M&A, my investment and my experience of building several businesses within a company and bring it to the entrepreneurs where I can add value.
What advice would you give an aspiring entrepreneur?
I think entrepreneurship is a journey; you need to think of solving a big problem. The problem doesn’t need to be very complicated; it could be a day to day problem. Building a company just for the sake of it will not be a great idea but building it because you believe in it and would be able to solve a problem should be the correct mindset. Besides, I’d advise that instead of looking at the Alibabas and the Teslas of the world, try to make a business around you; start small, local, think about being profitable and then slowly scale. Many of the great companies that were created were all founded to solve a big problem in a small area and then they scaled from there.
“Building a company just for the sake of it will not be a great idea but building it because you believe in it and would be able to solve a problem should be the correct mindset. Besides, I’d advise that instead of looking at the Alibabas and the Teslas of the world, try to make a business around you; start small, local, think about being profitable and then slowly scale”.