Successfully Raising Capital in India in a New Sector

Aditi Shrivastava: People were like, “How will this work?” They did not get us at all. Even today, sometimes we have a hard time explaining to a VC that does not look at the sector.

Darius Teter: Aditi Shrivastava, CEO and co-founder of Pocket Aces, had a challenging task: raising capital where none had been raised before.

Aditi Shrivastava: We knew that it takes time, we knew that it takes effort, and we knew that we have to tell a story. It doesn’t matter what you already have, it matters what you want to build and how you’re able to convince anyone of it.

Darius Teter: When you’re growing a business in unchartered territory, you might think raising capital means you need to throw out the rule book, but what convinces venture capital funds to go on a journey with your company might just be the fundamental principles that have stood the test of time.

I’m Darius Teter, and this is Grit & Growth with Stanford Seed, the show where Africa and India’s intrepid entrepreneurs share their trials and triumphs with insights from Stanford faculty and global experts on how to tackle challenges and grow your business.

Today, we meet Aditi Shrivastava, CEO and co-founder of Pocket Aces, the company behind popular media brands, FilterCopy and Dice, and shows like Operation MBBS. We learn how she convinced investors to take a series of bets on their strategy to entertain hundreds of millions of Indians in a rapidly shifting media landscape. From the first angel investor to seed, series A, bridge financing, and series B rounds, Pocket Aces found the right partner to grow their business. But it wasn’t easy.

Like the rest of the world, India has undergone a media revolution, but just over the past decade. Smartphone prices came down and social media companies opened headquarters in the country. But the real inflection point came in 2016 when Reliance InfoComm launched their Jio 4G network. Indian networks started competing to offer low cost high-speed data plans to hundreds of millions of young consumers, and with that, social media and online video boomed, setting the stage for companies like Pocket Aces.

Aditi Shrivastava: Pocket Aces is a digital entertainment company. We are focused on mobile video. We create content across genres and across platforms. The main problem we are trying to focus on is that there is not enough relevant content for India’s youth to watch. So we have about 500 million Indians that have smartphones that have access to data. They don’t have TV. Mobile is basically the first preference even when they do. I think for the first time in the last five to eight years, young people in India are creating content for other young people. And that has not been done before because young people were typically not looked at as consumers that had any paying power, and so there was no inherent funding to create content for them.

Darius Teter: So are you a technology company first, a media company, a content company, an advertising company? How do you describe yourself?

Aditi Shrivastava: We are a content creator and publisher with data DNA. Content creator because we write, produce, post produce our own original content. So we have a sizable team of creators who are full-time a part of the company. We also work with hundreds of freelancers a year to actually conceptualize and create content. And it’s all original content. We own the IP of most of the content that we create.

I call ourselves a publisher because distribution is a humongous part of how we get our content out to this 500 million people. The traditional forms of distribution are very, very controlled, and literally the power is in the hand of whoever’s choosing what content they can distribute on their platform. So very, very early on we realized that we have to have some control over distribution if we want to get the content that we want out to audiences and we want to get their feedback directly. So we have our own channels across social media platforms, like YouTube, Facebook, Instagram, Snapchat, et cetera. We have our own app, a gaming platform called Loco, where we put out content, and we work with giving content to third party distributors like Netflix, Amazon, et cetera. We also syndicate to TV and other mediums.

And the third and very important thing is the data DNA. I don’t often say that we are a technology company but we are extremely data driven in our approach, and that is how we’ve maintained consistency of quantity and quality of output over the last five and a half years that we’ve been around.

Darius Teter: To what extent is the brand Pocket Aces actually known to anybody? To the viewers, I’m going to assume the answer is no, so could you just describe some of your big hit shows and productions?

Aditi Shrivastava: Yes, the brand Pocket Aces is actually not very well known because it’s more of a B2B brand, but the actual brands that are known are all our B2C brands, which are not just the shows that we create but the channels that we have across these social platforms. So the biggest brand known to consumers is FilterCopy. FilterCopy is our short form video channel. We have a channel on YouTube, we have a channel on Facebook, Instagram, Snap. Very much inspired by the BuzzFeed (of the U.S.) when it began.

Our second highest known brand is Dice Media, our premium channel, where we create larger production value, longer pieces of content. Here is where we’ve collaborated with platforms like Netflix. In 2018 we became the first Indian company to have a multishow deal with Netflix. Little Things has three seasons out on Netflix. They’ve been released in 40 countries. That’s one of the IPs of Dice Media. Similarly, they have many such shows. Another very popular IP is called Operation MBBS. It’s a show about medical students in college. Just to give you a sense of how big some of these are, Operation MBBS season one has 85 million views and season two has aired on YouTube, and it trended number one for two and a half days on YouTube. That’s India’s number one most watched video.

