Search Funds in India - Bhavik Rasyara, Pravah Capital

In this episode of Search Funded, I speak with Bhavik Rasyara, founder of Pravah Capital and one of the first searchers helping build the entrepreneurship through acquisition ecosystem in India.

Bhavik shares his journey from IIT Madras to BCG, Bain Capital, Scaler, and Harvard Business School, and explains why he entered his MBA already knowing he wanted to return to India and become an entrepreneur. He also discusses why the VC-backed startup path did not fully resonate with him, and why ETA felt more aligned with his desire to build durable businesses over the long term.

We discuss what has surprised him since he started searching in India, including the depth of the intermediary ecosystem, the volume of actionable deal flow, and the challenges around seller valuation expectations. Bhavik also explains why India differs from the U.S. search market, particularly around acquisition financing, seller involvement, growth expectations, and exit opportunities.

Finally, Bhavik shares the types of businesses he is most interested in, why B2B services and technology are attractive areas in India, and how he sees the Indian ETA ecosystem developing over the next decade.

Transcript

SPEAKER_00 0:00

Welcome to SurgeFunded, the Entrepreneurship Through Acquisition Podcast. I'm your host, Nick Law, and today I'm joined by Vavik Rasarya, one of the pioneers helping to build the Surge Fund ecosystem in India. Vavik has a really impressive background. He graduated from IIT Madras, one of India's top universities, and then spent several years helping build Scalar, one of the country's leading education technology companies, before earning his MBA from Harvard Business School. What's really interesting about Vavik is that unlike many MBA graduates who pursue corporate consulting or VC-backed startup paths, particularly those who are coming from outside the U.S., he entered business school already knowing that he wanted to return to India and become an entrepreneur. Today he is the founder of Prava Capital, where he is searching for an exceptional small or medium-sized business to acquire and operate. I'm really excited for this conversation because ETA is still in its very early days in India. While the model has become increasingly popular in the U.S., only a handful of searchers are currently pursuing acquisitions in India. And I believe India is a market with enormous opportunities. Those of you who follow me on LinkedIn might have seen a study I did in India came out, number one in terms of the market with the most search fund potential. So it's really exciting to be able to speak with one of the people helping build that ecosystem from the ground up. Similar to our recent episode with Sally Tian in China, who was actually one of Bavak's classmates at HBS. And from what I understand, a good friend of his, Bavak is playing a similar role as one of the first searchers helping to build the ETA ecosystem in India. So really excited to learn more about his journey. Bavak, welcome to the podcast. I'd love to start just with your story. Before we get into your search fund, what was the moment that you realized that you wanted to return to India, become an entrepreneur, and why was ETA the path that made the most sense?