Darius Teter: Building such a successful digital entertainment company in just five and a half years is impressive, so how did they get there? Aditi and her two co-founders, Anirudh Pandita and Ashwin Suresh, have known each other for over 20 years, and on paper they look pretty similar. Trained as engineers and computer scientists, they all ended up in the finance industry in New York, but then 2008 happened.

Aditi Shrivastava: Wall Street was always extremely hectic, but during the financial crash, the hours became easier because the work slowed down a little bit. And so what we did is we held on to our day jobs, but Ashwin actually joined the New York Film Academy and I actually joined various development institutions in New York, and I got involved in the microfinance institution. So those were the first seeds of media. After a couple of years of doing that we both realized that we liked what we do outside of our day jobs so much better than what we do during our day jobs so we actually decided to move to India to try out, what if Ashwin worked in media, what if I worked in development full-time.

So we moved to India in 2011. We are the first entrepreneurs in our entire extended families. All three of us. Everybody is very service-oriented. You go, you do a good job, you stay in that company for many, many years, and you grow, grow, build a good retirement plan, and that’s how you retire.

Darius Teter: Turning hobbies into career moves did more than just satisfy their curiosity. After a few years in the Indian film industry, they identified a huge gap in the market. There was little content designed specifically for young people, and that’s how Pocket Aces was born in 2013. But when you’re talking about a diverse potential audience of maybe 500 million people, understanding your customers is paramount, so Aditi and her co-founders turned to what they knew, data.

Aditi Shrivastava: In theory, it sounds quite simple. Hey, we create pieces of content. We control some of the distribution. So we put out those pieces of content. Digital is an interactive two-way medium, so we get a lot of feedback from audiences, millions of people who are watching that piece of content. Quantitative as well as qualitative feedback. What we do is we create a lot of smaller pieces of content to test various things and then we actually double down on the stuff that has worked and create larger pieces of content. And because we work across the social platforms, YouTube, Instagram, Facebook, they give us a lot of data in the backend. It’s very, very insightful. So that’s the theory.

In practice, most people what they do is, in a media company you will have a data and analytics team that will be looking at all of this. They’ll be mining data. And the huge loss in translation is how those insights get translated back to the people who are actually creating the next piece of content.

Darius Teter: Facebook was a cost-effective way to figure out which content was gaining traction by exposing their pilots to a large audience. And it was also a good way to catch the eye of venture capital investors, like Pranav Pai.

Pranav Pai: Hi, my name is Pranav Pai. I’m a founding partner and chief investment officer at 3one4 Capital. We are an early stage VC based in Bengaluru in India. When Facebook was just about launching Facebook Video in India, we were seeing a bunch of very interesting creators coming out but really the only organized production company we saw was Pocket Aces. Something uncanny that we saw happening was every video they put out was an instant hit. And these guys were getting to a million views in 24 to 48 hours back when India didn’t have the kind of digital connectivity we have today. And remember in India we have a vastly heterogeneous population. There’s over 30 languages in the mainstream, dozens of dialects, and of course, people from all parts of the country that are looking for different things in their entertainment. So to be able to make all of that work in a video format consistently meant that you were not just first, you were also amongst the best, and that combination really is something that you have to pay attention to.

Darius Teter: It takes a certain kind of investor to take a chance on a new market, but Pranav is passionate about early-stage investment because he’s been there himself. Pranav left India to do his master’s in the U.S. and ended up working in a startup.

Pranav Pai: It was a fascinating ride of learning, building, working with teams, selling, of course, raising capital. And the combination of things that you need to do in a startup. It just changed how I thought about how you can deliver value in an economy like India. And when I realized that, yes, actually the bigger problem here is capital development, and if we would be able to build a franchise that can consistently preempt the mainstream and just stay five years ahead of what’s coming next, we’d have an edge that very few other VC firms in India would have over us.

Darius Teter: 3one4 Capital invested in Pocket Aces a little bit later in our story, but back in 2013 at their seed stage, the company was looking for angel investment to create their first pieces of content.

Aditi Shrivastava: We have always been very bold when it comes to reaching out to any partners who we might think that we want to work with in any way. That includes investors, that includes people like Netflix. We always reach out to them earlier than most people think that we should. Again, I think our backgrounds really helped here. Because we come from the world of investment banking, because we’ve worked in private equity companies and stuff before, we very, very much knew what fundraising takes. So we knew that it takes time, we knew that it takes effort, and we knew that we have to tell a story. And really at the seed stage, it doesn’t matter what you already have, it matters what you want to build and how you’re able to convince anyone of it. And, you just have to be a good storyteller.