SPEAKER_01 1:44

Absolutely. Thanks for having me, Nick. Very excited for this conversation. Easily the highlight of the week. And more than happy to share whatever I can from my story so far. As you said, you know, India's a very new market for ETA. A lot of us are developing our own playbooks for it. So happy to share whatever I've seen so far. So, you know, before HPS, as you said, I started my career by getting an engineering degree. But midway through that, I realized, you know, while I'm good at it, that's not something that excites me. And it's the world of business that excites me. And so, you know, in the classic way of being an engineer who doesn't know how to enter the business world or hasn't had an education in it before, I decided to go into consulting, um, seeing that as a great starting point for it. Um, and honestly, that's how I saw the first few years of my career. It was seeing each job as an opportunity to learn more and to feel prepared so that when the day comes that I know what I really want to do, um I have everything in my toolkit that I need to. Right. So that sense of getting that optionality, getting both the competence and the confidence to run it, my eventual dream, that was uh that was something I carried from day one. And so I started off my journey in consulting with that spirit, spent a couple of years there with BCG. Incidentally, most of it was uh in implementation pieces rather than the classic boardroom strategy projects. So a lot of my time was spent on ground and in hindsight dealing with micro business owners, uh, literally gas station owners. Um, and that was an early exposure to kind of the world outside the big corporates. Um, thoroughly enjoyed that. Felt like it was a lot of the foundations of problem solving and you know, communication and clarity of thought. But that was a two-year stint after which um I was fortunate enough to get a chance to also then work in private equity with Bain Capital out of the Mumbai office. Again, as someone who came from a non-finance background, that was quite a steep learning curve. But in hindsight, I'm quite grateful for it because that was essentially, you know, really training me on uh the basics of investing, which goes beyond just, I think, the the modeling and the hard Excel skills, right? I think it it was a lot to do with how do you build conviction at both a thousand feet level as well as a five feet level. How do you diligence an opportunity in order to get that clarity of thought of what exactly is the story behind a business and how do you value it? How do you value that story, right? Which is as much an art as it's a science. So spent two years at Bane Capital looking extensively at technology services companies, a little bit of industrials and healthcare on the side. And that that was the first four years. Um at that point, I felt like I had a basic toolkit in place. And I was itching to then try my hand at being an operator. I wanted to actually now get inside a business and run it. Because for some reason in my head, there was this thought that, you know, if if I can have the eyes of an investor and the hands of an operator, that'll be a good optionality to have for whenever I figure out what I want to do. And so, yeah, jumped headfirst into Scalar, which you had mentioned earlier. It was one of the first few uh ed tech firms in India, joined them right after their series A and straight into a PL role, which was honestly quite bizarre at that point in time. I think the founder, uh very grateful that he backed me because technically I didn't have P ⁇ L experience before that, right? And so most startups you'd speak to would say, you know what, start at the bottom and climb up. Prove yourself in that journey. But for some reason, you know, the founders at Scalar and I resonated well and uh they backed me to kind of start off in a PL role. So spent a good three years there, the first 18 months in a PL role, growing that from zero to 35 million ARR. And as a PE guy, making sure it's cash flow positive, because I didn't like, you know, the convention of uh burn money to grow. So we were keeping it, keeping it cash flow positive from day one. That was great. Um fantastic learning experience in in terms of just you know shifting from that advisory or that investing mindset to an ownership mindset, um, and really learning how to work with folks across the skill uh, you know, uh matrix. Uh I think in consulting and investing, you're very used to working with people on one corner of that graph. But in the operating world, that's not true. You also get used to much faster feedback loops. You have to keep taking micro decisions a hundred times a day, and very quickly the market tells you whether you're doing them right or wrong. And then lastly, I realize the secret sauce is all in working with people. If you have people's trust and loyalty, then you know you can go a long way. And so three years of operating at Scalar was helpful for that. Got to do a bunch of different things, starting off with BL, eventually, you know, setting up a new team and then doing a delivery role where we ran ops, product, et cetera. So those were those were a fun three years. But what it left me with was then what I mentioned earlier, right? The confidence and the competence to say, okay, you know what? Now I think I feel ready to be an entrepreneur. Now the only question was what and how, right? What form of entrepreneurship do I want to pick up? Um on one side, the easy option would have been let's start up with sort of my time spent in the Indian market, the credentials I was carrying. If I had a good idea, I was fairly comfortable with raising capital for that idea. Uh, but the only form of that capital raise would have been like a We C capital raise, right? For some reason, I think at that point in time I didn't feel comfortable with that thought. Um, I felt like I'd also seen ed tech from the front row seats at a time when it was quite hot and then quite not, right? There was a whole uh crest and trough in the Indian ed tech market. And I'd seen a lot of good businesses kind of collapse over time. And for me, I I realized that my philosophy was look, if you're driving a car, you can't drive it on the fifth gear, independent of what the incline is. If if the slope is steep, you gotta gear down, and if the slope is flat, then you gotta gear up. And I like that kind of a philosophy, right? Where you're being pragmatic and adapting to the situation. And I felt like, and maybe that's a bit of a bias because I saw that time in Indian VC, but I felt like that was a period when I think the general uh pace for most startups was, you know, foot on the pedal, full speed ahead, independent of what's happening in the market. I wanted to build something for the long term, and I wanted to build it with people who um I resonate with, who I enjoy working with. And so it wasn't really clicking in my head, but that was one option. What that made me realize though was I don't really know what other alternatives exist, right? What other forms of entrepreneurship exist. And at that point in time, one of my close friends was doing his MBA in in the US, coincidentally at HPS. And he also had gone there with the idea of coming back to India and starting up. And so in chats with him, I realized, you know, he's using that ecosystem fairly interestingly. He's spending his two years there, talking to professors, talking to alumni, working on his ideas without a clock ticking, because uh no one really expects you to do anything other than just be while you're at the MBA. And that thought excited me. Um, and so I just thought, you know what, let me let me apply. And then we'll decide after that. Was fortunate enough to be invited by HBS. Um, spent a week on campus, decided to go interview there in person because that would give me a feel for the space. And then finally took a gut decision to go there and spend my two years figuring out what version of entrepreneurship I want to take up. Uh, who am I working with? What's the problem statement I want to work on? Because I felt like for such a big leap in my life, I wanted to have done my due diligence, right? Followed due process and figured that out. Uh, and so that was the story of my HPS life. The it started off with looking at possible startup ideas. And luckily, HPS was, you know, a key center for search funds and ETA. So it was very easy to encounter that idea. And I remember being amazed by it, thinking, you know, that's a fantastic structure. I think it aligns with the kind of businesses I want to grow into. Uh, it aligns with the kind of philosophy uh people use to grow the business, both the operator, the searcher, as well as the people backing the searcher. The investors seem to agree that culture and people matter. They seem to agree that, you know, you first solve for continuity and stability and then put your foot to the pedal. Uh, so that pragmatism that comes from having seen multiple cycles, been operators themselves, a lot of search fund investors were former searchers, that really appealed to me. And so I liked the model. In my gut, I felt like India could be a good market for it. Um, I still had to check the feasibility. And so what happened was then I spent a year, year and a half at HPS just testing that feasibility out. And at the end of it, Prabhupada Capital came out of it.

SPEAKER_00 10:54

Amazing. Yeah, I think the a thing that I've seen frequently is that the searches that are the first in the market kind of set the culture in that place. And I think you know, you're clearly probably the the prototype who could be the searcher to come into India given your background in the PE consulting, doing the sort of work you were doing in consulting, and then also having P ⁇ L experience at the fast growing company like that. It's pretty rare to get a searcher that has all three. And even more so, which is interesting to me, is that a lot of people from India or other international markets may come to HBS and then their ideas they'll at least work for a few years in the US or another developed market before returning home. And so it seems like from the very beginning you knew you were gonna come back to Indy and build something. So what was the reason that you had that thinking? I mean, did you ever entertain the idea of working somewhere else, or did you just know from the beginning that you wanted to come back to India and why was that?

SPEAKER_01 11:47

I think I I knew from day one, actually day minus hundred of HBS, that I'm on the first flight back and I'm gonna build in India and it's gonna be something entrepreneurial. So I'm not going into a job again, which is why the last resume I wrote was the one that got me into HBS. And I said, no more resumes, no more internships. Now you're committing to the idea of entrepreneurship. And I think that clarity came from two things, right? It was equal parts, a personal decision as it was a professional decision. I think on the personal side, I'm an only child who is very close to his parents and to his immediate family, you know, and so that matters a lot to me. And I wanted to be close to them in this phase of life where, you know, they're entering their 60s, they'll get retired, and then, you know, there's a window where you get a lot of quality time with them if you choose to. Um, and so that that of course played a role in the decision. I didn't want to get trapped behind, you know, visas and long flights and jet lag and all of that. Uh, I wanted to, at the spur of the moment, get up and meet people close to me, whether in good times or in bad times, right? So that that mattered to me, number one. But on the flip side, professionally, also I'm a very ambitious person. I I I have goals and I have dreams. Luckily for me, they align well because when I thought to myself, where do I have a differential advantage? Turns out it's India, because I have a lot of credibility that I've built the hard way by virtue of having worked there. Uh, I have intuition about the market, the people, the culture. Entrepreneurship is at an interesting time in India right now where, you know, whether it's startups or now hopefully search funds, there is capital willing to back it. And there are enough problem statements to solve and enough, in our case, sellers to potentially woo. And so it also so happened that my professional aspirations would also serve me well in India. It's where I had a significant advantage to compound instead of starting from scratch in the US and build that credibility over another decade. And more than credibility, build that intuition for that market and the customer and the people and how deals are done and how interactions uh pan out. So for me, both of those really aligned well. And I remember before going to HBS, probably at the time of applying, I literally built a thesis document, right? Pros and cons uh on both sides. I think in hindsight, that clarity going in was helpful because then you can really use your time there better.

SPEAKER_00 14:24

Definitely, yeah. I think the something that I've noticed with a lot of people drawn to ETA or search is that they are people who think a lot about what's best for them in their actual life, and that's what interests them. And they're not distracted necessarily by titles or salaries or other things like that. It's what is your life actually going to be in the next 10, 20 years, which are in a lot of ways the most important times in your life around the people that are most important for you. So cool to see that that was part of it.

SPEAKER_01 14:51

But that's that's also partly, sorry, sorry to interrupt you, but that's also partly to do with there was a bit of privilege there in that I had seen some of those organizations before, right? I'd spent some time at BCG or at Bain Capital. So there was also lesser curiosity for hey, what do these big institutions look like from the inside? I suspect if I was not 30 at the time of doing my MBA, but 25, maybe I would have been a little more enamored and willing to say, you know what, let me try and see that. Looks cool. I think it's also a matter of timing that because I'd seen a little bit of that life earlier, it it didn't seem like a shiny diamond to pursue. I could focus on what I really wanted to do.

SPEAKER_00 15:33

Yeah, it makes a lot of sense. You have the maturity, you have the experience. And if you haven't tried that yet, a lot of people haven't tried that. That's the reason they go to business school is they want to at least get that opportunity to do it for a couple years and then figure out something else that might fit them better. When it comes to India and your experience there searching so far, I was wondering if there's been anything that has been surprising, even though obviously you're very familiar with the market, but this is something new there for everyone. So just curious if there are any new insights thus far that have come to you since you started searching.

SPEAKER_01 16:02

Yeah, several. Uh as I said, you know, the the the playbook today for search is a very US-centric playbook. And sure, search is expanded to South America and Europe. So South America looks a little more like India than than the US does. But if you go to, say, an institution like an HBS or Stanford or an INCARD, the playbook they teach you is still a very US-centric playbook. So when you come back to India, there's enough things that are deviating from that playbook, right? For example, I remember having this conversation with many of my professors and folks who've done search in other parts of the world. And everyone seemed to think, you know, firstly, India culturally keeps things within the family when it comes to businesses. There's no broker ecosystem there. Uh so, you know, how will you source deals? What about like people's understanding of transactions and exits and valuations? Plus, hey, the average business is probably super dirty, right? Like if you go buy something really small, how are you even gonna clean up the books? So that those are natural biases, and I carried a fair number of them too. But once I got back, a lot of that was disproved. Because one, yes, there are enough sellers who are willing to engage with folks like me for many reasons. Maybe their kids are not interested, which is a classic reason in the West. The kids are settled abroad and don't want to really come back. On top of that, there is a very vibrant broker ecosystem, surprisingly. For example, it's been what two quarters of me searching? Well, five months. And I've seen over 70 live actionable deals, maybe 75, each one of them brought to me by a broker. And these are not your big banks, right? These are small boutique MA advisory firms, very often set up by some guy who spent a lot of time in a big investment bank and they've come back and decided to start their own thing. They're very good in a small micro market. Maybe they've got two, three, five people on their team, um, and they're servicing clients in that space. And maybe they're post-retirement, so it's almost like a casual laid-back thing, but in their micro market, they know what's going on. And so when you look at the Indian market, you've got maybe more than 200 such brokers uh who are willing to bring to you deals. Um, and these are deals which are very much immediately actionable. So I think that was another surprise. And then turns out in the last decade, India's capital markets have shot up big time, right? And across the board, public markets, huge, probably like fifth or sixth biggest in the world, uh, especially when it comes to futures and derivatives and far more sophisticated instruments, probably the biggest in the world after the US. When it comes to private markets, every single big private equity shop exists. When it comes to VCs, you've got your shark tank, you've got your VCs doing deals, and you've got startups now exiting into the public markets. So now when you go speak to the average seller, they get it. They understand what an exit looks like, what a deal looks like, what valuation means. Uh, right. So I think we came back into an ecosystem which was far more ready for search than folks who came back in 2011 or 12, because that was the first time someone tried search in India and it didn't work out very well. But I think there's a fortune of timing that I've now come back to market that's far read more ready for search. And in so many ways, no one really expected that until we got back.