Darius Teter: That was such a perfect quote. They are not interested in what you have, they are interested in what you want to build. Take me through that first pitch to that first angel investor.

Aditi Shrivastava: The one-minute pitch was that nobody is creating content for young Indians. We believe that we know what young Indians want to watch. We will create a slate of content, which reduces the risk of investing in any one piece of content. This was our pitch for our angel, because our angel had invested in like one-off movies before. And those movies had either done well or not done well.

Darius Teter: There are so many eggs in the basket that one of them is going to hatch.

Aditi Shrivastava: Exactly. So you will make money, and maybe 20% will work, maybe 80% won’t work, but that 20% will work disproportionately. So your money is safe because you’re investing in a company and not directly in media properties.

Darius Teter: I mean, with the potential scale of consumers, if only 20% worked, that’s still could be a hundred million people.

Aditi Shrivastava: Again, Darius, the interesting thing… And I’m being very honest here, of course, we knew that we had to do the market sizing and we did because that’s one part of your deck, it has to be there, but that is not what convinced them. What convinced our angel investor was literally that this works. I will invest in a company that creates a lot of different kinds of content, some will work, some won’t work, and I won’t lose money. It was literally that simple pitch that actually worked.

Darius Teter: I understand that part. The part I don’t understand is the, hi, we are three engineers who went into banking and we are going to kill it on content in India for young people. How did you sell that part?

Aditi Shrivastava: You take on different modes when you communicate to different people. So we were talking entrepreneur to entrepreneur, and that made a huge difference because they understood that we were passionate about something and that we probably were smart enough to figure it out. That’s it. That was the pitch. We said we are very passionate. Look, we left everything.

Our angel investor, he was an entrepreneur himself. He was not somebody who had a job at his family office or at a fund, so he understood what it meant for us to come from middle-class families, what it meant for us to fight with our parents, leave jobs where we were clearly getting beautifully overpaid, and start from nothing. So it was literally that. He knew we didn’t have a plan B. And that’s what worked for him. That they are going to put every pound of their energy into making this plan A work because there’s no plan B. He just bought the fact that we will try till we die. So we appealed to the heart, not so much only the mind. Because a lot of people can talk and appeal to the mind but if you want somebody to give you half a million dollars, you have to appeal to the heart. Half a million dollars of their own personally earned money.

Darius Teter: Pocket Aces needed half a million dollars, and this angel was ready to lead. The problem was, they couldn’t find anyone else to fill out the rest of the round.

Aditi Shrivastava: And he said, “Well, just take the whole 500K from me.” And at that time, for us it was… Other bells kind of went off. It’s like, “Oh, we’ll give up too much control to just one person.” And we said, “Okay. Let us come back to you.” But we had also really, really liked him.

We met in his office, then we met at a restaurant. Then we met his entire family. He wanted his wife, his kids, everybody, to meet us and give him their take of us. Then he wanted to see how we are in social settings. He asked us lots of questions about our parents, our upbringing. So in this whole process we had also gotten to know him and his family really well, and we said, “I don’t think that he’s going to exercise some kind of control or really kind of tell us exactly what to do. I think he trusts us.” And so we said, “Okay, let’s go for it.”

Darius Teter: Just to be clear, when you went to this first angel investor, you didn’t actually have a minimum viable product.

Aditi Shrivastava: Nope.

Darius Teter: You had a concept.

Aditi Shrivastava: Yeah. We had a deck. We had exactly how we wanted to do things, why we needed to exist in the current media landscape, and we had two and a half years of experience of Ashwin working in media in India. And Anirudh just came from Wharton and I came from development.

Darius Teter: Shortly after this first round of funding and in the environment of cheap fast data, Pocket Aces decided to shift their model. Instead of just producing video, they also wanted to focus on digital distribution. Because their angel investor had been sold on the entrepreneurs as a team, he trusted that they could make this new vision work. The first injection of capital allowed them to create their leading channels, FilterCopy and Dice Media. But as their model changed, so too did the size of the opportunity, and hence their need for a lot more capital.