SPEAKER_00 19:49

The playbook may not have worked, you know, 10, 15 years ago, but these markets develop really quickly. And India certainly is one that's been developing really quickly over the past decade plus. And so it seems like it certainly is a good time to be searching there. I know up until you know this past year there were almost no searchers in India, but now suddenly there are a lot of them. And so I'd be curious if you have thoughts on that, what's driving that, what you've seen from the other searchers that are in the market as well.

SPEAKER_01 20:13

Yeah, yeah. There are what seven of us out there. One of us has already done a deal. So they're operating. Another one is super close to a deal. They should be done soon. Two more are under LOI. Uh, and three of us are still searching and hopefully, you know, going to LOI soon. So from having no searches in India maybe 24 months ago, now you've got eight of us, and that's still really, really small compared to what the market can actually accommodate. So I think it's a it's driven by a bunch of things, right? Some of them I've touched upon already that for someone from India who's actually examining this market and its readiness for search, provided they have a certain amount of entrepreneurial hunger and they have a certain amount of risk taking, their thesis will probably tell them that it won't be easy, but it can be done. Secondly, I think most of that introduction to search tends to happen in business schools in the West, right? Because that's why it's a proven asset class. And so if you see of the seven searchers who have set up search funds in India, at least what, four or five of us have done their MBAs outside India. And a couple of them, of the search fund's principals, have done their MBAs within India. So a lot of us have also discovered it by virtue of going out outside the country. And then it so happened that we had an entrepreneurial desire and we had an affinity for coming back to the country. I think what happened in the past was a combination of things, either people who went, as you said, to MBAs typically want to first do well paying jobs and hence not go back immediately and not enter entrepreneurship immediately. If you speak to most Indians at business schools, they will tell you they have those aspirations, but a few years down the line. And inevitably, you know, that that tends to fall off. The golden handcuffs come on. And so I think the supply side really is starting to pick up now because people see India as a viable market to be doing this in. And on the demand side, similarly, those of us who are actually kicking the tires and seeing if this is a bet we want to make, what I said earlier, we found a market that seemed to be ready, right? All of us who decided to raise a search fund before deciding to raise it went and tried to speak to brokers and sellers and through these conversations realized that the market's actually changed.

SPEAKER_00 22:35

Yeah, I was wondering if you could talk a little bit more about how sourcing has gone. I know you mentioned that you were surprised by the number of brokers there. What are the conversations usually like? Who are the people that are typically engaging with these brokers? Who's your competition? I guess is the question. Is it the PE or other independent searchers, independent buyers, I guess? And also how's the proprietary conversations gone if you have had any of them? Are sellers receptive? What's been your experience?

SPEAKER_01 23:00

Yeah, so I think sourcing so far, one channel is of course broker-led. And even within that, there are different types of brokers. There's your classic investment banks or MA advisory firms. We've also been testing out new types of brokers, right? So you've got something called chartered accountants in India, which is, I guess, akin to like a CPA in the US. So we've been testing out those channels. CPAs know their business, know the businesses that they're auditing. So we're trying to see if they've got ideas for us on businesses that they service that would be ripe for an acquisition. And we will continue to explore new types of brokers. We're not actually, you know, directly brokers, they're more like river guides in common search for impalance. So that's of course one channel. And as I said, for me initially, that's been the major channel. Uh, and for good reason. One, it gives you volumes, two, it really helps you get in those reps on understanding what's the market trending at, where, where the where's the deal flow, what is the quality of assets coming to market, where the valuation is at right now. So I think it's something you seed initially and then let it trickle through over your two years. Proprietary is another channel, and for me, it's still a far more nascent channel. It's something I had anyway planned to build in Q2, but the volume of broker-led transactions hit me with such ferocity that I've almost pushed it to like late Q2, early Q3 when I start building that engine. That's a trickier one because uh I don't think anyone's figured out the playbook truly there. Um, whether you reach out to business owners, WhatsApp, email, LinkedIn, we're still experimenting with that. And it's super early days to that. I've had a couple of proprietary conversations. I think it really it's it's a much slower process because you're seeding the idea of a transaction compared to when a broker has already done that for you. So there's a lot of educating, there's a lot of discovering what a transaction could look like. You're very far away from valuation. Whereas in a broker-led process, you're typically at valuation within like four to six weeks, if if they've shared sufficient data. So very curious to see how that one plays out. But uh to your point around what are these conversations sounding like, it's a whole mix. It's a whole mix. I think there are sellers who have already made up their mind that they want to sell and for good reason. And especially if they've been working with an investment banker, they have that clarity of thought. Unfortunately, where those conversations turn difficult is valuation 10 out of 10 times, right? Because they've been anchored to by both uh, you know, general media as well as by their investment banker at multiples which are anchored on far larger, more sophisticated businesses. And it ties up in their mind because they've obviously put a lot of hard work into the business. So that's a story they're very ready to accept, right? They'll say, hey, look at the public markets in India. Something in my industry is trading at 15 times or 20 times or 25 times EBITDA. Look at a couple of strategic transactions. That asset might be four times my revenue scale, but hey, it traded at 12 times EBITDA. So why are you even coming to me with a sub-10 multiple? Right? That's a conversation that is gonna hit you in the face 10 out of 10 times. But to get to that conversation, you have to first cross a bunch of hurdles initially, which is really building a rapport, building that trust, that chemistry with the seller. And you do all of that, and then eventually you're faced with this speed bump. Now, everyone has a different approach to handling it. For me, it's a lot of telling the story because I can't beat out my competition on just value. It's telling the story, leaving them a structure that gets them excited with some cash up front, some contingent on their key bets, and then a healthy chunk of rollover equity to say, you know, if what you're saying is true in five years, that rollover equity is going to be worth more than the businesses today, the entire business. So that's sort of your second bite at the apple. That's where these conversations are going. Like, but more often than not, my competition is a strategic or a family office, because that's really ramping up in India. I rarely run into private equity. I might uh run into a PE backed strategic, but not PE directly, because PE hasn't reached the scales that I've that I'm operating at, which is 10 to 30 million dollar enterprise values, typically. But strategics do exist and the occasional family office might come in. Uh, rarely have I run into other searchers, and the searcher community is so small in India that you know there's that camaraderie where if you know that someone else is looking at a deal, you'd say, look, until you're done looking, I'm not going to step in, typically. So most of your competition is much larger and has a much thicker checkbook than you do.

SPEAKER_00 27:52

Yeah, it's really interesting. And it's good to hear that search is continuing to be collaborative in other markets. I think that's part of what's made it so successful in the US, is at least when it started out, that was a big part of the cultural search, was that collaborativeness. Also interesting to hear the valuation expectations. I think that that's something a lot of people maybe don't assume about emerging markets. People may think that emerging markets have lower valuations than the US, which is largely true. But then if you don't have a developed ecosystem, the founders there may have ideas about what they can get that that can be higher. Given that India is in the stage that it is for search, I was wondering if you see similarities to where the US may have been 15-20 years ago before it became popular, or is it just kind of its own thing where you're starting from scratch?

SPEAKER_01 28:35

I think yes and no. There are similarities to the US of the early 2000s, the late 90s, but there are also dissimilarities, right? I think with respect to similarities, I think the the volume of succession-ready businesses is quite high in India right now. Um, and the readiness to exit without having sufficient buyers is very similar to what the US saw in the early 2000s and the late 90s, at least from all the stories I've heard and all the case studies we did at HBS and all the tales of those glorious times of search in the US. There's a lot of similarities to India in terms of just the how how green the market is, the searcher to business ratio is beautiful, eight of us, thousands of businesses. So that's the strong similarity. I think where it starts getting dissimilar is valuations and what goes into those to begin with, of course. And that's simply because actually, while the market might be shallow at this scale, at the scale just above that, it's not, right? And so people tend to anchor on what they're seeing. And my most common refrain to folks is all the comparables you're giving me for the multiples are absolutely right. It just so happens that they're my comparables for the exit multiple, not for the entry multiple, right? And that's that has to then bake in the risk and execution effort and investment that I'm gonna be making into this. But if you believe those numbers, so do I. It's just ride that way with me because we're gonna see it at exit, not at entry. Um, so that's one dissimilarity because from what I understand in the US, you could get really cheap deals. I think the second dissimilarity is how you finance the deal, right? In the US, not only did you get a five times EBITDA multiple in the early 2000s, you could also slap on another 60% leverage on it. We can't do that in India because the banks aren't allowed to finance deals, finance MA like this, right? So um that's another challenge. That ends up meaning that your typical deal stack is gonna be, you know, maybe 50 to 70% upfront equity purchase, maybe, you know, some amount of deferred purchases in terms of earnouts or a seller note. And you could count that as leverage, maybe. And then some amount of equity rollover. That's your typical stack. You could get some financing, debt financing for a deal, uh, but that would be through private debt, syndicated private debt. We can't yet go to banks and ask for debt to fund an acquisition. Recently it started uh where new rules state that banks can now fund transactions, but the criteria for those transactions is very stringent. So it's more suited for publicly listed companies who are putting up strong guarantees and within a certain ratio, right? So it's not yet come to the scales at which we operate. And I don't think it'll come there anytime soon. Um so for the foreseeable future, our capital stack is mostly equity and deferred considerations. So that's that's a key second difference where that luckily is offset is the growth trajectory. In India, for me and for other searchers, we don't look at growth less than typically 20% year on year. You're not getting out of bed unless that's the case, right? Maybe you look at 15%, but then you're looking at like 40, 50% EBITDA margins. So the common refrain you'll hear is, you know, 20% growth proven, 20% EBITDA margins. What that does is it helps you offset that leverage kicker that that you don't have. Right? So that's that's another difference in just how you're underwriting. And I think the one difference which is understated is what I'd alluded to earlier. People assume that SMEs in India must be super rough around the edges and all kinds of cash flowing through and zero traceability. And I'm not saying that's not true. In certain sectors, absolutely. But in a lot of the sectors, if you're picking up a company in India that's got 60 to 100 crores of revenue, and that's like maybe six to ten million dollars of revenue, in the US, that could be actually a fairly small organization. But in India, that's probably a much more mature organization, much more staffed, because hey, like cost of talent is lower than the US. And so for the same revenue scale, you're gonna get a little more refined, a little more structured organization than you would in the US. And on top of that, because we're in a time when it's not that absurd for you to have an ERP. In India, the digital public infrastructure around payments is very sophisticated, probably amongst the best in the world. And there's been a lot of tax reform over the last decade. So it's also not absurd for me to run into a six million dollar revenue business where I can actually pick up books due diligence, and I can see digital trails of cash flowing, uh, and I can see tax returns because that has seen a lot of you know refreshing over the last few years in terms of how that's executed. So if you pick the right sectors, you might actually find the average company to be a lot more mature than you would in the US for the same scale.

SPEAKER_00 34:01

Yeah, definitely. I think that that is what's really exciting about emerging markets in general, but especially India, given as you mentioned, the digital infrastructure there is probably really unmatched anywhere else in the world. And then obviously with labor being much cheaper, you can buy a much more sophisticated business, one that's much larger in scale comparatively to the US, for the same financial numbers. So as a searcher, you put yourself in charge of a company that's probably much easier to manage than similar businesses in the US that actually may have more of those financial issues you're talking about if they are in that same size range. If you don't mind sharing what are some of the sorts of sectors that you are looking at or the type of businesses that you have found interesting so far in India?