Aditi Shrivastava: We had achieved product market fit on these channels. We had released a sum total of maybe 10 videos, and we started reaching out to two investors already because we foresaw that we would definitely need capital to scale this up. When you’re going to the series A, you’re talking to a very different type of person. You’re talking to, at best, like a partner in a VC firm. Usually you’re talking to an associate in a VC firm. Their job is to analyze, analyze, analyze, study different sectors, go after the sectors that are trending. And media is never a sector that’s trending, media companies are always giants.

Darius Teter: So did that make it hard for you to explain to VCs what you were trying to do. Like did they just not get you?

Aditi Shrivastava: They did not get us at all. Even today, sometimes we have a hard time explaining to a VC that does not look at the sector, so it’s difficult for the sector agnostic guys to understand what we do. Now it’s different because a lot of them are already audiences to what we do. It was very difficult to explain how we would create a revolution in a sector where most of the innovation is just on what is created and not how it’s created, and how it’s distributed. You get feedback from audiences. People were like, “How will this work?” They just didn’t understand how this could be built.

Darius Teter: Knowing that there weren’t a lot of VC firms with expertise in this landscape, how did you go about figuring out who to talk to?

Aditi Shrivastava: We spoke to everyone. That was how we went about it. See, we always look at it, Darius, as like, we’ll just practice the pitch. It doesn’t matter if this is not the perfect investor for us, we’ll just practice the pitch. And very often who you think is a perfect investor for you is not the guy who’s going to give you money at that stage, that guy will probably come at the next stage. We spoke to 50+ potential investors of all shapes and sizes. We did have some products to show them. We had videos out on those channels. Some of those videos had gone viral and done really well. And we had a partnership, some semblance of a partnership with Facebook to talk about.

And then we had our big idea. So our idea at that time, started to look very similar to what it is now. So we had that. So we got a lot of second round conversations, we got a lot of third round conversations, but when people would try to make sense of, okay, so these guys are going to use money, they are going to create content, then they are going to put it out, but the audience is not paying them.

We have a pre-revenue. So then they are going to go to brands who are going to advertise in their content, but brands are not spending money, they are spending money on TV and all of this stuff. So I think the monetization model was unclear at that time, so in very late stages we would get a no.

Darius Teter: They didn’t understand where the revenue was going to come from.

Aditi Shrivastava: They didn’t understand the revenue and they didn’t understand how it was going to scale because at the end of the day you have to create every piece of content. So how much are you going to create? And it’s completely a people business. It’s completely… It’s hands… You’re making… It’s like woodwork. You’re shooting something, then you’re coming back and you are editing. It’s physical. Whereas at that time, this is 2015, when we were out raising capital, we raised in 2016, everything was virtual. You make an app and then everybody can use it.

Darius Teter: Even though they had achieved product market fit, they didn’t yet have a compelling business model, and in a newly developing sector that makes raising capital for the series A round really tough. Here’s how Pranav saw it.

Pranav Pai: Back then I can very confidently say there were maybe two or three VC investors in India that actually understood content. It wasn’t a very popular area. It wasn’t a part of the mainstream VC consciousness.

Darius Teter: To understand why VC funds were hesitant about content businesses, we spoke to Sandeep Singh of Nexus Venture Partners. He considered Pocket Aces during their series A round.

Sandeep Singhal: It doesn’t have a landscape. We were not convinced that content was monetizable. We spoke to various folks in the advertising space and so on to understand what is the kind of content that brands were looking at, these guys came back and said the primary way that they would monetize initially was in content placement. It was so new to the brand managers, the ad agencies, and the media buyers. The feedback was, yeah, but it’s small change right now. People aren’t looking at this as a way to influence consumers. And overall, the ad-based content market was very, very small, so we just weren’t convinced around content as a space.

Darius Teter: Of course, with the advent of cheap fast mobile data, the market, in Sandeep’s views, would change.

Sandeep Singhal: The mobile screen has become the primary screen in India and that has had a huge impact from a content consumption perspective and from an advertising standpoint. So we are now starting to see companies that are ad-driven that are generating over a hundred million in revenue. More and more of the brands are now realizing the value of the digital traffic and spending money on that, which one could not have expected when Pocket Aces started. So yes, our views have changed from then.

Darius Teter: Pocket Aces was raising capital where capital hadn’t been raised before. And some investors either didn’t understand the opportunity or they were not confident that the supporting ecosystem would get there, but others, like Pranav Pai at 3one4 Capital, were willing to take a chance.

Pranav Pai: We’d been seeing their channel grow for at least a quarter before we said, these are guys we want to talk to. So the interesting thing about being an early-stage investor, Darius, is that if we do enough work on the market, we usually have a fairly objective view of what’s actually happening out there. Now, if you stay so grounded in the market of today, it’s almost impossible to be confident about projecting out and saying, okay, you know what? In five years, this is going to change.

So there’s an important balance that investors also need to play between knowing today so well that you don’t think about tomorrow, or believing in tomorrow without understanding why things are the way they are today. There’s a balancing act early-stage investors need to make between knowledge and a leap of faith. And I think the dimensions we have to work with are different from the dimensions a founder has to work with. Certainly the common trait is when both these bridges are built side by side.

Darius Teter: Although the company was pre-revenue, they ultimately managed to secure $3 million of series A funding, but that took some explaining of a business model that was unproven in India at that time. So how did they do it?

Aditi Shrivastava: We started early. As I said, that took 10 months. The advantage of starting early… And I tell all entrepreneurs, please start early. People are very shy to show their product to others, I don’t know why, because when you have a minimum viable product, you should be extremely proud of it because that itself takes a humongous amount of effort, luck, all of that. We went very early to people, and during our conversations we started some revenue. So what happens is, you’ve gone to them at this point, and say, after a few months you’re here then you’re here. This delta means a lot to people. If I had gone to them at this point they would still think we were early.

Darius Teter: They always want to see the delta no matter what your starting point is.

Aditi Shrivastava: Exactly. And that was key, because even if we had gone to them with like $50,000 of revenue, who cares? It’s $50,000 of revenue. But we went to them pre-revenue, so then even $50,000 in like five months was like, “Oh cool. So you’ve started monetizing.” And then we launched another small channel, and it was like, “Oh cool. You’ve launched another channel.”

Darius Teter: We’ll hear more about Pocket Aces in just a minute, but first I want to tell you about one of my favorite podcasts. Are you concerned about an upcoming pitch? Are you anxious about presenting during a make or break meeting? Then tune into Think Fast, Talk Smart: The Podcast. It’s a show that’s also hosted here at the Stanford Graduate School of Business by Matt Abrahams, a lecturer in strategic communication. You can listen to Matt’s latest tips and best practices on how to become a more engaging speaker. You can find Think Fast, Talk Smart wherever you get your podcasts. And now, back to the show.

In a new market you can’t predict the future but you can demonstrate the direction that your company is moving, and that delta would prove to be a powerful motivator for Pranav Pai as well.

Pranav Pai: I think the single most powerful way for a founder to convince an investor to give you a check is to demonstrate growth. There are many ways to falsify growth or to grow the wrong metric, but real growth and real product market fit, when you see it you know it, and I think most investors know it. And most founders know it, of course, when they have it.

Darius Teter: During series A rounds, potential investors may ask questions related to the company’s agility and ability to experiment in a rapidly changing environment.

Aditi Shrivastava: The investors we did get, so these guys, Sequoia Capital, 3one4 Capital, and the others that followed, they didn’t ask for those 80-point diligence materials because they understood that we wouldn’t have them, but they asked four questions which were much more similar to the questions that the angel had asked us. How much are you going to keep trying? Do you have the ability to pivot? Do you have the foresight to kind of call bets early? And by that time we had demonstrated a couple of these things. We called some of these bets early. For example, we chose to go with Facebook over YouTube. Everybody else was going on YouTube and that’s the only reason we actually decided to go with Facebook. And there were other reasons as well, because the shareability and the discoverability is much higher if you are a completely new media brand, and things like that. So we had demonstrated some of those and that’s how they took the bet.

Darius Teter: So you had a mix of Indian and international investors. Do you think that they came into this deal with different understandings about what they were investing in? And was your pitch different depending on whether the investor was international or local?

Aditi Shrivastava: The pitch to people who had an international outlook was actually easier because you could take references like BuzzFeed. We have a New York based media fund who was part of our series A called North Base Media, and it was the easiest to pitch to them because they understood the media. The founders are ex Washington Post and things like that so they understood media better. They were seeing the future of media that was already playing out in the U.S. before it played out here in India. To the Indian investors we focused on the audience story. So many hundreds of millions of people, they have cheap data, they want to consume content on an ongoing basis. Look, we’ve actually cracked some of this market because some of these videos have gone viral.

Darius, I also want to talk about something very interesting that Sequoia did. We hadn’t really started monetizing when they first gave us their term sheet. What they did was, they said, “Okay. You claim that you are going to work with advertisers, they are going to be integrated in your content and they are going to see value out of this content in terms of whatever kind of conversion that they are looking for, we want to see how that works.” Because if that doesn’t work advertisers won’t give you money again.