SPEAKER_01 34:41

So I've chosen to focus primarily on B2B services and technology as a starting point. There is a lot of deal flow in the manufacturing space in India, but I've consciously chosen to deprioritize that. And of course, in classic search fund fashion, I don't look at B2C, D2C, and real estate and all of that, right? So for me, it's a lot of B2B services and technology. And I've been seeing fascinating businesses across that, right? Everything from pure play B2B services, where it's it's sort of labor-driven physical outcomes, which in today's AI-led world can be fairly AI resilient, and that's what excites you. On one end, you're seeing those. On the other end, you're seeing actual vertically specialized software companies. And I've seen two, three of them. And then what you're also seeing is a lot of hybrids in the middle. Companies which started off as service providers and eventually developed one part of the book which became a software product because they were able to productize their recurring services. If you're doing deep vertical software, you also tend to have a services layer anyway, because you need to help that sector's companies integrate your offering. Um, and so you're seeing a lot of these hybrids. Uh, my my favorite company so far has been one which does almost all three, right? There's a physical component to the services, there's a software component to the services, there's a managed services component to the services. Um and it's it's it's very well diversified in that way. And that's that's what I like to see, honestly. I think it gives you multiple shots on goal. It gives you sort of, you know, that de-risking at a growth level, because you can play multiple levers. So one thing I typically look for is can I grow this both domestically and internationally, or can I grow this both organically and inorganically? And then can I find an exit market that will actually reward the professionalization of one such business? And so all of those criteria kind of pulled in together make you realize that hey, B2B services and technology is a good place to be. Now, interestingly, a lot of these businesses were born in the 90s and early 2000s, because in the early 90s, India went through a stage, a big phase of economy transformation where private enterprises really ramped up. And so it just so happens that at that point in time, you had a lot of IT services and tech services and B2B services firms popping up because private markets were expanding. A lot of people were starting companies coming back from the US and starting their own firms. And so a lot of the sellers I encounter are folks who started back then. And uh it's either going to be manufacturing or tech services or B2B services. So those pools are fairly deep in the Indian market.

SPEAKER_00 37:38

Definitely seems like very resilient security given the challenges the world faces today. And it's also an area I think that India has a real edge in terms of the labor available for these sort of businesses. So certainly could be a great business that, as you mentioned, could be grown inorganically, organically abroad or domestically. So another great reason probably to be searching for this sort of business in India. I was wondering if you could also share any experience you've had talking to sellers, what those succession conversations have been like. How's that different in India versus anywhere else?

SPEAKER_01 38:09

Yeah. So I think in my case, because most of the deals have been broker-led, there's an investment banker sitting somewhere in the middle. And so what I find is a seller willing to engage, who has supposedly reached that clarity of thought, saying, you know, I'm okay with exiting. The interesting thing though is with a lot of the Indian sellers, they are very open to continued involvement post-transaction, which I think is great for both them and me, right? If I could paint you a picture, a lot of the sellers I've spoken to tend to be sort of that generation from our parents' times who are very, very hardworking and sincere. And their life is revolved around this business that they've built, right? So they've also reached a point where, if not this, what am I going to do? So I'd rather actually stay involved. I'm more than happy to help you run the business. And it's not about six months or 12 months. Sometimes they tell you, you know, I can run for three years, five years. Uh, so you almost are helping them calibrate to, yes, I would love for you to stay involved and help me ensure that continuity. But also, I would like to build in a way where we have in place systems so that if two years down the line, you decide you want to take on an advisory role, take a step back, go spend time with your grandkids, know that your company will survive and thrive because we've built in place those systems, right? So I think what's endearing to me is a lot of these sellers love their businesses a lot. And once they trust you, they're actually, after a certain stage of trust has been established, they're excited to work with you. Um, they're excited to kind of help you build that future out. And that for a searcher is great because uh in a lot of the businesses I've seen, the customer relationships will need to be migrated slowly, right? It can't be abrupt. Um, and that's where having the seller's continued involvement helps. Um, so that's typically the persona you encounter. Uh, they're warm, they're welcoming after a certain level of rapport and chemistry has been established. A lot of that chemistry and rapport needs to be established in person. A video call rarely cuts it. Uh, so you want to be there in front of them and really sharing your story and showing a genuine curiosity for their business, which honestly every searcher has and should have. Otherwise, why are we even doing this? Uh, but I think once they see that in your eyes, once they understand that you could be a trustworthy party, then the conversation shifts to what is your aspiration? Paint a picture for me. Let's talk strategy. What do you want to do with this business? And once they've got some conviction around that, which means that you know, you're also doing a lot of your homework pre-LOI rather than post-loi, then they start talking about their continued uh involvement and valuations. So, where I realized a big difference from, say, my friends were searching in the US, is in the US, you might get to an LOI much faster. You might just throw an LOI in there, see if it sticks. And if it does, then you jump in, right? All our search fund classes would talk about expand your funnel, get a lot of it through. You're measuring, your key metrics are sort of email sent out, emails responded, seller meetings done, LOIs signed. I don't think my funnel looks like that. I have to spend a lot more time talking to a seller, really thinking about their industry. On the deal that I'm working right now, I've spent a lot of hours talking to people in the ecosystem, the customers, the vendors, et cetera. Because I have to build my conviction, I have to build their conviction about me, and then the deal will really pick up. So you're getting to LOI far more cooked in a good way, uh, far more ready to sprint on diligence. What you have to then be mindful of is, of course, being pragmatic early on, killing deals early, because if you don't, then you will end up doing a lot of your homework.

SPEAKER_00 42:06

Yeah. I think building trust is probably different in India versus the US. And part of that is having the seller stay on longer. It also given the financial stack you have to put together, it's probably helpful also for that rollover equity piece that you've talked about. If they are staying on, they're probably more open to keeping a larger percentage of the business. Aaron Powell I guess shifting to you raising your search fund, what you've seen from international investors, whether they're in your search or in other searchers' funds in India. Aaron Powell Do you have thoughts on how open international investors have been to invest in India? I know for a while there was that consensus that India is not ready. Yeah, but clearly it is ready now. And so are there particular investors that are more open to it than others? Uh just general thoughts on financing the search in India.

SPEAKER_01 42:46

Aaron Powell Yeah. I mean, if you look at the cap tables of all of the current searchers, right? The seven search funds that have raised capital, you'll see some recurring names on them. And these are folks who like emerging markets and are willing to be the early movers in them. Um so you'll see a lot of recurring names there. Um, those are the early movers. I I've had a lot of conversations, and so have the other searchers in India, with folks who are excited by the India thesis, think it could be a good market to deploy into once proven, uh, especially given the traditional markets, uh, especially the US, are slowing down a little bit in terms of the value you can extract. A lot of the low-hanging fruit is gone. So you'll see a lot of these investors first moving to South America, moving to Europe. A lot of them have stopped at Europe. And now they're kind of waiting and watching to see what these first eight search funds or seven search funds do. Uh, but I suspect once we've got a few more acquisitions, you'll start seeing some more names come up. And then, of course, there's always going to be the late movers who are still making money in their core markets and so don't want to expand, or their mandates and their LPs prevent them from doing so, which is another reason I've heard for people from people. For not stepping into uh stepping into other emerging markets. But I think I think the number of people curious and keeping an eye out has gone up significantly. And I think it's great that there have been some of these early movers who've backed us, right? Uh they've they've backed searchers in other markets like India and now India too. And I think that's at least in my mind, that early mover motion has a lot of advantages in markets like India. Because you not only are you, of course, it's a near-term advantage, right? Of a very green market will get you great deals, a low-hanging fruit, like in the US in the late 90s, is there right now in India. So the number of searchers actually acquiring a company is going to be very high. The fact that almost two acquisitions have happened within the first 18 months is great, right? Um, so they'll get access to deals quickly, they'll be able to deploy quickly, and those should be good deals, ideally, uh, provided we all kind of maintain our discipline. But beyond that, if we were to, for a second, assume that this is not going to be the last wave of searchers and there are many more searchers going to come, there's compounding at multiple levels. There's compounding, of course, in terms of understanding the market and navigating the market, which will pay off with their own LPs as well as domestic partners. Uh, there's a lot of compounding in terms of credibility with future searchers raising capital. But even more importantly, there'll be a lot of credibility with sellers and the Indian capital stack, right? Because when we bring in family offices or high net worth individuals on the India side, they want to work with people who've seen the bet before. And so the odds of that being done with someone who's been on the cap table of seven other searchers is much higher. So I think it compounds on multiple levels. India is a very colorful market, and it's actually a hundred markets baked in. So, for example, with uh one of my anchor investors, who you've also had on your podcast earlier, right? The fact that they've now worked with so many searchers in India and been part of the deal that's already happened, they understand those nuances like no one else. And that's not easy, and that only comes from doing it. So I think that's where we're seeing it. Uh, I think you'll you'll see once a few more transactions happen, a lot of newer names coming in because I know for a fact that they're eyeing the market right now.

SPEAKER_00 46:27

Yeah, it definitely seems like there are benefits to getting in sooner than later if you are a search investor. Yeah.

SPEAKER_01 46:32

Uh and there there's some things you have to kind of unlearn too, right? Like entry multiples and exit multiples. There's a lot of unlearning there because the reality is India's got higher entry multiples, but it's also got way higher exit multiples. So one of the common things you'd hear initially is yeah, we don't underwrite a multiple expansion in in base case. That that's fine for the bull case scenario, definitely not the base case scenario. But in India, that's not practical. In India, you can easily imagine taking a 2 million EBITDA business, buying it at like seven, seven and a half, provided it's got a good growth trajectory. And the moment it's hit 10 million of e-bid daar, you can get double-digit multiples, mid-teens in the public markets, you can get low teens in private equity markets, you can also get growth equity to come in and replace, do a recap of the cap table. And that multiple uptick in the base case is very normal, but it takes some time to build that comfort, right? You have to see a lot of evidence, uh, and you have to really study the market, which you can't really do from a distance beyond a point. So there's there's compounding and there's unlearning because the playbook's not the same in India.

SPEAKER_00 47:43

Definitely, yeah. And another benefit is that a search business is one that, you know, if if you just have a normal search growth store, you can actually IPO in a place like India, which in the US would not happen. So easily.

SPEAKER_01 47:54

Like the number of smaller scale SME IPOs is super high in India. And more than that, uh honestly, if you can hold on for another couple of years and go IPO on the main board, you're looking at wild multiples. Like you know, you you're looking at then like multiples in the 20s in certain sectors.

SPEAKER_00 48:12

Yeah, probably more exciting place to be than the US for that reason. How do you see the ETA ecosystem evolving just based on what you've seen so far? Where do you think it would be a decade from now if things keep going the way they are?