So what they did was, they were conducting a hackathon for software developers in India, and they said, “We want you to create a video to publicize this hackathon. So we will behave as an advertiser. We will pay you to create a video to publicize this hackathon. Last year we had 500 registrations, let’s see how many registrations you can drive to us,” which was exciting and scary at the same time. And that was such a brilliant way, I thought, that Sequoia tested whether our product works for monetization. We released that video on FilterCopy, they got 5,000 registrations. We had determined with them that 1500 would be a great metric for success.

Darius Teter: The series A round closed with Sequoia and 3one4 Capital as the lead investors, and Pocket Aces had the capital they needed to produce more content and grow their channels, but their new partners brought more to the table than just financial support.

Aditi Shrivastava: I feel like most entrepreneurs are shy to ask their investors to work for them and work with them to grow. We have been pretty good at that, especially with a few of the investors that are the leads and we work with them very, very closely. So on our cap table we have a few investors who are much more passive than others, which is fine. We reach out to them for very, very specific things, as one-offs, when we require that. The help that we’ve gotten, number one, connecting us to investors for future rounds. Second, I think just what’s happening in the ecosystem globally, they keep sharing with us as well. And the third thing is just, like for example with Sequoia, we had their HR team working with us on some important hires. With 3one4 Capital it’s been very interesting because they have a team working with us, my sales team and my revenue team, on how they can help boost our revenues. And so this kind of functional help also is something that they’ve offered and we’ve wholeheartedly accepted.

Darius Teter: The expertise that investors bring to a company is ultimately going to benefit both sides of the equation, and for Pranav Pai, that synergy is fundamental.

Pranav Pai: We had a young team, so really the kind of insights we were giving them were insights that they were getting from their audience. Very few investors still have that attitude, that approach to VC. All over the world I still, unfortunately, see investors that have a culture where, here’s my term sheet, I’m giving you very hard earned capital, take it or leave it. I think if you have to build value on the private side, you have to work with the founders. That’s a privilege you have, it’s an advantage you have, and that’s something that if investors use correctly, I think we can make magic.

Darius Teter: You said that most early-stage investors are not actively involved, but is there some kind of a gray area or a line that an investor can cross where they are actually too much in the business and not trusting the entrepreneur to run the business?

Pranav Pai: Absolutely. The words deep involvement on our website are very intentionally placed there, because most funds now want operational insight, and this means access to bank statements and credit card expenses, and frankly, things you really don’t need, and that kind of interference really sets the wrong kind of cadence between the board and the founders.

We are very clear what we won’t do. We’re very clear we are not going to win your deals. We’re not going to hire for you. We’re not going to build your product for you, although we could, we enjoy doing that sometimes, but really I think there needs to be a frank conversation between the founders and all the investors with how that dynamic should be between each set of partners.

And for us, what we’ve figured out works best is a very honest conversation as we are closing the round. Saying, here’s everything we can do. We have five teams inside the firm. We’ll help you with recruitment, with technology, with, of course, capital development, fundraising, market access. We’ll help you, of course, make a plan but we are not going to execute that for you because that’s interference.

Darius Teter: Getting the balance right between interference and advice is imperative but when there are several investors at the table, Sandeep Singh believes that there’s potential for too many cooks to spoil the proverbial broth.

Sandeep Singhal: It starts with the founder themselves. So Aditi has identified that this is what Sequoia can give me and this is what my Indian investor can give me, so they are themselves making a choice saying, if Aditi is reaching out to someone for one piece of advice and she reaches out to another board member for the same piece of advice and the advice is diametrically opposite, it is a recipe for disaster. So as a board, particularly on major issues, it is very important to coordinate.

Darius Teter: So how would Pocket Aces come to make decisions as a company in the face of divergent opinions and expertise?

Aditi Shrivastava: We are lucky to have an extremely good relationship with our investors. It’s not that there’s no arguments, or there’s no debates, or there’s no hard time. Sometimes when you have to make a hard call, you have to know that you are the expert in the industry that you’re operating in, but B, you also have to be intellectually humble.

I’ll give you a very clear example. Everybody told us we should launch a content app. This was when Netflix was just entering India, and all the large media companies in India, so whether it’s The Times Group, or Zee, or Sony, all of these guys were also starting their content apps. They said that clearly this market is right. You guys should launch an app. But we did a lot of thinking around what it takes for such an app to be successful, and the answer was that in India, again, you go back to the basics, people have a certain type of smartphone with a certain type of space on it. They cannot afford to keep 100 apps. They choose which apps they keep. The apps they keep are the apps they open every day. Why will they open your app every day? They will open your app every day if, either you have an unlimited amount of content, like Netflix and Amazon and all of these guys do.