SPEAKER_01 48:24

Look, I think if the initial search funds do a good job, we acquire we have good exits. There's no reason why this shouldn't scale up because the ratio of searchers to businesses is absurdly low right now. I think today the seller ecosystem is rich enough and it can only get richer from here. The searcher ecosystem is shallow. The broker ecosystem is deep, surprisingly. So it's it's a weird sequence of events where you would think it's first the sellers emerge and the buyers emerge and then the brokers emerge. It seems to be going the opposite. I think the supporting ecosystem around legal advisory or accounting advisory, all of that is still catching up, right? Like, and that's that's bound to happen. So when we were setting up the structures and figuring out how to do the search fund, um, we had to do a lot of creative problem solving along with the lawyers because they had no exposure to it, right? So I think that ecosystem will evolve with time, with with repetition. But I think if if all goes well, I would love to see in 10 years' time a crop of Indian searchers who don't even have to go outside India. You know, there should be enough awareness in Indian business schools, a course or a small elective on search funds in the Indian business schools, and that produces a crop of searchers because there is enough entrepreneurial zeal and ambition in the country. Uh, it's just that today that by default means starting up. So the moment I think you have a few success stories, then there should be a virtuous cycle set up of more investors coming to the table, more searchers coming to the table, um, and then really kind of expanding it in the same way that it did in the US, where you started off with a very safe B2B services place, expanded to the manufacturing, eventually people started doing franchisees and whatnot, right? I think that evolution is bound to happen in India, and that's where I think I would predict things going, provided the initial wave of search funds do well, the seven that are active right now, because uh that's that's all it's gonna take, I think, to really kickstart that movement.

SPEAKER_00 50:35

Yeah, I think it it should be almost inevitable. And considering how quickly VC got adopted in India, I think once this becomes a story, you'll see people moving to it or is it as well. More personally, what's your ideal outcome? Of we could taught you in 10 years, what would you say the the ideal situation would be for you and and your search experience?

SPEAKER_01 50:54

Hmm. So look, I'm turning 33 this year, right? So in my mind, my 30s is entirely my operator decade. And ideally at the end of that, I want to walk away with three things. I I want to have firstly the playbook on how to create value at an SME scale in India. I want to have the credibility where I can say, look, I've done it before and I've made people money. And I want to have some capital that then allows me to move from being just a taker of terms to being sort of a maker of terms, right? And going back to sort of what we started the conversation with, I think that optionality to pursue whatever I dream to is what I'm trying to create. And I think these three things will help me earn that optionality. I think the aspiration is then going to be either to continue doing this as the operator, uh, or alternatively set up a platform that can do this at scale with multiple bets at a time. And I think that'll purely be an outcome of how much of an operator appetite and hunger do I have left, how much fuel do I have left in that tank? And if if that's reduced beyond a certain level, then I would happily switch into the investor role where I back other folks to do it or set up sort of a platform to do multiple transactions. But that's honestly the aspiration today. You know, first get a business, really get down into the weeds, roll up my sleeves, spend a good seven, ten years building that playbook. And only once I have conviction on that and I can build, you know, something that gives me credibility in the market, then I'm more than happy to again put the capital I make where my mouth is and back that playbook to scale up.

SPEAKER_00 52:38

Yeah, definitely a lot of work ahead, but I appreciate the sort of the same sort of thinking of when you went into the MBA as well as what's right for you at that stage of life is probably the way to approach it. Just one final question, I guess, is given that you are sort of a trailblazing pioneer in a new market, is there anything that you wish you had that has been more difficult for you or support that could make your journey easier?

SPEAKER_01 53:00

You mean other than SBA financing?

SPEAKER_00 53:03

Right.

SPEAKER_01 53:06

That will change things significantly. Look, I think like the it's two sides of the same coin, right? On one side, I have the benefit of being early, and the flip side of that is that sources of capital in India, say family offices, or you know, there's there's a lot of capital floating around in India looking for places to deploy. But because we're so early in this as an asset class, that capital is currently going elsewhere. And when you speak to sources of this capital, the the burden of proof on you is significantly higher, right? So in general, you will find, as always, a couple of people who are willing to back you and your vision. But that'll be a lower conversion rate. There'll be enough noise you hear along the way, and that's just a byproduct of being early. So I see it as for me to get the rewards of being early, that's part of the pain. So I could say, I wish the pools of capital in India, you know, were far more amenable to the search fund asset class and they could see the vision and back you. But the flip side of that is then you wouldn't be this early in the in the journey. So honestly, I think I made peace with these trade-offs, where inevitably, even from the days I was raising capital, or even before raising capital, when I was socializing the idea in India and speaking to really sharp people who've seen far more cycles than I have and far more reps than I have, uh, you will get a fair number of people who don't buy in and who are skeptical and hesitant and dissuade you from doing it. And that's part of the early mover pain that you have to go through. And I suspect fairly so, they will move to a much more amenable position once they see evidence. Um, and so hopefully that's an evolution that happens in the next five years, where they've seen enough evidence to come around. But earlier on the ecosystem, you've got a lot of education to do. And at the end of all that education, you will still hear a healthy share of skepticism. And some days you'll just wonder, you know, you'll do a quick check with yourself. This is someone I really respect who's really, really smart. They're not seeing what I'm seeing. Could I be wrong? And then the reality is that's the life of an entrepreneur. That you've if you're obsessed with an idea and you've tested it 10 ways, then you pursue it, regardless of very respectable voices telling you maybe, maybe not now.

SPEAKER_00 55:31

Definitely very healthy way to look at it. The harder the work is, the better the return is. And you gotta have that self-commission as well. So super fascinating conversation. Really enjoyed it. Uh thanks so much for joining Bavik.

SPEAKER_01 55:42

Well, thanks for having me, Nick. And uh yeah, thanks for so patiently and with so much curiosity, just exploring the Indian search ecosystem. It's one I'm super duper excited about. So it's always nice to speak with someone else who has the same excitement and curiosity about it. I enjoyed it.

SPEAKER_00 55:56

Yeah, definitely one of the most exciting places in the world right now.