So we said, okay, we get you that we need to launch some kind of app that people open every day, let’s think of what kind of app they will open every day. That’s how we came upon gaming. Because if you like to game, you play thousands of times. So you don’t have to have thousands of games, you can have 10 games that people really like. So we said, we accept your thesis of why we need to launch an app but we don’t think that this is the right kind of app to launch for a business like us whose forte is creation of content, not buying content from other people.

Darius Teter: The Loco app was a totally new product that Pocket Aces hadn’t accounted for in their series A round so the founders decided to raise a bridge round.

Aditi Shrivastava: When we launched LOCO, we said, okay, we need capital for this because launching in one app is actually quite capital-intensive.

Darius Teter: So why not just go straight to series B?

Aditi Shrivastava: We needed money very quickly to show that initial kind of product market fit. And I think even the investors were excited to have the buy to themselves at that point because, as I said, we had co-created this idea with them, so they were very excited to just fund it initially and see where it goes, then make it big and then have other people come in at higher valuations.

Darius Teter: For Pranav Pai, on the investor side of the equation, the success of Loco confirmed the strengths of their relationship again.

Pranav Pai: Funny story about 2020 in India is because of Chinese apps being banned, and of course because of the lockdown, that combination of events surely made Loco very quickly become the most popular game streaming app in the country. It’s now got a few million MAUs. The growth that this app saw gave a lot of confidence to the founders that the time had come to spin this thing out and really for it to stand on its own legs.

And now that’s of course a difficult conversation. When you spin out a fast growth asset from a company that’s already growing fast, and growth is obviously a very important currency for this company, what effects does that have on the parent company? Which founders will leave with the new asset? How do the teams think about working with two separate companies now? What kind of rights will you need to give your investors because they obviously put a lot of capital to work to make that asset as valuable as it is today? And of course, what kind of investors will you raise from next? Because game streaming, in theory, is a significantly different market compared to the standard digital production that Pocket Aces engages in.

So that board meeting had to be a very long one, a very well-prepared one, and frankly, a very intense one. And at the conclusion of that, again, just like any other meeting with these guys, and that’s why I like working with them, is we had a set of scenarios. And for each scenario we had boundary conditions. We were able to say, as investors and as founders, when would we say no, when would we say yes, how much would our yes mean.

And I think these guys were very well prepared to go out to the market then and test what kind of scenario Loco would face. I’m very happy to say, Loco faced the highest possible rewarding scenario. Of all the ones we’d planned for, there was immense demand for that company. So that was a great example of how founders, investors, partners, employees, everyone came together to make a decision, an important one, a game changing one, and made it work.

Darius Teter: Pocket Aces’ growth trajectory has been impressive. Their first angel investor allowed them to create content, the series A enabled them to produce more content and grow their channels, and the bridge round helped them to develop the new Loco gaming app. So in 2018, Aditi and the team wanted to raise funds once more in order to scale their business. And for their series B round, which took 10 months to raise, they were open to a wide range of investors.

Aditi Shrivastava: We had all of these high growth aspirations, which of course, we continue to hold, and we were looking for someone who will come and spur those aspirations like crazy. We were actually even looking for Chinese capital at that time, because a lot of Chinese capital was coming into India and they were investing large amounts at very good valuations. We knew that we didn’t want some kind of bubble valuation but definitely we knew the amounts they were investing were very attractive. Actually that’s how we had started looking. We got a term sheet from one of the several Chinese investors that was active in India at the time, and they pulled out at a very, very crucial stage when we thought that we had the round almost closed. They pulled out because of the macro stuff that happened with them in India.

And of course, that macro and geopolitical stuff has become much more serious now, but even at that time, macro for them also meant macro for their business. They were running their business and their brand in India, and because of what happened, they kind of decided to hold in India a little bit. So they pulled out of the three investments they were making at that time. So that was really, really a big, big setback, after which we pulled ourselves together and started again.

The series B happened in two, five-month cycles. So it took 10 months but we did get the first term sheet in five months and then had to actually start over. And in hindsight, very, very happy about the second approach we took, which was going with people who understood India, and who would fund our growth but also kind of understood that these are two different types of growth paths that we are taking with the content business and the Loco business. And they were okay with that combination.

Darius Teter: Despite the initial setback, they were able to start again and find their series B investor. Raising funds requires substantial time and effort, and Aditi is very candid about the fact that rapid growth is a choice.

Aditi Shrivastava: It directly determines how much time you can spend with your family, how often you call your friends, how often you speak to your parents. It directly determines how many more hobbies you have remaining in your life. And sometimes we look at some of — the investor world calls it lifestyle businesses, which basically fund your lifestyle. Sometimes you sit back and you’re like, “Wow, that sounds nice.” You’re running a business at whatever pace you want and it throws back money every month. And that’s how you live. That’s your job also. And when you go on a vacation, nothing happens in those couple of weeks, and that’s okay.

Versus when you’re building to make a dent in the universe. Sometimes you wish you didn’t want that but we as people want that. I think it’s the choice of building to scale, and building for equity value, and building so that you will leave a legacy after you’re gone. That’s how we are building, and that takes a toll on everything. And that also determines how you raise and who you raise from, because those guys have to buy into that story.

Darius Teter: You listed a series of sacrifices to go from a lifestyle business to a growth business, is that your personal list?

Aditi Shrivastava: Yeah. 100%. Whether you can buy a house or not. Like at what stage of life can you buy a house? Do you have children and how much time can you spend with them? Everything is determined by, I think, for us, how we are growing Pocket Aces.

Darius Teter: At times the entrepreneurial dream can seem bittersweet, but Aditi and her co-founders are still hungry for more. And Pocket Aces continues to grow. They’ve added new channels to their company even during the pandemic. The Loco gaming app has taken off and their partnerships with international companies like Netflix mean that new markets are within their grasp. And Pranav Pai of 3one4 Capital is certainly looking forward to their next moves.

Pranav Pai: I think the interesting thing about the space Pocket Aces is in is they don’t need to have a presence in every country before they expand to that market. So they’ve already, as you’ve said, tested out what it would look like for Pocket Aces to publish content in the U.S., in East Asia, in Southeast Asia, in the Middle East, and I think so far all of their experiments have largely given us confidence that when we have a large enough inventory, when we have enough shows and enough content, and we have reliable partners we can work with in these geographies, we have no problem expanding as quickly as we can.

I’m also very happy to say that the Loco spin-out means we have two interesting content companies with excellent synergies building in two very diverse verticals. So I think that combination should also make for a very different next five years for Pocket Aces. And of course, we are very excited to stay invested, we are investing in the next round, and we want to make sure we continue working with these guys as closely as we have.

Darius Teter: Whatever the future holds for Pocket Aces, it will be bolstered by the strength of these partnerships that they have forged.

Aditi Shrivastava: One thing that maybe for other entrepreneurs, whoever will listen to this podcast, I think it’s important to know that you’re always raising. We are in the market again. We are raising our next round. Again, we are evaluating different types of investors based on our growth plans. We are also evaluating international investors, et cetera. So again, you never stop raising, and it always takes time no matter how big you are.

Darius Teter: As we come to a close on today’s episode, I’d like to thank Aditi Shrivastava for sharing her experiences with us, and Pranav Pai and Sandeep Singh for their investor insights. As we’ve heard, raising capital where none has been raised before can be a challenge, but the fundamental principles don’t change whether you’re on unchartered territory or not. It’s important to find the right investor that shares your vision and can bring their expertise at every stage of your journey, and when that relationship works, that’s where the magic happens.

Pranav Pai: Pocket Aces is just one example of the absolutely phenomenal types of companies being built in India. I must admit, I didn’t think India would be where it is today in 2021 when we started almost six years back. So to see an ecosystem this large, a country this huge, can grow so quickly and can continue growing consistently, this led me to conclude that there are some things you cannot prepare for, and some things that are so wildly positive that you need to be able to embrace many years in advance. So I must say, if there’s a question to be asked it’s, what did you learn from India or what’s been going on over the last decade? I must say it’s been transformational. And I’m very excited to see what’s yet to come.

Darius Teter: This has been Grit & Growth with Stanford Graduate School of Business, and I’m your host Darius Teter. If you want to learn more about raising venture capital, follow us now. You’ll be notified about upcoming episodes, including one where I take a deeper dive with today’s VC investors. To learn how Stanford Graduate School of Business is partnering with entrepreneurs throughout Africa and South Asia, head over to the Stanford Seed website at seed.stanford.edu/podcast.

Grit & Growth is a podcast by Stanford Seed. Laurie Fuller researched and developed content for this episode, with additional research by Jeff Prickett. David Rosenzweig is our production coordinator, and our executive producer is Tiffany Steeves. With writing and production from Isobel Pollard, and sound design and mixing by Alex Bennett at Lower Street Media. Thanks for joining us. We’ll see you next time.